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, 1997
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 are code: (202) 408-2400
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
TITLE AND CLASS
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, 1997, THERE WERE OUTSTANDING 9,450,000 SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
1
STRAYER EDUCATION, INC.
INDEX
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1996 and March 31, 1997...................... 3
Condensed Consolidated Statements of Income
for the three months ended March 31, 1996 and 1997........ 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and 1997........ 5
Notes to Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 9
PART II - OTHER INFORMATION
Item 1-6 Exhibits and Reports on Form 8 - K........................ 11
SIGNATURES............................................................... 12
INDEX TO EXHIBITS........................................................ 13
2
STRAYER EDUCATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
December 31, March 31,
1996 1997
------------ ----------
Current Assets: (Unaudited)
Cash and cash equivalents $11,777 $15,620
Marketable securities
available for sale, at market 5,057 4,472
Short-term investments -
restricted 807 830
Tuition receivable, net of
allowances for doubtful
accounts 8,923 9,500
Inventories 923 796
Other current assets 309 145
-------- --------
Total current assets 27,796 31,363
Student loans receivable, net of
allowances for losses 2,799 3,417
Property and equipment, net 7,063 7,173
Investments in marketable securities
available for sale, at market 10,070 12,253
Other assets 94 178
-------- --------
Total assets $47,822 $54,384
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade account payable $ 332 $ 633
Accrued expenses 710 255
Income taxes payable -- 2,723
Unearned tuition 11,150 11,289
Other current liabilities 30 250
-------- --------
Total current
liabilities 12,222 15,150
Deferred income taxes 189 184
-------- --------
Total liabilities 12,411 15,334
-------- --------
Stockholders' equity:
Common Stock - Par value
$.01; 20,000,000 shares
authorized;9,450,000 shares
issued and outstanding 95 95
Additional paid-in capital 31,192 31,192
Retained earnings 3,893 7,484
Net unrealized gains on
investments, net of deferred
income taxes 231 279
-------- --------
Total stockholders'
equity 35,411 39,050
-------- --------
Total liabilities
and stockholders'
equity $47,822 $54,384
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
For the three
months
ended March 31,
------------------
1996 1997
-------- --------
Revenues:
Tuition $11,570 $13,263
Fees and other 431 510
-------- --------
12,001 13,773
-------- --------
Costs and Expenses:
Instruction and educational support 4,577 4,563
Selling and promotion 974 1,218
General and administration 1,822 1,586
-------- --------
7,373 7,367
-------- --------
Income from operations 4,628 6,406
Investment and other income 108 514
-------- --------
Income before income taxes 4,736 6,920
-------- --------
Provision for income taxes:
Current -- 2,723
Deferred -- 15
-------- --------
-- 2,738
-------- --------
Net income $ 4,736 $ 4,182
======== ========
Pro forma information (for 1996 - see Note 4):
Income taxes 1,852
--------
Net income $ 2,884
========
Primary net income per share (pro forma for 1996) $ 0.39 $ 0.43
======== ========
Weighted average shares outstanding
(pro forma for 1996) 7,401 9,836
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN THOUSANDS)
For the three months ended March 31,
--------------------------------------
1996 1997
--------------- --------------
Cash flow from operating activities
Net income $ 4,736 $ 4,182
Adjustments to reconcile net income to
net cash provided by activities:
Deferred tax expense -- 15
Depreciation and amortization 195 266
Provision for student loan losses 31 31
Changes in assets and liabilities
Short-term investments - restricted (58) (23)
Tuition receivable, net 12 (577)
Inventories 7 127
Other current assets 30 80
Trade accounts payable 243 301
Accrued expenses 169 (455)
Income taxes payable -- 2,723
Unearned tuition (81) 139
Other current liabilities 174 220
Student loans originated or acquired (795) (1,200)
Collections on student loans receivable 322 582
Proceeds from sale of loans 212 --
------- -------
Net cash provided by operating activities 5,197 6,411
------- -------
Cash flows from investing activities:
Purchases of property and equipment (188) (376)
Purchases of marketable securities (1,313) (2,186)
Maturities of marketable securities 825 585
------- -------
Net cash used in investing activities (676) (1,977)
------- -------
Cash flows from financing activities:
Distributions to stockholders (1,608) --
Dividends paid -- (591)
------- -------
Net cash used in financing activities (1,608) (591)
------- -------
Net increase in cash 2,913 3,843
Cash and cash equivalents - beginning of period 8,992 11,777
------- -------
Cash and cash equivalents - end of period $11,905 $15,620
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1996 AND 1997 IS UNAUDITED.
