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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, 2000
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, NW, WASHINGTON, DC, 20005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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 MARCH 31, 2000, THERE WERE OUTSTANDING 15,332,665 SHARES OF COMMON
STOCK, PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
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STRAYER EDUCATION, INC.
INDEX
FORM 10-Q
<TABLE>
<S> <C>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1999 and March 31, 2000............................................ 3
Condensed Consolidated Statements of Income
for the three months ended March 31, 1999 and 2000.............................. 4
Condensed Statements of Comprehensive Income
for the three months ended March 31, 1999 and 2000.............................. 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 2000.............................. 5
Notes to Condensed Consolidated Financial Statements ........................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................................. 7
Item 3. Quantitative and Qualitative
Disclosures About Market Risk .................................................. 8
PART II - OTHER INFORMATION
Items 1-6 Exhibits and Reports on Form 8-K ............................................. 9
SIGNATURES ...................................................................................... 10
INDEX TO EXHIBITS ............................................................................... 11
</TABLE>
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STRAYER EDUCATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------------- -------------------
<S> <C> <C>
Current Assets: (Unaudited)
Cash and cash equivalents $12,213 $21,510
Marketable securities available for sale, at market 5,901 5,968
Short-term investments - restricted 959 971
Tuition receivable, net of allowances for doubtful accounts 14,997 16,378
Income taxes receivable 201 ---
Other current assets 793 1,139
------------------- -------------------
Total current assets 35,064 45,966
Student loans receivable, net of allowances for losses 6,436 6,774
Property and equipment, net 16,837 16,935
Marketable securities available for sale, at market 39,440 42,044
Other assets 319 172
------------------- -------------------
Total assets $98,096 $111,891
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $183 $118
Accrued expenses 423 814
Dividends payable 917 920
Unearned tuition 15,371 18,035
Income taxes payable --- 4,315
------------------- -------------------
Total current liabilities 16,894 24,202
Deferred income taxes 141 417
------------------- -------------------
Total liabilities 17,035 24,619
------------------- -------------------
Stockholders' equity:
Common Stock - Par value $.01; 50,000,000 shares authorized; 153 153
15,277,251 and 15,332,665 shares issued and outstanding at
December 31, 1999 and March 31, 2000, respectively.
Additional paid-in capital 34,175 34,383
Retained earnings 46,194 52,084
Accumulated other comprehensive income 539 652
------------------- -------------------
Total stockholders' equity 81,061 87,272
------------------- -------------------
Total liabilities and stockholders' equity $98,096 $111,891
=================== ===================
</TABLE>
The accompanying notes are an integral part of these condensed 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
ended March 31,
---------------
1999 2000
---- ----
<S> <C> <C>
Revenues $18,914 $21,128
------------- -------------
Costs and Expenses:
Instruction and educational support 5,875 6,592
Selling and promotion 1,497 1,713
General and administration 2,267 2,400
------------- -------------
9,639 10,705
------------- -------------
Income from operations 9,275 10,423
Investment and other income 988 795
------------- -------------
Income before income taxes 10,263 11,218
Provision for income taxes: 4,105 4,408
------------- -------------
Net income $6,158 $6,810
============= =============
Basic net income per share $0.39 $0.45
============= =============
Diluted net income per share $0.39 $0.44
============= =============
</TABLE>
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the three months
Ended March 31,
---------------
1999 2000
---- ----
<S> <C> <C>
Net income $6,158 $6,810
Other comprehensive income:
Unrealized gains on investments, net of taxes 64 113
----------- -----------
Comprehensive income $6,222 $6,923
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the three months ended March 31,
----------------------------------------
Cash flows from operating activities
1999 2000
---- ----
<S> <C> <C>
Net income $6,158 $6,810
Adjustments to reconcile net income to net cash provided by activities:
Deferred income taxes (123) 202
Depreciation and amortization 457 477
Changes in assets and liabilities
Short-term investments - restricted (11) (12)
Tuition receivable, net (1,690) (1,381)
Other current assets (105) (346)
Other assets 42 147
Accounts payable (95) (65)
Accrued expenses 95 391
Income taxes payable/receivable 4,174 4,516
Unearned tuition 1,578 2,664
Student loans originated (1,485) (1,563)
Collections on student loans receivable 957 1,225
------------- -------------
Net cash provided by operating activities 9,952 13,065
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (388) (575)
Purchases of marketable securities (298) (4,500)
Maturities of marketable securities 2,001 2,016
------------- -------------
Net cash provided by (used in) investing activities 1,315 (3,059)
------------- -------------
Cash flows from financing activities:
Exercise of stock options 475 208
Dividends paid (788) (917)
Repurchase of common stock (8,177) ---
------------- -------------
Net cash used in financing activities (8,490) (709)
------------- -------------
Net increase in cash 2,777 9,297
Cash and cash equivalents - beginning of period 18,614 12,213
------------- -------------
Cash and cash equivalents - end of period $21,391 $21,510
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1999 AND 2000 IS UNAUDITED.
1. BASIS OF PRESENTATION
The financial statements are presented on a consolidated basis. The
accompanying 1999 and 2000 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 months ended March 31, 2000 are
not necessarily indicative of the results to be expected for the full
fiscal year. All information as of March 31, 2000, and for the three
months ended March 31, 1999 and 2000 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, 1999 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 fourteen 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 noncurrent consistent with
industry practice.
