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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 JUNE 30, 1999
COMMISSION FILE NO. 0-21039
STRAYER EDUCATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THIS CHARTER)
<TABLE>
<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 JUNE 30, 1999, THERE WERE OUTSTANDING 15,522,164 SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
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STRAYER EDUCATION, INC.
INDEX
FORM 10-Q
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets at
December 31, 1998 and June 30, 1999.............................. 3
Condensed Consolidated Statements of Income
for the three and six month periods ended June 30, 1998 and 1999. 4
Condensed Consolidated Statements of Comprehensive Income for the
three and six month periods ended June 30, 1998 and 1999......... 4
Condensed Consolidated Statements of Cash Flows
for the six month periods ended June 30, 1998 and 1999........... 5
Notes to Condensed Consolidated Financial Statements ............ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 8
Item 3. Quantitative and Qualitative
Disclosures About Market Risk.................................... 9
PART II - OTHER INFORMATION
Items 1-6, Exhibits and Reports on Form 8-K............................... 10
SIGNATURES ...................................................................... 11
INDEX TO EXHIBITS................................................................. 12
</TABLE>
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STRAYER EDUCATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------------- --------------
<S> <C> <C>
Current Assets: (Unaudited)
Cash and cash equivalents $18,614 $15,041
Marketable securities available for sale, at market 6,420 6,055
Short-term investments - restricted 922 941
Tuition receivable, net of allowances for doubtful accounts 11,812 10,108
Income taxes receivable 275 93
Other current assets 491 630
----------------- --------------
Total current assets 38,534 32,868
Student loans receivable, net of allowances for losses 5,524 6,022
Property and equipment, net 13,880 14,954
Marketable securities available for sale, at market 38,986 38,421
Other assets 222 166
----------------- --------------
Total assets $97,146 $92,431
================= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $166 $64
Accrued expenses 943 1,041
Dividends payable 789 776
Unearned tuition 13,273 10,995
----------------- --------------
Total current liabilities 15,171 12,876
Deferred income taxes 330 204
----------------- --------------
Total liabilities 15,501 13,080
----------------- --------------
Stockholders' equity:
Common Stock - Par value $.01; 50,000,000 158 155
shares authorized; 15,774,477 and 15,522,164 shares
issued and outstanding in 1998 and 1999, respectively.
Additional paid-in capital 50,470 38,236
Retained earnings 30,274 40,380
Accumulated other comprehensive income 743 580
----------------- --------------
Total stockholders' equity 81,645 79,351
----------------- --------------
Total liabilities and stockholders' equity $97,146 $92,431
================= ==============
</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 INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues: $16,375 $17,643 $33,224 $36,557
---------- ----------- ---------- -----------
Costs and Expenses:
Instruction and educational support 5,700 6,183 10,890 12,058
Selling and promotion 1,260 1,649 2,628 3,146
General and administration 2,105 2,119 4,287 4,386
---------- ----------- ---------- -----------
9,065 9,951 17,805 19,590
---------- ----------- ---------- -----------
Income from operations 7,310 7,692 15,419 16,967
Investment and other income 721 1,400 1,385 2,388
---------- ----------- ---------- -----------
Income before income taxes 8,031 9,092 16,804 19,355
Provision for income taxes 3,107 3,581 6,503 7,685
---------- ----------- ---------- -----------
Net income $4,924 $5,511 $10,301 $11,670
========== =========== ========== ===========
Basic net income per share $0.32 $0.35 $0.66 $0.75
========== =========== ========== ===========
Diluted net income per share $0.31 $0.35 $0.64 $0.73
========== =========== ========== ===========
</TABLE>
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,
-------------- --------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $4,924 $5,511 $10,301 $11,670
Other comprehensive income:
Unrealized gain (loss) on investments, net of tax (66) (227) 409 (163)
---------- --------- ----------- --------
Comprehensive income $4,858 $5,284 $10,710 $11,507
========== ========= =========== ========
</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)
<TABLE>
<CAPTION>
For the six months June 30,
-------------------------------
Cash flow from operating activities 1998 1999
---- ----
<S> <C> <C>
Net income $10,301 $11,670
Adjustments to reconcile net income to net cash provided by activities:
Deferred tax expense (credit) (14) (145)
Depreciation and amortization 750 920
Changes in assets and liabilities
Short-term investments - restricted (21) (19)
Tuition receivable, net 1,240 1,704
Inventories 1,018 ---
Other current assets (74) (34)
Accounts payable (208) (102)
Accrued expenses 446 98
Income taxes payable/receivable 54 182
Unearned tuition (1,939) (2,278)
Student loans originated or acquired (2,087) (2,447)
Collections on student loans receivable 1,685 1,949
Other assets 79 56
------------- -----------
Net cash provided by operating activities 11,230 11,554
------------- -----------
Cash flows from investing activities:
Purchases of property and equipment (5,151) (1,994)
Purchases of marketable securities (5,178) (6,139)
Maturities of marketable securities 4,561 6,820
------------- -----------
Net cash used in investing activities (5,768) (1,313)
------------- -----------
Cash flows from financing activities:
Repurchase of common stock --- (13,016)
Proceeds from exercise of stock options 185 779
Dividends paid (1,344) (1,577)
------------ ----------
Net cash used in financing activities (1,159) (13,814)
------------ ----------
Net increase (decrease) in cash and
cash equivalents 4,303 (3,573)
Cash and cash equivalents - beginning of period 15,934 18,614
------------- -----------
Cash and cash equivalents - end of period $20,237 $15,041
============= ===========
</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 JUNE 30, 1998 AND 1999 IS UNAUDITED.
