<PAGE> 1
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 JUNE 30, 1998
COMMISSION FILE NO. 0-21039
STRAYER EDUCATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THIS CHARTER)
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
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 JUNE 30, 1998, THERE WERE OUTSTANDING 15,571,049 SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
<PAGE> 2
STRAYER EDUCATION, INC.
INDEX
FORM 10-Q
<TABLE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets at
December 31, 1997 and June 30, 1998 . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income
for the three and six month periods ended June 30, 1997 and 1998 . . . . . 4
Consolidated Statements of Comprehensive Income
for the three and six month periods ended June 30, 1997 and 1998. . . . . . 5
Condensed Consolidated Statements of Cash Flows
for the six month periods ended June 30, 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 . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION
Items 1-6, Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
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STRAYER EDUCATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1997 1998
--------------------- -----------------
Current Assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $15,934 $20,237
Marketable securities available for sale, at market 5,018 3,914
Short-term investments - restricted 879 900
Tuition receivable, net of allowances for doubtful
accounts 10,063 8,823
Inventories 1,018 --
Other current assets 725 813
--------------------- -----------------
Total current assets 33,637 34,687
Student loans receivable, net of allowances for losses 4,438 4,840
Property and equipment, net 8,113 12,514
Investments in marketable securities available for sale, at
market 31,877 34,272
Other assets 232 153
--------------------- -----------------
Total assets $78,297 $86,466
===================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $380 $172
Accrued expenses 829 1,278
Income taxes payable -- 54
Unearned tuition 11,779 9,840
--------------------- -----------------
Total current liabilities 12,988 11,344
Deferred income taxes 186 451
--------------------- -----------------
Total liabilities 13,174 11,795
--------------------- -----------------
Stockholders' equity:
Common Stock - Par value $.01; 50,000,000 shares
authorized; 15,542,105 and 15,571,049 shares
issued and outstanding in 1997
and 1998, respectively. 156 156
Additional paid-in capital 48,762 48,947
Retained earnings 15,922 24,876
Unrealized gain on investments, net of tax 283 692
--------------------- -----------------
Total stockholders' equity 65,123 74,671
--------------------- -----------------
Total liabilities and stockholders' equity $78,297 $86,466
===================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues: $13,639 $16,375 $27,412 $33,224
------------- ------------- ------------- -------------
Costs and Expenses:
Instruction and educational support 4,872 5,700 9,435 10,890
Selling and promotion 1,023 1,260 2,241 2,628
General and administration 1,604 2,105 3,190 4,287
------------- ------------- ------------- -------------
7,499 9,065 14,866 17,805
------------- ------------- ------------- -------------
Income from operations 6,140 7,310 12,546 15,419
Investment and other income 611 721 1,125 1,385
------------- ------------- ------------- -------------
Income before income taxes 6,751 8,031 13,671 16,804
Provision for income taxes: 2,585 3,107 5,323 6,503
------------- ------------- ------------- -------------
Net income $4,166 $4,924 $8,348 $10,301
============= ============= ============= =============
Basic net income per share $0.27 $0.32 $0.55 $0.66
============= ============= ============= =============
Diluted net income per share $0.27 $0.31 $0.54 $0.64
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $4,166 4,924 $8,348 $10,301
Other comprehensive income:
Unrealized gain (loss) on investments, net of
tax 61 (66) 109 409
------------ ----------- ------------- ---------
Comprehensive income $4,227 $4,858 $8,457 $10,710
============ =========== ============= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the six months June 30,
----------------------------------------
Cash flow from operating activities 1997 1998
---- ----
<S> <C> <C>
Net income $8,348 $10,301
Adjustments to reconcile net income to net cash provided by
activities:
Deferred tax expense (credit) (46) (14)
Depreciation and amortization 575 750
Changes in assets and liabilities
Short-term investments - restricted (34) (21)
Tuition receivable, net 1,370 1,240
Inventories 344 1,018
Other current assets (35) (74)
Trade accounts payable (212) (208)
Accrued expenses (100) 446
Income taxes payable (493) 54
Unearned tuition (2,003) (1,939)
Other current liabilities 308 ---
Student loans originated or acquired (2,028) (2,087)
Collections on student loans receivable 1,141 1,685
Other assets -- 79
---------------- --------------
Net cash provided by operating
activities 7,135 11,230
---------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (885) (5,151)
Purchases of marketable securities (21,273) (5,178)
Maturities of marketable securities 3,581 4,561
Increase in deposits (54) ---
---------------- --------------
Net cash used in investing activities (18,631) (5,768)
---------------- --------------
Cash flows from financing activities:
Net proceeds from stock issuance 15,179 185
Dividends paid (1,181) (1,344)
---------------- --------------
Net cash provided by (used in)
financing activities 13,998 (1,159)
---------------- --------------
Net increase in cash 2,502 4,303
Cash and cash equivalents - beginning of period 11,777 15,934
---------------- --------------
Cash and cash equivalents - end of period $14,279 $20,237
================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE> 7
STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 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 and six months ended June 30,
1998 are not necessarily indicative of the results to be expected for
the full fiscal year. All information as of June 30, 1998, and for the
three and six month periods ended June 30, 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 flow 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 on Form 10-K.
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 three and six
month periods ended June 30, 1997 and 1998 respectively.
On June 15, 1998, the Financial Accounting Standards Board issued FAS
No. 133, "Accounting For Derivative Instruments and Hedging
Activities", which establishes a new model for accounting for
derivatives and hedging activities. FAS No. 133 is effective for fiscal
years beginning after June 15, 1999. The Company plans to adopt FAS No.
