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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, 1999
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 MARCH 31, 1999, THERE WERE OUTSTANDING 15,621,101 SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
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STRAYER EDUCATION, INC.
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1998 and March 31, 1999 ............... 3
Condensed Consolidated Statements of Income
for the three months ended March 31, 1998 and 1999 . 4
Condensed Statements of Comprehensive Income
for the three months ended March 31, 1998 and 1999 . 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1999 . 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
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STRAYER EDUCATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
December 31, March 31,
1998 1999
-------------------------- ----------------------
Current Assets: (Unaudited)
Cash and cash equivalents $18,614 $21,391
Marketable securities available for sale, at market 6,420 6,174
Short-term investments - restricted 922 933
Tuition receivable, net of allowances for doubtful accounts 11,812 13,502
Income taxes receivable 275 ---
Other current assets 491 719
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Total current assets 38,534 42,719
Student loans receivable, net of allowances for losses 5,524 6,052
Property and equipment, net 13,880 13,811
Marketable securities available for sale, at market 38,986 37,805
Other assets 222 180
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Total assets $97,146 $100,567
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $166 $71
Accrued expenses 943 1,038
Dividends payable 789 775
Unearned tuition 13,273 14,851
Income taxes payable --- 3,899
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Total current liabilities 15,171 20,634
Deferred income taxes 330 542
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Total liabilities 15,501 21,176
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Stockholders' equity:
Common Stock - Par value $.01; 50,000,000 shares authorized;
15,774,477 and 15,621,101 shares issued and outstanding at
December 31, 1998 and March 31, 1999, respectively. 158 156
Additional paid-in capital 50,470 42,770
Retained earnings 30,274 35,658
Accumulated other comprehensive income 743 807
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Total stockholders' equity 81,645 79,391
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Total liabilities and stockholders' equity $97,146 $100,567
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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)
For the three months
ended March 31,
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1998 1999
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Revenues $16,849 $18,914
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Costs and Expenses:
Instruction and educational support 5,189 5,875
Selling and promotion 1,368 1,497
General and administration 2,183 2,267
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8,740 9,639
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Income from operations 8,109 9,275
Investment and other income 664 988
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Income before income taxes 8,773 10,263
Provision for income taxes: 3,397 4,105
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Net income $5,376 $6,158
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Basic net income per share $0.35 $0.39
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Diluted net income per share $0.34 $0.39
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STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS)
For the three months
ended March 31,
---------------
1998 1999
---- ----
Net income $5,376 $6,158
Other comprehensive income:
Unrealized gains on investments, net of taxes 475 64
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Comprehensive income $5,851 $6,222
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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)
For the three months ended March 31,
-------------------------------------------
Cash flows from operating activities 1998 1999
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Net income $5,376 $6,158
Adjustments to reconcile net income to net cash provided by
activities:
Deferred income taxes (70) (123)
Depreciation and amortization 361 457
Changes in assets and liabilities
Short-term investments - restricted (10) (11)
Tuition receivable, net (1,604) (1,690)
Inventories 388 ---
Other current assets 256 (105)
Other assets 46 42
Accounts payable (47) (95)
Accrued expenses 5 95
Income taxes payable (receivable) 3,183 4,174
Unearned tuition 1,319 1,578
Student loans originated (1,213) (1,485)
Collections on student loans receivable 844 957
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Net cash provided by operating activities 8,834 9,952
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Cash flows from investing activities:
Purchases of property and equipment (4,270) (388)
Purchases of marketable securities (942) (298)
Maturities of marketable securities 1,093 2,001
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Net cash provided by (used in) investing activities (4,119) 1,315
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Cash flows from financing activities:
Exercise of stock options 111 475
Dividends paid (673) (788)
Repurchase of common stock --- (8,177)
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Net cash used in financing activities (562) (8,490)
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Net increase in cash 4,153 2,777
Cash and cash equivalents - beginning of period 15,934 18,614
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Cash and cash equivalents - end of period $20,087 $21,391
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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, 1998 AND 1999 IS UNAUDITED.
1. BASIS OF PRESENTATION
The financial statements are presented on a consolidated basis. The
accompanying 1998 and 1999 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, 1999
are not necessarily indicative of the results to be expected for the
full fiscal year. All information as of March 31, 1999, and for the
three months ended March 31, 1998 and 1999 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, 1998 Annual Report on Form
10-K.
On June 15, 1998, the Financial Accounting Standards Board issued
FAS No. 133, "Accounting For Derivative Instruments and Hedging
Activities", which establishes a new model for accounting for
derivatives and hedging activities. FAS No. 133 is effective for
fiscal years beginning after June 15, 1999. The Company plans to
adopt FAS No. 133 during 1999. The adoption of FAS No. 133 will not
have a material impact on the Company's financial statements.