1. ORGANIZATION AND BASIS OF PRESENTATION
Strayer Education, Inc. (the Company) was formed on May 10, 1996, as a
Maryland corporation, and was capitalized on May 15, 1996 with cash of
$1,000. The Company commenced operations on July 25, 1996.
On July 30, 1996 the Company completed an initial public offering (the
"Offering") of its common stock. The Company sold 3,450,000 shares in the
Offering at a price of $10 per share. Net proceeds to the Company were
$31,313,000. Prior to the closing of the Offering, the Company exchanged
5,999,000 shares of its common stock for 100% of the outstanding common
stock of Strayer College, Inc. (the College). Approximately $19,838,000 of
the net proceeds of the Offering were paid to the stockholders of the
College as a distribution of earnings on which the stockholders had
previously paid income taxes during the period the College was an S
Corporation.
Contemporaneously with the closing of the initial public offering, the
Company acquired Education Loan Processing, Inc. (ELP) at a purchase price
of $1,060,000, ELP's net book value. ELP was incorporated in December 1994
and began operations in January 1995. ELP was wholly owned by a stockholder
of the Company.
Under generally accepted accounting principles, the College's and ELP's
bases in their assets and liabilities were carried over to the Company and
the operations of the College, ELP and the Company were retroactively
combined in a manner similar to a pooling of interest, because these
acquisitions were combinations of entities under common control. All
significant intercompany accounts and transactions have been eliminated.
Consistent with the financial statements included in the Company's
prospectus and the reorganization of the Company in connection with the
completion of the public offering, the 1996 financial statements are
presented on a combined basis and the 1997 financial statements are
presented on a consolidated basis. The accompanying 1997 financial
statements include the accounts of the Company, the College and ELP,
collectively referred to herein as the "Company or Companies."
The results of operations for the three months ended March 31, 1996 and
1997 are not necessarily indicative of the results to be expected for the
full fiscal year. All information as of March 31, 1997, and for the three
month periods ended March 31, 1996 and 1997 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, 1996 Annual Report.
2. NATURE OF OPERATIONS
The College is a regional 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,
Virginia and Maryland.
6
STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1996 AND 1997 IS UNAUDITED
ELP is a finance company that purchases and services student loans,
principally for the College. 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 to be consistent with industry
practice.
3. INCOME TAXES
For the quarter ended March 31, 1996, the financial statements of the
Companies do not include a provision for income taxes because the taxable
income of the College and ELP was included in the income tax returns of the
stockholders under the S Corporation elections.
In connection with the formation of Strayer Education, Inc., the initial
public offering of the Company's common stock and the acquisition of the
College and ELP by Strayer Education, Inc., effective July 25, 1996, the
College and ELP are no longer treated as S Corporations for tax purposes.
The Companies now provide for deferred income taxes based on temporary
differences between financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the year in which the
differences are expected to reverse.
4. INCOME PER SHARE
Pro forma 1996 weighted average shares outstanding reflect the acquisition
of the College by the Company in exchange for 5,999,000 shares of common
stock, as if it had occurred on January 1, 1996. Subsequent to the closing
of the initial public offering, the Company made a distribution to the
stockholders of the College in respect of earnings previously subject to
income tax during the College's period as an S Corporation (the "S Corp.
Distribution"). As a result, pro forma weighted average shares outstanding
also give effect to the increase in the number of shares which, when
multiplied by the net per share proceeds of the Offering, would have been
necessary to fund distributions to the stockholders, including the S Corp.
Distribution, during the 12 months ended July 1996, to the extent that such
distributions exceeded net income during the same period.
Fully diluted income per share for 1997 was not significantly different
from the primary amount.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128).
FAS 128 simplifies the existing earnings per share (EPS) computations under
Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises
disclosure requirements, and increases the comparability of EPS data on an
international basis. In simplifying the EPS computations, the presentation
of primary EPS is replaced with basic EPS, with the principal difference
being that common stock equivalents are not considered in computing basic
EPS. In addition, FAS 128 requires dual presentation of basic and diluted
EPS. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997. The Company's basic and diluted EPS under
FAS 128 would have been $0.44 and $0.43 respectively for the period ended
March 31, 1997.