133 during 1999. The adoption of FAS No. 133 will not have a material
impact on the Company's financial statements.
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.
7
<PAGE> 8
STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1997 AND 1998 IS UNAUDITED
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 earnings per share is computed by dividing
net income by the weighted average common and potentially dilutive
common equivalent shares outstanding, determined as follows.
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding used to
compute basic earnings per share............... 15,408 15,566 15,219 15,560
Incremental shares issuable upon the
assumed exercise of stock options ............. 81 493 105 494
-- --- --- ---
Shares used to compute diluted earnings per
share.......................................... 15,489 16,059 15,324 16,054
====== ====== ====== ======
</TABLE>
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
The Company maintains 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 will 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.
5. SUBSEQUENT EVENT
The Company's Board of Directors declared a dividend of $.0433 per
share to shareholders of record as of July 13, 1998.
8
<PAGE> 9
ITEM 2: MANAGEMENTS'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 JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Revenues. Revenue increased 20.1% from $13.6 million in the second
quarter of 1997 to $16.4 million in the second quarter of 1998, principally due
to an increase in student enrollments and a 5% tuition increase effective for
1998.
Instruction and educational support expenses. Instruction and
educational support expenses increased 17.0% from $4.9 million in the second
quarter of 1997 to $5.7 million in the second quarter of 1998. A salary increase
of 5% effective in 1998 and the addition of new faculty due to enrollment growth
contributed to the increase.
Selling and promotion expenses. Selling and promotion expenses
increased 23.2% from $1.0 million in the second quarter of 1997 to $1.3 million
in the second quarter of 1998, due to a small increase in advertising costs,
specifically television advertising, increased advertising for the Distance
Learning Program, and increases 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 31.2% from $1.6 million in the second quarter of 1997 to $2.1
million in the second quarter of 1998, principally due to an increase in the bad
debt experience rate on student loans receivable and salary increases for
administrative personnel.
Income from operations. Operating income increased $1.2 million, or
19.1%, from $6.1 million in the second quarter of 1997 to $7.3 million in the
second quarter of 1998. The increase was due to the aforementioned factors.
Investment and other income. Investment and other income increased
$110,000, or 18.0%, from $611,000 in the second quarter of 1997 to $721,000 in
the second quarter of 1998. The increase was due to increases in the amount of
cash and cash equivalents.
Net income. Net income increased $0.7 million, or 18.2%, from $4.2
million in the second quarter of 1997 to $4.9 million in the second quarter of
1998.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues. Revenue increased 21.2% from $27.4 million for the six months
ended June 30, 1997 to $33.2 million for the corresponding period in 1998,
principally due to an increase in student enrollments and a 5% tuition increase
effective for 1998.
Instruction and educational support expenses. Instruction and
educational support expenses increased 15.4% from $9.4 million for the six
months ended June 30, 1997 to $10.9 million for the corresponding period in
1998. A salary increase of 5% effective in 1997 and the addition of new faculty
due to enrollment growth contributed to the increase.
Selling and promotion expenses. Selling and promotion expenses
increased 17.3% from $2.2 million for the six months ended June 30, 1997 to $2.6
million for the corresponding period in 1998, due to a small increase in
advertising costs, specifically television advertising, increased advertising
for the Distance Learning Program, and increases 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 34.4% from $3.2 million for the six months ended June 30,
1997 to $4.3 million for the corresponding period in 1998, principally due to an
increase in the bad debt experience rate on student loans receivable and salary
increases for administrative personnel.
9
<PAGE> 10
ITEM 2: MANAGEMENTS'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.
Income from operations. Operating income increased $2.9 million, or
22.9%, from $12.5 million for the six months ended June 30, 1997 to $15.4
million for the corresponding period in 1998. The increase was due to the
aforementioned factors.
Investment and other income. Investment and other income increased $0.3
million, or 23.1%, from $1.1 million for the six months ended June 30, 1997 to
$1.4 million for the corresponding period in 1998. The increase was due to
additional interest income received from increases in the amount of cash and
cash equivalents.
Net income. Net income increased $2.0 million, or 23.4%, from $8.3
million for the six months ended June 30, 1997 to $10.3 million for the
corresponding period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1998, the Company generated cash from
operating activities of $11.2 million. Net cash used in investing activities was
$5.8 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 $58.4 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.
During the three months ended June 30, 1998, the University ceased
operations of its bookstore. Bookstore services are now performed by an outside
internet based vendor. The result was the elimination of the Company's
inventories.
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.
10
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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.
At the 1998 Annual Meeting of Stockholders of Strayer
Education, Inc., security holders voted to adopt the Strayer
Education, Inc. Employee Stock Purchase Plan and elected the
Board of Directors to serve for a term of one year and until
their respective successors are elected and qualified.
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
11
<PAGE> 12
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.
---------------------------------
Chief Financial Officer
Date: August 4, 1998
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS NUMBER DESCRIPTION PAGE
- --------------- ----------- ----
<S> <C> <C>
27.2 Financial Data Schedule 15
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 20,237
<SECURITIES> 38,186
<RECEIVABLES> 14,268
<ALLOWANCES> 605
<INVENTORY> 0
<CURRENT-ASSETS> 34,687
<PP&E> 17,480
<DEPRECIATION> 4,966
<TOTAL-ASSETS> 86,466
<CURRENT-LIABILITIES> 11,344
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 74,521
<TOTAL-LIABILITY-AND-EQUITY> 86,466
<SALES> 0
<TOTAL-REVENUES> 16,375
<CGS> 0
<TOTAL-COSTS> 9,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 288
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,031
<INCOME-TAX> 3,107
<INCOME-CONTINUING> 4,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,924
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.31
</TABLE>