1. BASIS OF PRESENTATION
The financial statements are presented on a consolidated basis. The
accompanying 1998 and 1999 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."
The results of operations for the three and six months ended June 30,
1999 are not necessarily indicative of the results to be expected for
the full fiscal year. All information as of June 30, 1999, and for the
three and six month periods ended June 30, 1998 and 1999 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, 1998 Annual Report on Form 10-K.
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 thirteen campuses in the District of
Columbia, Maryland and Virginia 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
non-current consistent with industry practice.
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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1998 AND 1999 IS UNAUDITED
3. INCOME PER SHARE
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,
-------------- --------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding used to
compute basic earnings per share................. 15,566 15,582 15,560 15,618
Incremental shares issuable upon the
assumed exercise of stock options................ 493 265 494 299
--- --- --- ---
Shares used to compute diluted earnings per share... 16,059 15,847 16,054 15,917
====== ====== ====== ======
</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. PURCHASE OF TAKOMA PARK CAMPUS
On June 30, 1999, the Company purchased the Takoma Park Campus building
from a corporation wholly owned by the Company's President, CEO and
majority stockholder. The purchase price was approximately $1.0 million.
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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, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues. Revenue increased 8% from $16.4 million in the second quarter
of 1998 to $17.6 million in the second quarter of 1999, principally due to an
increase in student enrollments and a 5% tuition increase effective for 1999.
Instruction and educational support expenses. Instruction and
educational support expenses increased 8% from $5.7 million in the second
quarter of 1998 to $6.2 million in the second quarter of 1999. A salary increase
of 5% effective in 1999 and the addition of new faculty due to enrollment growth
contributed to the increase.
Selling and promotion expenses. Selling and promotion expenses increased
31% from $1.3 million in the second quarter of 1998 to $1.6 million in the
second quarter of 1999, 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
the state of Maryland at the new campuses in Montgomery County and Anne Arundel
County.
General and administration expenses. General and administration expenses
remained unchanged at $2.1 million in the second quarter of 1998 and $2.1
million in the second quarter of 1999.
Income from operations. Operating income increased 5.2%, from $7.3
million in the second quarter of 1998 to $7.7 million in the second quarter of
1999. The increase was due to the aforementioned factors.
Investment and other income. Investment and other income increased 94%,
from $721,000 in the second quarter of 1998 to $1.4 million in the second
quarter of 1999. The increase was due to additional investment income received
from increases in the amount of cash and cash equivalents, investments and
realized investment gains of $340,000.
Net income. Net income increased 12%, from $4.9 million in the second
quarter of 1998 to $5.5 million in the second quarter of 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues. Revenue increased 10% from $33.2 million for the six months
ended June 30, 1998 to $36.6 million for the corresponding period in 1999,
principally due to an increase in student enrollments and a 5% tuition increase
effective for 1999.
Instruction and educational support expenses. Instruction and
educational support expenses increased 11% from $10.9 million for the six months
ended June 30, 1998 to $12.1 million for the corresponding period in 1999. A
salary increase of 5% effective in 1999 and the addition of new faculty due to
enrollment growth contributed to the increase.
Selling and promotion expenses. Selling and promotion expenses increased
20% from $2.6 million for the six months ended June 30, 1998 to $3.1 million for
the corresponding period in 1999, 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 at the new campuses in Montgomery County and Anne Arundel County.
General and administration expenses. General and administration expenses
increased 2% from $4.3 million for the six months ended June 30, 1998 to $4.4
million for the corresponding period in 1999, principally due to salary
increases for administrative personnel.
Income from operations. Operating income increased 10%, from $15.4
million for the six months ended June 30, 1998 to $17.0 million for the
corresponding period in 1999. The increase was due to the aforementioned
factors.
Investment and other income. Investment and other income increased 72%,
from $1.4 million for the six months ended June 30, 1998 to $2.4 million for the
corresponding period in 1999. The increase was due to additional investment
income received from increases in the amount of cash and cash equivalents,
investments and realized investment gains of $340,000.
