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 PERIOD ENDED SEPTEMBER 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 SEPTEMBER 30, 2000, THERE WERE OUTSTANDING 15,352,399 SHARES OF COMMON
STOCK, PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
1
2
STRAYER EDUCATION, INC.
INDEX
FORM 10-Q
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1999 and September 30, 2000.................................. 3
Condensed Consolidated Statements of Income
for the three and nine month periods ended September 30, 1999 and 2000..... 4
Condensed Consolidated Statements of Comprehensive Income
for the three and nine month periods ended September 30, 1999 and 2000..... 4
Condensed Consolidated Statements of Cash Flows
for the nine month periods ended September 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
2
3
STRAYER EDUCATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
December 31, September 30,
1999 2000
--------------- ------------------
Current Assets: (Unaudited)
Cash and cash equivalents $ 12,213 $ 25,032
Marketable securities available for sale, at fair value 5,901 5,912
Short-term investments - restricted 959 988
Tuition receivable, net of allowances for doubtful accounts 14,997 18,141
Income taxes receivable 201 -
Other current assets 793 639
-------- --------
Total current assets 35,064 50,712
Student loans receivable, net of allowances for losses 6,436 7,018
Property and equipment, net 16,837 18,158
Marketable securities available for sale, at fair value 39,440 43,007
Other assets 319 171
-------- --------
Total assets $ 98,096 $119,066
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 183 $ 332
Accrued expenses 891 1,988
Dividends payable 917 998
Unearned tuition 15,371 22,449
Income taxes payable - 205
-------- --------
Total current liabilities 17,362 25,972
Deferred income taxes 141 80
-------- --------
Total liabilities 17,503 26,052
-------- --------
Stockholders' equity:
Common Stock - Par value $.01; 50,000,000 shares authorized; 153 154
15,277,251 and 15,352,399 shares issued and outstanding at
December 31, 1999 and September 30, 2000, respectively
Additional paid-in capital 33,707 34,139
Retained earnings 46,194 58,169
Accumulated other comprehensive income 539 552
-------- --------
Total stockholders' equity 80,593 93,014
-------- --------
Total liabilities and stockholders' equity $ 98,096 $119,066
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3
4
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
1999 2000 1999 2000
---- ---- ---- ----
Revenues: $12,866 $14,691 $49,423 $56,144
------- ------- ------- -------
Costs and expenses:
Instruction and educational support 6,178 6,750 18,236 20,564
Selling and promotion 2,698 2,589 5,844 6,453
General and administration 2,611 3,160 6,997 8,080
------- ------- ------- -------
11,487 12,499 31,077 35,097
------- ------- ------- -------
Income from operations 1,379 2,192 18,346 21,047
Investment and other income 982 1,227 3,370 3,241
------- ------- ------- -------
Income before income taxes 2,361 3,419 21,716 24,288
Provision for income taxes 852 1,293 8,537 9,474
------- ------- ------- -------
Net income $ 1,509 $ 2,126 $13,179 $14,814
======= ======= ======= =======
Basic net income per share $ 0.10 $ 0.14 $ 0.85 $ 0.97
======= ======= ======= =======
Diluted net income per share $ 0.10 $ 0.14 $ 0.83 $ 0.96
======= ======= ======= =======
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
1999 2000 1999 2000
---- ---- ---- ----
Net income $ 1,509 $ 2,126 $ 13,179 $ 14,814
Other comprehensive income:
Unrealized gain (loss) on investments, net of tax (498) 158 (661) 13
-------- -------- -------- --------
Comprehensive income $ 1,011 $ 2,284 $ 12,518 $ 14,827
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4
5
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
For the nine months ended September 30,
------------------------------------------
Cash flow from operating activities 1999 2000
---- ----
Net income $ 13,179 $ 14,814
Adjustments to reconcile net income to net cash provided by
activities:
Deferred tax expense (credit) (276) (23)
Depreciation and amortization 1,395 1,507
Changes in assets and liabilities
Short-term investments - restricted (29) (29)
Tuition receivable, net (5,148) (3,144)
Other current assets (214) 116
Accounts payable (16) 149
Accrued expenses 738 1,097
Income taxes payable/receivable (276) 406
Unearned tuition 7,130 7,078
Other assets (84) 148
Student loans originated or acquired (3,868) (4,089)
Collections on student loans receivable 2,967 3,507
-------- --------
Net cash provided by operating activities 15,498 21,537
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (3,938) (2,828)
Purchases of marketable securities (6,522) (7,349)
Maturities of marketable securities 7,071 3,784
-------- --------
Net cash used in investing activities (3,389) (6,393)
-------- --------
Cash flows from financing activities:
Repurchase of common stock (15,910) -
Proceeds from exercise of stock options 868 433
Dividends paid (2,353) (2,758)
-------- --------
Net cash used in financing activities (17,395) (2,325)
-------- --------
Net increase (decrease) in cash and cash (5,286) 12,819
equivalents
Cash and cash equivalents - beginning of period 18,614 12,213
-------- --------
Cash and cash equivalents - end of period $ 13,328 $ 25,032
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
5
6
STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF SEPTEMBER 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 nine months ended
September 30, 2000 are not necessarily indicative of the results to
be expected for the full fiscal year. All information as of September
30, 2000, and for the three and nine month periods ended September
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 September 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.
