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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 PERIOD ENDED JUNE 30, 2000
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, 2000, THERE WERE OUTSTANDING 15,337,256 SHARES OF COMMON
STOCK, PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
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STRAYER EDUCATION, INC.
INDEX
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets at
December 31, 1999 and June 30, 2000................................. 3
Condensed Consolidated Statements of Income
for the three and six month periods ended June 30, 1999 and 2000.... 4
Condensed Consolidated Statements of Comprehensive Income
for the three and six month periods ended June 30, 1999 and 2000.... 4
Condensed Consolidated Statements of Cash Flows
for the six month periods ended June 30, 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............................................... 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,
1999 2000
--------------- ------------
Current Assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $12,213 $21,502
Marketable securities available for sale, at fair value 5,901 5,950
Short-term investments - restricted
959 980
Tuition receivable, net of allowances for doubtful accounts
14,997 11,752
Income taxes receivable 201 -
Other current assets 793 768
--------------- -------------
Total current assets 35,064 40,952
Student loans receivable, net of allowances
for losses 6,436 6,654
Property and equipment, net 16,837 17,174
Marketable securities available for sale,
at fair value 39,440 42,143
Other assets 319 161
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Total assets $98,096 $107,084
=============== =============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Current Liabilities:
<S> <C> <C>
Accounts payable $183 $109
Accrued expenses 891 894
Dividends payable 917 921
Unearned tuition 15,371 13,144
Income taxes payable - 337
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Total current liabilities 17,362 15,405
Deferred income taxes 141 -
--------------- -------------
Total liabilities 17,503 15,405
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Stockholders' equity:
Common Stock - Par value $.01; 50,000,000 shares authorized;
15,277,251 and 15,337,256 shares issued and outstanding at
December 31, 1999 and June 30, 2000, respectively 153 153
Additional paid-in capital 33,707 34,091
Retained earnings 46,194 57,041
Accumulated other comprehensive income 539 394
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Total stockholders' equity 80,593 91,679
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Total liabilities and stockholders' equity $98,096 $107,084
=============== =============
</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,
-------------- --------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues: $17,643 $20,325 $36,557 $41,453
---------- ---------- ---------- ---------
Costs and Expenses:
Instruction and educational support 6,183 7,222 12,058 13,814
Selling and promotion 1,649 2,151 3,146 3,864
General and administration 2,119 2,520 4,386 4,920
---------- ---------- ---------- ---------
9,951 11,893 19,590 22,598
---------- ---------- ---------- ---------
Income from operations 7,692 8,432 16,967 18,855
Investment and other income 1,400 1,219 2,388 2,014
---------- ---------- ---------- ---------
Income before income taxes 9,092 9,651 19,355 20,869
Provision for income taxes 3,581 3,773 7,685 8,181
---------- ---------- ---------- ---------
Net income $5,511 $5,878 $11,670 $12,688
========== ========== ========== =========
Basic net income per share $0.35 $0.38 $0.75 $0.83
========== ========== ========== =========
Diluted net income per share $0.35 $0.38 $0.73 $0.82
========== ========== ========== =========
</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,
-------------- --------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $5,511 $5,878 $11,670 $12,688
Other comprehensive income:
Unrealized gain (loss) on investments, net of tax (227) (258) (163) (145)
--------- --------- ---------- -------
Comprehensive income $5,284 $5,620 $11,507 $12,543
========= ========= ========== =======
</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 ended
June 30,
----------------------------
<S> <C> <C>
Cash flow from operating activities 1999 2000
---- ----
Net income $11,670 $12,688
Adjustments to reconcile net income to net
cash provided by activities:
Deferred tax expense (credit) (145) (62)
Depreciation and amortization 920 984
Changes in assets and liabilities
Short-term investments - restricted (19) (21)
Tuition receivable, net 1,704 3,245
Other current assets (34) 32
Accounts payable (102) (74)
Accrued expenses 98 3
Income taxes payable/receivable 182 538
Unearned tuition (2,278) (2,227)
Other assets 56 168
Student loans originated or acquired (2,447) (2,594)
Collections on student loans receivable 1,949 2,376
----------- ----------
Net cash provided by operating activities 11,554 15,056
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (1,994) (1,321)
Purchases of marketable securities (6,139) (5,239)
Maturities of marketable securities 6,820 2,250
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Net cash used in investing activities (1,313) (4,310)
----------- ----------
Cash flows from financing activities:
Repurchase of common stock (13,016) -
Proceeds from exercise of stock options 779 384
Dividends paid (1,577) (1,841)
----------- ----------
Net cash used in financing activities (13,814) (1,457)
----------- ----------
Net increase (decrease) in cash and
cash equivalents (3,573) 9,289
Cash and cash equivalents - beginning of period 18,614 12,213
----------- ----------
Cash and cash equivalents - end of period $15,041 $21,502
=========== ==========
</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, 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 and six months ended June 30,
2000 are not necessarily indicative of the results to be expected for
the full fiscal year. All information as of June 30, 2000, and for the
three and six month periods ended June 30, 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.