Net income. Net income increased 13%, from $10.3 million for the six
months ended June 30, 1998 to $11.7 million for the corresponding period in
1999.
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LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1999, the Company generated cash from
operating activities of $11.6 million. Net cash used in investing activities was
$1.3 million, principally for property and equipment acquisitions. The
repurchase of the Company's outstanding common stock accounted for substantially
all of the cash used in financing activities. The Company believes that existing
cash, cash equivalents and marketable securities aggregating $59.5 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.
YEAR 2000
The year 2000 issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs that have been written using six digits (e.g.,
12/31/99), rather than eight (e.g., 12/31/1999), to define the applicable year
of business.
The Company has completed the identification and assessment of most of
its IT systems, and those systems have been modified by the suppliers of those
systems to address Year 2000 issues. In addition to its internal systems, the
Company has begun to assess the level of Year 2000 issues with its suppliers.
The Company has also started its identification and assessment of its non-IT
systems, which include its telephone systems, heating and air-conditioning,
elevators and other business equipment.
The Company's costs to date for its Year 2000 compliance project,
excluding the salaries of its employees, has not been material. In fact, the
Company's IT systems have been modified by the suppliers of those systems and
such modifications were included as part of normal upgrades of those systems.
Although the Company has not completed its assessment, it does not currently
believe that the future costs associated with its remaining IT systems or its
non-IT systems will be material.
The Company cannot determine currently its most likely worst case
scenario, as it has not identified and assessed all of its systems, particularly
its non-IT systems. As the Company completes its identification and assessment
of internal and third party systems, it will develop contingency plans for
various worst-case scenarios. A failure to address Year 2000 issues successfully
could have a material adverse effect on the Company's business, financial
condition and/or results of operations.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
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.
The Company is exposed to the impact of interest rate changes and
changes in the market values of its investments. The Company invests its excess
cash in marketable securities and certificates of deposit. At June 30, 1999 the
Company's investments include certificates of deposit, money market funds, U.S.
Government obligations (primarily fixed income securities) and high-quality
equity securities. The Company employs established policies and procedures to
manage its exposure to changes in the market risk of its marketable securities,
which are classified as available-for-sale as of June 30, 1999. The Company has
not used derivative financial instruments in its investment portfolio.
Investments in fixed rate interest earning instruments carry a degree of
interest rate risk. These securities may have their fair market value adversely
impacted due to a rise in interest rates. Investments in certificates of deposit
and money market funds may adversely impact future earnings due to a decrease in
interest rates. Due in part to these factors, the Company's future investment
income may fall short of expectations due to changes in interest rates or the
Company may suffer losses in principal if forced to sell securities which have
declined in market value due to changes in interest rates. As of June 30, 1999,
a 10% increase or decline in interest rates will not have a material impact on
the Company's future earnings, fair values, or cash flows related to investments
in certificates of deposit or interest earning marketable securities. In
addition, as of June 30, 1999, a 10% decrease in market values would not have a
material impact on the Company's future earnings, fair values, financial
position or cash flows related to investments in marketable equity securities.
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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 1999 Annual Meeting of Stockholders of Strayer Education,
Inc., security holders voted to 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.
In order to present a proposal at the 2000 Annual Meeting of
Stockholders, a Strayer stockholder must provide written notice of the proposal
to the Company no later than December 10, 1999. The Company intends to use
discretionary voting authority with respect to any matter brought before the
2000 Annual Meeting of Stockholders of which the Company has not received
written notice by December 10, 1999. The address to which such a written notice
must be sent is Strayer Education, Inc., 8550 Cinder Bed Dr. #1000, Newington,
Virginia 22122, Atttn: Investor Relations.
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.
[SIG]
---------------------------------
Chief Financial Officer
Date: August 4, 1999
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS NUMBER DESCRIPTION PAGE
- --------------- ----------- ----
<S> <C> <C>
27.2 Financial Data Schedule 13
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS PRIMARY SHOULD READ EPS-BASIC
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,041
<SECURITIES> 44,476
<RECEIVABLES> 16,934
<ALLOWANCES> 804
<INVENTORY> 0
<CURRENT-ASSETS> 32,868
<PP&E> 21,716
<DEPRECIATION> 6,762
<TOTAL-ASSETS> 92,431
<CURRENT-LIABILITIES> 12,876
<BONDS> 0
0
0
<COMMON> 155
<OTHER-SE> 79,196
<TOTAL-LIABILITY-AND-EQUITY> 92,431
<SALES> 0
<TOTAL-REVENUES> 17,643
<CGS> 0
<TOTAL-COSTS> 9,951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 434
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,092
<INCOME-TAX> 3,581
<INCOME-CONTINUING> 5,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,511
<EPS-BASIC> .35
<EPS-DILUTED> .35
</TABLE>