5. 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 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.
7
STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1996 AND 1997 IS UNAUDITED.
6. SUBSEQUENT EVENTS
The Company's Board of Directors declared a dividend of $.0625 per share to
shareholders of record as of April 4, 1997.
In addition, the Company successfully completed a public offering of
1,322,500 shares of common stock in April 1997, of which, 772,500 shares of
common stock were sold by the Company and 550,000 shares of common stock
were sold by certain stockholders of the Company. The Company received net
proceeds from this offering of approximately $15.0 million.
8
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 MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Revenues. Tuition revenue increased 14.6% from $11.6 million in the first
quarter of 1996 to $13.3 million in the first quarter of 1997, principally due
to a 10% increase in the number of credits taken by students and a 5% tuition
increase effective for 1997. Fees and other revenue increased 18.3% from
$431,000 in the 1996 quarter to $510,000 in the 1997 quarter, principally as a
result of the increase in the number of students in the 1997 quarter and
increased revenue from ELP's operations.
Instruction and educational support expenses. Instruction and educational
support expenses remained essentially unchanged from the first quarter of 1996
to the first quarter of 1997. A salary increase of 5% effective January 1, 1997
was offset by savings in rent expense. Rent expense decreased in 1997 from 1996
due to the purchase in October 1996 of the Loudoun Campus facilities and the
restructuring of five of the College's leases in May 1996.
Selling and promotion expenses. Selling and promotion expenses increased
25% from $974,000 in the first quarter of 1996 to $1.2 million in the first
quarter of 1997, due to a small 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 College's Corporate Outreach Program.
General and administration expenses. General and administration expenses
decreased 13.0% from $1.8 million in the first quarter of 1996 to $1.6 million
in the first quarter of 1997, principally due to a reduction in the bad debt
experience rate on tuition receivable.
Income from operations. Operating income increased $1.8 million, or 38.4%,
from $4.6 million in the first quarter of 1996 to $6.4 million in the first
quarter of 1997. The increase was due to the aforementioned factors.
Investment and other income. Investment and other income increased
$406,000, or 375.9%, from $108,000 in the first quarter of 1996 to $514,000 in
the first quarter of 1997. The increase was due to additional interest income
received on the investment of the proceeds from the Company's initial public
offering.
Net income. Net income increased $1.3 million , or 45.0%, from $2.9 million
on a pro forma basis in the first quarter of 1996 to $4.2 million in the first
quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the initial public offering of its common stock, the Company
financed its operating and capital requirements through cash generated from
operating activities or, in the case of ELP, capital contributions from ELP's
stockholder. The Company realized net proceeds of approximately $31.3 million
from the initial public offering, of which it used $19.8 million to fund S
Corporation distributions, $1.1 million to fund the acquisition of ELP, and $3.1
million to fund the purchase of the Loudoun campus. The remaining $7.3 million
was used to fund student loans and for working capital purposes, including
improvements to the College's computer laboratories.
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.
During the first quarter of 1997, the Company generated cash from operating
activities of $6.4 million. Cash used in investing and financing activities was
$2.0 million and $591,000, respectively. At March 31, 1997, the Company had
available cash and cash equivalents and marketable securities of $32.3 million.
The Company has designated approximately $3.1 million for the planned
acquisition of the Alexandria campus facility, which it expects to complete by
August 1997.
In April 1997, the Company received approximately $15.0 million in net proceeds
from a public offering of 772,500 shares of common stock. In addition, 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 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.
The Company believes that existing cash and cash equivalents, marketable
securities, net proceeds from the secondary offering, 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 College decides to purchase a campus facility, it may finance the
acquisition with indebtedness.
10
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
-------------- -----------
11 Earnings Per Share Calculation
27.2 Financial Data Schedule
a) Reports on Form 8-K:
None
11
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/ illegible
_________________________________
Chief Financial Officer
Date: May 9, 1997
12
INDEX TO EXHIBITS
EXHIBITS NUMBER DESCRIPTION PAGE
- ----------------- ------------------------------ ----
11 Earnings Per Share Calculation 14
27.2 Financial Data Schedule 15
13