Certain information in the December 31, 1999 financial statements has
been reclassified to conform with the June 30, 2000 presentation.
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 non-current consistent with industry practice.
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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1999 AND 2000 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 six
For the three months months
ended June 30, ended June 30,
-------------- --------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding used to
compute basic earnings per share.................. 15,582 15,333 15,618 15,315
Incremental shares issuable upon the
assumed exercise of stock options................ 265 129 299 192
-------- -------- -------- --------
Shares used to compute diluted earnings per
share.................................................. 15,847 15,462 15,917 15,507
======== ======== ======== ========
Incremental shares issuable upon the assumed exercise of outstanding stock options are computed using the
average market price during the related periods.
</TABLE>
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.
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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. The known and unknown risks include the pace of growth of
student enrollment, our continued compliance with Title IV of the Higher
Education Act, and the economic environment. Further information about these
and other relevant risks and uncertainties may be found in the Company's
annual report on Form 10-K and its other filings with the Securities and
Exchange Commission, all of which are available from the Commission and from
the Company's world wide web site at http://www.strayer.edu as well as from
other sources.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Revenues. Revenue increased 15% from $17.6 million in the second
quarter of 1999 to $20.3 million in the second 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 17% from $6.2 million in the second
quarter of 1999 to $7.2 million in the second quarter of 2000. A salary
increase of 5% effective in 2000 and the addition of new faculty due to
enrollment growth contributed to the increase.
Selling and promotion expenses. Selling and promotion expenses
increased 30% from $1.6 million in the second quarter of 1999 to $2.2 million
in the second quarter of 2000, 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
at the new campuses in White Marsh and Anne Arundel County, Maryland and the
new campus in Chesterfield, Virginia.
General and administration expenses. General and administration
expenses increased 19% from $2.1 million in the second quarter of 1999 to $2.5
million in the second quarter of 2000 due to the addition of new campuses in
White Marsh and Chesterfield in 2000.
Income from operations. Operating income increased 10%, from $7.7
million in the second quarter of 1999 to $8.4 million in the second quarter of
2000. The increase was due to the aforementioned factors.
Investment and other income. Investment and other income decreased
13%, from $1.4 million in the second quarter of 1999 to $1.2 million in the
second quarter of 2000. The decrease was due to a reduction in realized
investment gains of $190,000.
Net income. Net income increased 7%, from $5.5 million in the second
quarter of 1999 to $5.9 million in the second quarter of 2000.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenues. Revenue increased 13% from $36.6 million for the six months
ended June 30, 1999 to $41.5 million for the corresponding period in 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 15% from $12.1 million for the six
months ended June 30, 1999 to $13.8 million for the corresponding period in
2000. A salary increase of 5% effective in 2000 and the addition of new
faculty due to enrollment growth and the addition of new campuses contributed
to the increase.
Selling and promotion expenses. Selling and promotion expenses
increased 23% from $3.1 million for the six months ended June 30, 1999 to
$3.9 million for the corresponding period in 2000, 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 White Marsh and Anne
Arundel County and the new campus in Chesterfield, Virginia.
General and administration expenses. General and administration
expenses increased 12% from $4.4 million for the six months ended June 30,
1999 to $4.9 million for the corresponding period in 2000, principally due to
salary increases for administrative personnel and the addition of new
campuses.
Income from operations. Operating income increased 11%, from $17.0
million for the six months ended June 30, 1999 to $18.9 million for the
corresponding period in 2000. The increase was due to the aforementioned
factors.
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Investment and other income. Investment and other income decreased
16%, from $2.4 million for the six months ended June 30, 1999 to $2.0 million
for the corresponding period in 2000. The decrease was due to a reduction in
realized investment gains and interest on invested cash and cash equivalents.
Net income. Net income increased 9%, from $11.7 million for the six months
ended June 30, 1999 to $12.7 million for the corresponding period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2000, the Company generated
cash from operating activities of $15.1 million. Net cash used in investing
activities was $4.3 million, principally for net purchases of securities.
The Company used cash of approximately $1.5 million for financing activities,
principally related to payment of dividends. The Company believes that
existing cash, cash equivalents and marketable securities aggregating $70.6
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.
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 six
months ended June 30, 2000, the Company did not repurchase any common stock.
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 June
30, 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 June
30, 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 June 30, 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
June 30, 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
<TABLE>
<CAPTION>
<S> <C>
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 2000 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 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., 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
</TABLE>
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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, 2000
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS NUMBER DESCRIPTION PAGE
--------------- ----------- ----
<S> <C> <C>
27.2 Financial Data Schedule 13
</TABLE>
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