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
ended March 31,
---------------
1999 2000
---- ----
<S> <C> <C>
Weighted average shares outstanding used to
compute basic earnings per share.................. 15,652 15,298
Incremental shares issuable upon the
assumed exercise of stock options................. 276 205
------ ------
Shares used to compute diluted earnings per
share............................................. 15,928 15,503
====== ======
</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 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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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, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999.
Revenues. Revenue increased 12% from $18.9 million in the first quarter
of 1999 to $21.1 million in the first quarter of 2000, principally due to an
increase in student enrollments and a 5% tuition increase effective for 2000.
Instruction and educational support expenses. Instruction and educational
support expenses increased 12% from $5.9 million in the first quarter of 1999
to $6.6 million in the first quarter of 2000. A salary increase of 4%
effective in 2000, the addition of new faculty due to enrollment growth, and
the addition of three new campuses contributed to the increase.
Selling and promotion expenses. Selling and promotion expenses increased
14% from $1.5 million in the first quarter of 1999 to $1.7 million in the first
quarter of 2000, principally due to an increase in advertising costs related to
the new campuses in Richmond, Virginia, Montgomery County, and Anne Arundel
County, increased advertising for the Distance Learning Program, and increases
in the number of admissions representatives associated with the new campuses.
General and administration expenses. General and administration expenses
increased 6% from $2.3 million in the first quarter of 1999 to $2.4 million in
the first quarter of 2000, principally due to costs associated with opening new
campuses in Montgomery County, Anne Arundel County, and Henrico County and
salary increases for administrative personnel.
Income from operations. Operating income increased 12%, from $9.3 million
in the first quarter of 1999 to $10.4 million in the first quarter of 2000.
The increase was due to the aforementioned factors.
Investment and other income. Investment and other income decreased 20%,
from $988,000 in the first quarter of 1999 to $795,000 in the first quarter of
2000. The decrease was due to poorer performance by the Company's investment
portfolio in 2000.
Net income. Net income increased 11%, from $6.2 million in the first
quarter of 1999 to $6.8 million in the first quarter of 2000. The increase was
due to the aforementioned factors.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2000, the Company generated cash from
operating activities of $13.1 million. Net cash used in investing activities
was $3.1 million, principally for net purchases of securities. The Company
used cash of approximately $709,000 for financing activities, principally
related to payment of dividends. The Company believes that existing cash, cash
equivalents and marketable securities aggregating $69.5 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.
On October 2, 1998, the Board of Directors approved a stock repurchase
program of up to 5% of the Company's outstanding common stock over a period up
to two years, not to exceed an aggregate cost of $24.0 million. Additionally,
in 1999 the Board of Directors approved a stock repurchase program of up to 25%
of the Company's net income beginning in 2000. The timing of the stock
purchases are made at the discretion of management. Any shares of common stock
repurchased are subsequently retired. Through December 31, 1999, the Company
repurchased and retired 704,220 shares under the 1998 program at a cost of
approximately $20.1 million. For the three months ended March 31, 2000, the
Company did not repurchase any common stock.
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YEAR 2000
As a result of the successful implementation and employment of the
Company's Year 2000 readiness plan, the Company has experienced no disruption
as a result of the Year 2000 change over. The Company is committed to
continuous monitoring of all systems, applications, and operating systems.
Updates for applications and operating systems will be obtained as required.
The Company's costs to date for its Year 2000 compliance project,
excluding the salaries of its employees, have 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.
The Company currently does not believe that there are any outstanding Year 2000
issues related to its IT systems, the IT systems of any vendor, or the IT
systems of the Department of Education. There can be no guarantee, however,
that internal systems, external systems, non-IT systems, and the systems of the
Company's major suppliers will operate without failure as a result of residual
Year 2000 issues. The Company cannot assure that undetected internal and
external Year 2000 issues will not materially impact its business, financial
condition, results of operations, and cash flows.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
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 March 31, 2000, 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 March 31, 2000. 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 March 31, 2000, 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 March 31, 2000, 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.
None
ITEM 5. OTHER INFORMATION.
In order to present a proposal at the 2001 Annual Meeting of
Stockholders, a Strayer stockholder must provide written notice of the
proposal to the Company no later than December 10, 2000. The Company
intends to use discretionary voting authority with respect to any
matter brought before the 2001 Annual Meeting of Stockholders of which
the Company has not received written notice by December 10, 2000. The
address to which such a written notice must be sent is Strayer
Education, Inc.; 1025 Fifteenth Street, NW; Washington, D.C. 20005;
Attn: 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.
/s/ HARRY T. WILKINS
---------------------------------
Harry T. Wilkins
Chief Financial Officer
Date: April 25, 2000
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS NUMBER DESCRIPTION PAGE
- --------------- ----------- ----
<S> <C> <C>
27.2 Financial Data Schedule 14
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 21,510
<SECURITIES> 48,012
<RECEIVABLES> 24,333
<ALLOWANCES> 1,181
<INVENTORY> 0
<CURRENT-ASSETS> 45,966
<PP&E> 25,147
<DEPRECIATION> 8,212
<TOTAL-ASSETS> 111,891
<CURRENT-LIABILITIES> 24,202
<BONDS> 0
0
0
<COMMON> 153
<OTHER-SE> 87,119
<TOTAL-LIABILITY-AND-EQUITY> 111,891
<SALES> 0
<TOTAL-REVENUES> 21,128
<CGS> 0
<TOTAL-COSTS> 10,705
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 385
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,218
<INCOME-TAX> 4,408
<INCOME-CONTINUING> 6,810
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,810
<EPS-BASIC> .45
<EPS-DILUTED> .44
</TABLE>