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 ten campuses in the District of
Columbia, Maryland and Virginia. In January 1998, Strayer College,
Inc. was granted University status by the Education Licensure
Committee of The District of Columbia. Subsequently, Strayer College
changed its name to Strayer University.
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.
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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1998 AND 1999 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
ended March 31,
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1998 1999
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Weighted average shares outstanding used to
compute basic earnings per share................. 15,554 15,652
Incremental shares issuable upon the
assumed exercise of stock options................ 493 276
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Shares used to compute diluted earnings per
share............................................ 16,047 15,928
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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: 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 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998.
Revenues. Revenue increased 12.0% from $16.8 million in the first
quarter of 1998 to $18.9 million in the first quarter of 1999, principally due
to an increase in student enrollments and a 5% tuition increase effective for
1999.
Instruction and educational support expenses. Instruction and
educational support expenses increased 13.0% from $5.2 million in the first
quarter of 1998 to $5.9 million in the first quarter of 1999. A salary increase
of 5% effective in 1999 and 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 9.0% from $1.4 million in the first quarter of 1998 to $1.5 million in
the first quarter of 1999, 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 at Montgomery County and
Anne Arundel County campuses.
General and administration expenses. General and administration
expenses increased 4.0% from $2.2 million in the first quarter of 1998 to $2.3
million in the first quarter of 1999, 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 14.0%, from $8.1
million in the first quarter of 1998 to $9.3 million in the first quarter of
1999. The increase was due to the aforementioned factors.
Investment and other income. Investment and other income increased
49%, from $664,000 in the first quarter of 1998 to $988,000 in the first quarter
of 1999. The increase was due to a higher portion of the Company's investment
portfolio allocated to fixed income securities.
Net income. Net income increased 15.0%, from $5.4 million in the
first quarter of 1998 to $6.2 million in the first quarter of 1999. The increase
was due to the aforementioned factors.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1999, the Company generated
cash from operating activities of $10.0 million. Net cash provided by investing
activities was $1.3 million, principally from maturities of securities. The
Company used cash of approximately $8.5 million for financing activities,
principally related to the stock repurchase program. The Company believes that
existing cash, cash equivalents and marketable securities aggregating $65.4
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.
During the year ended December 31, 1998, the University ceased
operations of its bookstore. Bookstore services are now performed by an outside
internet based vendor. The result was the elimination of the Company's
inventories.
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. The
timing of the stock purchases are made at the discretion of management. Any
shares of common stock repurchased are subsequently retired. Through March 31,
1999 the Company has repurchased and retired 303,920 shares under this program
at a cost of approximately $10.4 million. For the three months ended March 31,
1999 the Company repurchased approximately $8.2 million of common stock.
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YEAR 2000
The year 2000 issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs that have been written using six digits (e.g.,
12/31/99), rather than eight (e.g., 12/31/1999), to define the applicable year
of business.
The Company has completed the identification and assessment of most
of its IT systems, and those systems have been modified by the suppliers of
those systems to address Year 2000 issues. In addition to its internal systems,
the Company has begun to assess the level of Year 2000 issues with its
suppliers. The Company has also started its identification and assessment of its
non-IT systems, which include its telephone systems, heating and
air-conditioning, elevators and other business equipment.
The Company's costs to date for its Year 2000 compliance project,
excluding the salaries of its employees, has 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.
Although the Company has not completed its assessment, it does not currently
believe that the future costs associated with its remaining IT systems or its
non-IT systems will be material.
The Company cannot determine currently its most likely worst case
scenario, as it has not identified and assessed all of its systems, particularly
its non-IT systems. As the Company completes its identification and assessment
of internal and third party systems, it will develop contingency plans for
various worst-case scenarios. A failure to address Year 2000 issues successfully
could have a material adverse effect on the Company's business, financial
condition and/or results of operations.
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, 1999 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, 1999. 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, 1999, 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, 1999, a 10% decrease in market values
would not have a material impact on the Company's future earning, 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 2000 Annual
Meeting of Stockholders, a Strayer stockholder must
provide written notice of the proposal to the Company no
later than December 10, 1999. The Company intends to use
discretionary voting authority with respect to any
matter brought before the 2000 Annual Meeting of
Stockholders of which the Company has not received
written notice by December 10, 1999. The address to
which such a written notice must be sent is Strayer
Education, Inc., 8550 Cinder Bed Dr. #1000, Newington,
Virginia 22122, Attn: Investor Relations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: The following are annexed as Exhibits:
Exhibit Number Description
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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 WILKINS
---------------------------------
Chief Financial Officer
Date: April 30, 1999
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INDEX TO EXHIBITS
EXHIBITS NUMBER DESCRIPTION PAGE
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27.2 Financial Data Schedule 14