-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A9EPquGcwBzJdrk6ds4iuX3BgVWkK5daAowIxD7xxOHtiPgFI+NsddzG2KO0xJKa Tw9Falenymix6VK1ebZRwA== 0000950133-99-002565.txt : 19990809 0000950133-99-002565.hdr.sgml : 19990809 ACCESSION NUMBER: 0000950133-99-002565 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRAYER EDUCATION INC CENTRAL INDEX KEY: 0001013934 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 521975978 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21039 FILM NUMBER: 99675619 BUSINESS ADDRESS: STREET 1: 1025 15TH STREET NW CITY: WASHINGTON STATE: DC ZIP: 20005 BUSINESS PHONE: 2024082400 MAIL ADDRESS: STREET 1: 1025 15TH STREET NW CITY: WASHINGTON STATE: DC ZIP: 20005 10-Q 1 STRAYER EDUCATION, INC. FORM 10-Q 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 QUARTER ENDED JUNE 30, 1999 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, 1999, THERE WERE OUTSTANDING 15,522,164 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, 1998 and June 30, 1999.............................. 3 Condensed Consolidated Statements of Income for the three and six month periods ended June 30, 1998 and 1999. 4 Condensed Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 1998 and 1999......... 4 Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 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
2 3 STRAYER EDUCATION, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS) ASSETS
December 31, June 30, 1998 1999 ----------------- -------------- Current Assets: (Unaudited) Cash and cash equivalents $18,614 $15,041 Marketable securities available for sale, at market 6,420 6,055 Short-term investments - restricted 922 941 Tuition receivable, net of allowances for doubtful accounts 11,812 10,108 Income taxes receivable 275 93 Other current assets 491 630 ----------------- -------------- Total current assets 38,534 32,868 Student loans receivable, net of allowances for losses 5,524 6,022 Property and equipment, net 13,880 14,954 Marketable securities available for sale, at market 38,986 38,421 Other assets 222 166 ----------------- -------------- Total assets $97,146 $92,431 ================= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $166 $64 Accrued expenses 943 1,041 Dividends payable 789 776 Unearned tuition 13,273 10,995 ----------------- -------------- Total current liabilities 15,171 12,876 Deferred income taxes 330 204 ----------------- -------------- Total liabilities 15,501 13,080 ----------------- -------------- Stockholders' equity: Common Stock - Par value $.01; 50,000,000 158 155 shares authorized; 15,774,477 and 15,522,164 shares issued and outstanding in 1998 and 1999, respectively. Additional paid-in capital 50,470 38,236 Retained earnings 30,274 40,380 Accumulated other comprehensive income 743 580 ----------------- -------------- Total stockholders' equity 81,645 79,351 ----------------- -------------- Total liabilities and stockholders' equity $97,146 $92,431 ================= ==============
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 six months ended June 30, ended June 30, -------------- -------------- 1998 1999 1998 1999 ---- ---- ---- ---- Revenues: $16,375 $17,643 $33,224 $36,557 ---------- ----------- ---------- ----------- Costs and Expenses: Instruction and educational support 5,700 6,183 10,890 12,058 Selling and promotion 1,260 1,649 2,628 3,146 General and administration 2,105 2,119 4,287 4,386 ---------- ----------- ---------- ----------- 9,065 9,951 17,805 19,590 ---------- ----------- ---------- ----------- Income from operations 7,310 7,692 15,419 16,967 Investment and other income 721 1,400 1,385 2,388 ---------- ----------- ---------- ----------- Income before income taxes 8,031 9,092 16,804 19,355 Provision for income taxes 3,107 3,581 6,503 7,685 ---------- ----------- ---------- ----------- Net income $4,924 $5,511 $10,301 $11,670 ========== =========== ========== =========== Basic net income per share $0.32 $0.35 $0.66 $0.75 ========== =========== ========== =========== Diluted net income per share $0.31 $0.35 $0.64 $0.73 ========== =========== ========== ===========
STRAYER EDUCATION, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (AMOUNTS IN THOUSANDS)
For the three months For the six months ended June 30, ended June 30, -------------- -------------- 1998 1999 1998 1999 ---- ---- ---- ---- Net income $4,924 $5,511 $10,301 $11,670 Other comprehensive income: Unrealized gain (loss) on investments, net of tax (66) (227) 409 (163) ---------- --------- ----------- -------- Comprehensive income $4,858 $5,284 $10,710 $11,507 ========== ========= =========== ========
The accompanying notes are an integral part of these consolidated financial statements. 4 5 STRAYER EDUCATION, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (AMOUNTS IN THOUSANDS)
For the six months June 30, ------------------------------- Cash flow from operating activities 1998 1999 ---- ---- Net income $10,301 $11,670 Adjustments to reconcile net income to net cash provided by activities: Deferred tax expense (credit) (14) (145) Depreciation and amortization 750 920 Changes in assets and liabilities Short-term investments - restricted (21) (19) Tuition receivable, net 1,240 1,704 Inventories 1,018 --- Other current assets (74) (34) Accounts payable (208) (102) Accrued expenses 446 98 Income taxes payable/receivable 54 182 Unearned tuition (1,939) (2,278) Student loans originated or acquired (2,087) (2,447) Collections on student loans receivable 1,685 1,949 Other assets 79 56 ------------- ----------- Net cash provided by operating activities 11,230 11,554 ------------- ----------- Cash flows from investing activities: Purchases of property and equipment (5,151) (1,994) Purchases of marketable securities (5,178) (6,139) Maturities of marketable securities 4,561 6,820 ------------- ----------- Net cash used in investing activities (5,768) (1,313) ------------- ----------- Cash flows from financing activities: Repurchase of common stock --- (13,016) Proceeds from exercise of stock options 185 779 Dividends paid (1,344) (1,577) ------------ ---------- Net cash used in financing activities (1,159) (13,814) ------------ ---------- Net increase (decrease) in cash and cash equivalents 4,303 (3,573) Cash and cash equivalents - beginning of period 15,934 18,614 ------------- ----------- Cash and cash equivalents - end of period $20,237 $15,041 ============= ===========
