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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, 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 JUNE 30, 1997, THERE WERE OUTSTANDING 10,222,500 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
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1996 and June 30, 1997 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income
for the three and six month periods ended June 30, 1996 and 1997 . . . . . . 4
Condensed Consolidated Statements of Cash Flows
for the six month periods ended June 30, 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 . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
Items 1-6, Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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STRAYER EDUCATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
December 31, June 30,
1996 1997
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Current Assets: (Unaudited)
Cash and cash equivalents $11,777 $14,279
Marketable securities available for sale, at market 5,057 6,113
Short-term investments - restricted 807 841
Tuition receivable, net of allowances for doubtful accounts 8,923 7,553
Inventories 923 579
Deferred income taxes 112 177
Income taxes receivable -- 493
Other current assets 197 232
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Total current assets 27,796 30,267
Student loans receivable, net of allowances for losses 2,799 3,686
Property and equipment, net 7,063 7,373
Investments in marketable securities available for sale, at market 10,070 26,888
Other assets 94 148
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Total assets $47,822 $68,362
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $332 $120
Accrued expenses 710 610
Unearned tuition 11,150 9,147
Other current liabilities 30 338
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Total current liabilities 12,222 10,215
Deferred income taxes 189 281
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Total liabilities 12,411 10,496
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Stockholders' equity:
Common Stock - Par value $.01; 50,000,000 shares authorized;
9,450,000 and 10,222,500 shares issued and outstanding, respectively 95 102
Additional paid-in capital 31,192 46,364
Retained earnings 3,893 11,060
Net unrealized gains on investments, net of deferred income taxes 231 340
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Total stockholders' equity 35,411 57,866
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Total liabilities and stockholders' equity $47,822 $68,362
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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)
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
1996 1997 1996 1997
---- ---- ---- ----
Revenues:
Tuition $11,034 $13,249 $22,604 $26,512
Fees and other 427 390 858 900
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11,461 13,639 23,462 27,412
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Costs and Expenses:
Instruction and educational support 4,521 4,872 9,098 9,435
Selling and promotion 755 1,023 1,729 2,241
General and administration 1,751 1,604 3,573 3,190
------- ------- ------- -------
7,027 7,499 14,400 14,866
------- ------- ------- -------
Income from operations 4,434 6,140 9,062 12,546
Investment and other income 269 611 377 1,125
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Income before income taxes 4,703 6,751 9,439 13,671
------- ------- ------- -------
Provision for income taxes:
Current -- 2,646 -- 5,369
Deferred -- (61) -- (46)
------- ------- ------- -------
-- 2,585 -- 5,323
------- ------- ------- -------
Net income $4,703 $4,166 $9,439 $8,348
======= ======= ======= =======
Pro forma information (for 1996 - see Note 4):
Income taxes 1,839 3,691
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Net income $2,864 $5,748
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Primary net income per share (pro forma for 1996)
$0.39 $0.41 $0.78 $0.82
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Weighted average shares outstanding (pro forma for 1996)
7,401 10,272 7,401 10,146
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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)
For the six months June 30,
---------------------------
Cash flow from operating activities
1996 1997
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Net income $9,439 $8,348
Adjustments to reconcile net income to net cash provided by activities:
Deferred tax expense --- (46)
Depreciation and amortization 374 575
Changes in assets and liabilities
Short-term investments - restricted (59) (34)
Tuition receivable, net 2,344 1,370
Inventories 109 344
Other current assets (189) (35)
Trade accounts payable (12) (212)
Accrued expenses (50) (100)
Income taxes receivable --- (493)
Unearned tuition (2,604) (2,003)
Other current liabilities 86 308
Student loans originated or acquired (1,505) (2,028)
Collections on student loans receivable 681 1,141
Proceeds from sale of loans 212 ---
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Net cash provided by operating activities 8,826 7,135
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Cash flows from investing activities:
Increase in deposits --- (54)
Purchases of property and equipment (613) (885)
Purchases of marketable securities (1,805) (21,273)
Maturities of marketable securities 1,251 3,581
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Net cash used in investing activities (1,167) (18,631)
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Cash flows from financing activities:
Net proceeds from stock issuance --- 15,179
Distributions to stockholders (3,708) ---
Dividends paid --- (1,181)
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Net cash provided by (used in) financing activities (3,708) 13,998
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Net increase in cash 3,951 2,502
Cash and cash equivalents - beginning of period 8,992 11,777
------ ------
Cash and cash equivalents - end of period $12,943 $14,279
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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, 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.
In May 1997, the Company formed and incorporated a new wholly-owned
subsidiary, Professional Education, Inc. (ProEd). ProEd's operations
will commence when regulatory approval is granted by Maryland Higher
Education Commission.
Consistent with the financial statements included in the Company's
prospectus and the reorganization of the Company in connection with
the completion of the initial 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, ELP and ProEd, collectively referred to herein as the
"Company or Companies."
The results of operations for the three and six month periods ended
June 30, 1996 and 1997 are not necessarily indicative of the results
to be expected for the full fiscal year. All information as of June
30, 1997, and for the three and six month periods ended June 30, 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 Form 10-K for the fiscal year ended December 31,
1996.
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.
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.
ProEd specializes in corporate training and continuing professional
education courses for individuals.
3. INCOME TAXES
For the quarter ended June 30, 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.