6
7
STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF SEPTEMBER 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.
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
(in thousands) (in thousands)
1999 2000 1999 2000
---- ---- ---- ----
Weighted average shares outstanding used to
compute basic earnings per share........... 15,467 15,343 15,569 15,324
Incremental shares issuable upon the
assumed exercise of stock options............ 179 122 221 184
------ ------ ------ ------
Shares used to compute diluted earnings per
share...................................... 15,646 15,465 15,790 15,508
====== ====== ====== ======
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. STOCK REPURCHASE PROGRAM
On September 29, 2000, the Board of Directors approved an additional
$40 million for the Company's current common stock repurchase program
to begin October 27, 2000, bringing the total available under the
plan to $48 million. The shares will be repurchased at the discretion
of management, and all shares repurchased under the plan will be
subsequently retired.
7
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 our 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 changes in the general 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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Revenues. Revenue increased 14% from $12.9 million in the third
quarter of 1999 to $14.7 million in the third 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 9% from $6.2 million in the third quarter
of 1999 to $6.8 million in the third 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
decreased 4% from $2.7 million in the third quarter of 1999 to $2.6 million in
the third quarter of 2000, due to a decrease in advertising costs related to the
Distance Learning Program.
General and administration expenses. General and administration
expenses increased 21% from $2.6 million in the third quarter of 1999 to $3.2
million in the third quarter of 2000 due to the addition of a new campus in
Chesterfield, Virginia and a 5% salary increase in 2000.
Income from operations. Operating income increased 59%, from $1.4
million in the third quarter of 1999 to $2.2 million in the third quarter of
2000. The increase was due to the aforementioned factors.
Investment and other income. Investment and other income increased
25%, from $1.0 million in the third quarter of 1999 to $1.2 million in the third
quarter of 2000. The increase was due to an increase in cash and investments.
Net income. Net income increased 41%, from $1.5 million in the third
quarter of 1999 to $2.1 million in the third quarter of 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Revenues. Revenue increased 14% from $49.4 million for the nine
months ended September 30, 1999 to $56.1 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 13% from $18.2 million for the nine
months ended September 30, 1999 to $20.6 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 a new campus contributed to the
increase.
Selling and promotion expenses. Selling and promotion expenses
increased 10% from $5.8 million for the nine months ended September 30, 1999 to
$6.5 million for the corresponding period in 2000, due to a small increase in
advertising costs, specifically television advertising, and increases in the
number of admissions representatives in Maryland at the campuses in White Marsh
and Anne Arundel County and the new campus in Chesterfield, Virginia, offset, in
part, by a decrease in advertising costs related to the Distance Learning
Program.
General and administration expenses. General and administration
expenses increased 15% from $7.0 million for the nine months ended September 30,
1999 to $8.1 million for the corresponding period in 2000, principally due to
salary increases for administrative personnel and the addition of a new campus.
Income from operations. Operating income increased 15%, from $18.3
million for the nine months ended September 30, 1999 to $21.0 million for the
corresponding period in 2000. The increase was due to the aforementioned
factors.
Investment and other income. Investment and other income decreased
4%, from $3.4 million for the nine months ended September 30, 1999 to $3.2
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 12%, from $13.2 million for the nine
months ended September 30, 1999 to $14.8 million for the corresponding period in
2000.
8
9
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 2000, the Company generated
cash from operating activities of $21.5 million. Net cash used in investing
activities was $6.4 million, principally for net purchases of securities and
purchases of equipment. The Company used cash of approximately $2.3 million for
financing activities, principally related to payment of dividends. The Company
believes that existing cash, cash equivalents and marketable securities
aggregating $74.9 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.
In October, 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. In September, 2000, the Board of
Directors approved an additional stock repurchase, not to exceed an aggregate
cost of $40 million. 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 nine months ended September 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 September 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 September 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 September 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 September 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.
9
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.
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., 8260 Patuxent Range Rd.,
Suite H, Jessup, Maryland 20794, 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
10
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/ Chief Financial Officer
---------------------------------
Chief Financial Officer
Date: October 26, 2000
11
12
INDEX TO EXHIBITS
EXHIBITS NUMBER DESCRIPTION PAGE
- --------------- ----------- ----
27.2 Financial Data Schedule 13
12