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 JUNE 30, 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 and six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the full fiscal year. All information as of June 30, 1999, and for the three and six month periods ended June 30, 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 flow 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. 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 thirteen 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 JUNE 30, 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 For the six months ended June 30, ended June 30, -------------- -------------- 1998 1999 1998 1999 ---- ---- ---- ---- Weighted average shares outstanding used to compute basic earnings per share................. 15,566 15,582 15,560 15,618 Incremental shares issuable upon the assumed exercise of stock options................ 493 265 494 299 --- --- --- --- Shares used to compute diluted earnings per share... 16,059 15,847 16,054 15,917 ====== ====== ====== ======
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. PURCHASE OF TAKOMA PARK CAMPUS On June 30, 1999, the Company purchased the Takoma Park Campus building from a corporation wholly owned by the Company's President, CEO and majority stockholder. The purchase price was approximately $1.0 million. 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 the actual results to differ materially from those expressed in or implied by such statements. THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 Revenues. Revenue increased 8% from $16.4 million in the second quarter of 1998 to $17.6 million in the second 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 8% from $5.7 million in the second quarter of 1998 to $6.2 million in the second quarter of 1999. A salary increase of 5% effective in 1999 and the addition of new faculty due to enrollment growth contributed to the increase. Selling and promotion expenses. Selling and promotion expenses increased 31% from $1.3 million in the second quarter of 1998 to $1.6 million in the second quarter of 1999, 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 the state of Maryland at the new campuses in Montgomery County and Anne Arundel County. General and administration expenses. General and administration expenses remained unchanged at $2.1 million in the second quarter of 1998 and $2.1 million in the second quarter of 1999. Income from operations. Operating income increased 5.2%, from $7.3 million in the second quarter of 1998 to $7.7 million in the second quarter of 1999. The increase was due to the aforementioned factors. Investment and other income. Investment and other income increased 94%, from $721,000 in the second quarter of 1998 to $1.4 million in the second quarter of 1999. The increase was due to additional investment income received from increases in the amount of cash and cash equivalents, investments and realized investment gains of $340,000. Net income. Net income increased 12%, from $4.9 million in the second quarter of 1998 to $5.5 million in the second quarter of 1999. SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 Revenues. Revenue increased 10% from $33.2 million for the six months ended June 30, 1998 to $36.6 million for the corresponding period in 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 11% from $10.9 million for the six months ended June 30, 1998 to $12.1 million for the corresponding period in 1999. A salary increase of 5% effective in 1999 and the addition of new faculty due to enrollment growth contributed to the increase. Selling and promotion expenses. Selling and promotion expenses increased 20% from $2.6 million for the six months ended June 30, 1998 to $3.1 million for the corresponding period in 1999, 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 Montgomery County and Anne Arundel County. General and administration expenses. General and administration expenses increased 2% from $4.3 million for the six months ended June 30, 1998 to $4.4 million for the corresponding period in 1999, principally due to salary increases for administrative personnel. Income from operations. Operating income increased 10%, from $15.4 million for the six months ended June 30, 1998 to $17.0 million for the corresponding period in 1999. The increase was due to the aforementioned factors. Investment and other income. Investment and other income increased 72%, from $1.4 million for the six months ended June 30, 1998 to $2.4 million for the corresponding period in 1999. The increase was due to additional investment income received from increases in the amount of cash and cash equivalents, investments and realized investment gains of $340,000. Net income. Net income increased 13%, from $10.3 million for the six months ended June 30, 1998 to $11.7 million for the corresponding period in 1999. 8 9 LIQUIDITY AND CAPITAL RESOURCES For the six months ended June 30, 1999, the Company generated cash from operating activities of $11.6 million. Net cash used in investing activities was $1.3 million, principally for property and equipment acquisitions. The repurchase of the Company's outstanding common stock accounted for substantially all of the cash used in financing activities. The Company believes that existing cash, cash equivalents and marketable securities aggregating $59.5 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. 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 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 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, 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 June 30, 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 June 30, 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 June 30, 1999, 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. At the 1999 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 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, 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. [SIG] --------------------------------- Chief Financial Officer Date: August 4, 1999 11 12 INDEX TO EXHIBITS
EXHIBITS NUMBER DESCRIPTION PAGE - --------------- ----------- ---- 27.2 Financial Data Schedule 13
12 EX-27.2 2 FINANCIAL DATA SCHEDULE
5 EPS PRIMARY SHOULD READ EPS-BASIC 1,000 3-MOS DEC-31-1999 MAR-31-1999 JUN-30-1999 15,041 44,476 16,934 804 0 32,868 21,716 6,762 92,431 12,876 0 0 0 155 79,196 92,431 0 17,643 0 9,951 0 434 0 9,092 3,581 5,511 0 0 0 5,511 .35 .35
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