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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF JUNE 30, 1996 AND 1997 IS UNAUDITED
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 temporarydifferences 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 is not significantly different
from the primary amounts.
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 $0.42 and $0.40 respectively, for the
three months ended June 30, 1997, and $0.86 and $0.82, respectively
for the six months ended June 30, 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.
6. PUBLIC OFFERING
In April 1997, the Company completed a public offering of 772,500
shares of common stock. Net proceeds from the offering were $15.2
million.
7. SUBSEQUENT EVENTS
The Company's Board of Directors declared a dividend of $.0625 per
share to shareholders of record as of July 11, 1997.
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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, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Revenues. Tuition revenue increased 20.1% from $11.0 million in the
second quarter of 1996 to $13.2 million in the second quarter of 1997,
principally due to an increase in student enrollments and a 5% tuition increase
effective for 1997. Fees and other revenue decreased by $37,000, or 8.7%, from
$427,000 in the 1996 quarter to $390,000 in the 1997 quarter, principally due
to fewer bookstore sales in the 1997 quarter.
Instruction and educational support expenses. Instruction and
educational support expenses increased 7.8% from $4.5 million in the second
quarter of 1996 to $4.9 million in the second quarter of 1997. A salary
increase of 5% effective in 1997 and the additional salaries of the employees
at the Prince George's County campus, which opened in April 1997, contributed
to this increase.
Selling and promotion expenses. Selling and promotion expenses
increased 35.5% from $755,000 in the second quarter of 1996 to $1.0 million in
the second quarter of 1997, due to a small increase in advertising costs,
particularly for television advertising, increased advertising related to the
opening of the Prince George's County campus, 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 8.4% from $1.8 million in the second quarter of 1996 to $1.6
million in the second quarter of 1997, principally due to a reduction in the
bad debt experience rate on tuition receivable.
Income from operations. Operating income increased $1.7 million, or
38.5%, from $4.4 million in the second quarter of 1996 to $6.1 million in the
second quarter of 1997. The increase was due to the aforementioned factors.
Investment and other income. Investment and other income increased
$342,000, or 127.1%, from $269,000 in the second quarter of 1996 to $611,000 in
the second quarter of 1997. The increase was due to additional interest
received from the investment of the proceeds from the Company's two public
offerings.
Net income. Net income increased $1.3 million, or 45.5%, from $2.9
million on a pro forma basis in the second quarter of 1996 to $4.2 million in
the second quarter of 1997.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues. Tuition revenue increased 17.3% from $22.6 million for the
six months ended June 30, 1996 to $26.5 million for the corresponding period in
1997, principally due to an increase in student enrollments and a 5% tuition
increase effective for 1997. Fees and other revenue remained relatively
unchanged from the six months ended June 30, 1996 to the corresponding period
in 1997.
Instruction and educational support expenses. Instruction and
educational support expenses increased 3.7% from $9.1 million for the six
months ended June 30, 1996 to $9.4 million for the corresponding period in
1997. A salary increase of 5% effective in 1997 was offset by a decrease in
rent expense due to the acquisition of the Loudoun campus facility in October
1996.
Selling and promotion expenses. Selling and promotion expenses
increased 29.6% from $1.7 million for the six months ended June 30, 1996 to
$2.2 million for the corresponding period in 1997, due to a small increase in
advertising costs, particularly for television advertising, increased
advertising related to the opening of the Prince George's County campus, 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 10.7% from $3.6 million for the six months ended June 30,
1996 to $3.2 million for the corresponding period in 1997, principally due to a
reduction in the bad debt experience rate on tuition receivable.
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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.
Income from operations. Operating income increased $3.5 million, or
38.4%, from $9.1 million for the six months ended June 30, 1996 to $12.5
million for the corresponding period in 1997. The increase was due to the
aforementioned factors.
Investment and other income. Investment and other income increased
$748,000, or 198.4%, from $377,000 for the six months ended June 30, 1996 to
$1.1 million for the corresponding period in 1997. The increase was due to
additional interest income received from the investment of the proceeds from
the Company's two public offerings.
Net income. Net income increased $2.6 million, or 45.2%, from $5.7
million on a pro forma basis for the six months ended June 30, 1996 to $8.3
million for the corresponding period in 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 facility. The
remaining $7.3 million was used to fund student loans and for working capital
purposes, including improvements to the College's computer laboratories.
During the second quarter of 1997, the Company generated cash from operating
activities of $7.1 million. Cash used in investing and financing activities
was $18.6 million, principally for purchases of marketable securities. Cash
provided by financing activities was $14.0 million, principally as a result of
the Company's public offering which was completed in April 1997. At June
30, 1997, the Company had available cash and cash equivalents and marketable
securities of $47.3 million. The Company has designated approximately $3.5
million for the planned acquisition of the Alexandria campus facility, which it
expects to complete by January 1998.
In April 1997, the Company received approximately $15.2 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 April 1997 public 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.
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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.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: The following are annexed as Exhibits:
Exhibit Number Description
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11 Earnings Per Share Calculation
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: August 4, 1997
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INDEX TO EXHIBITS
EXHIBITS NUMBER DESCRIPTION PAGE
- --------------- ----------- ----
11 Earnings Per Share Calculation 13
27.2 Financial Data Schedule 14
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