Stockholders' Equity

6 Months Ended

Jun. 30, 2013

Stockholders' Equity [Abstract]

Stockholders' Equity

5. Stockholders’ Equity

Authorized Stock

The Company has authorized 20,000,000 shares of common stock, par value $0.01, of which 11,387,299 and 10,870,468 shares were issued and outstanding as of December 31, 2012 and June 30, 2013, respectively. The Company also has authorized 8,000,000 shares of preferred stock, none of which has been issued or outstanding since 2004. In 2012, the Company paid an annual cash dividend of $4.00 per share, or $1.00 per share quarterly. No dividend was paid in the first and second quarters of 2013.

Stock-based Compensation Plans

The Strayer Education Inc. 2011 Equity Compensation Plan (the “Plan”) provides for the granting of restricted stock, restricted stock units, stock options intended to qualify as incentive stock options, stock options that do not qualify as incentive stock options, and other forms of equity compensation and performance-based awards to employees, officers and directors of the Company, or to a consultant or advisor to the Company, at the discretion of the Board of Directors. Vesting provisions are at the discretion of the Board of Directors. Options may be granted at option prices based at or above the fair market value of the shares at the date of grant. The maximum term of the awards granted under the Plan is ten years. Dividends paid on unvested restricted stock are reimbursed to the Company if the recipient forfeits his or her shares as a result of termination of employment, prior to vesting in the award.

Restricted Stock and Restricted Stock Units

In February 2013, the Company’s Board of Directors approved grants of 165,712 shares of restricted stock to certain individuals. These shares, which vest over a three- to five-year period, were granted pursuant to the Plan. The Company’s stock price closed at $62.28 on the date of these restricted stock grants. In March 2013, outstanding awards of 200,000 restricted shares were converted to restricted stock units.

In May 2013, the Company’s Board of Directors approved grants of 43,659 shares of restricted stock. These shares, which vest in their entirety four years from the date of grant, were granted pursuant to the Plan. The Company’s Board of Directors also approved grants of 16,370 shares of restricted stock. These shares, which vest over a three-year period, were awarded to non-employee members of the Company’s Board of Directors, as part of the Company’s annual director compensation program. The Company’s stock price closed at $45.81 on the date of these restricted stock grants.

The table below sets forth the restricted stock and restricted stock units activity for the six months ended June 30, 2013:

	Number of shares or units			Weighted- average grant price
Balance, December 31, 2012		434,439		$	178.88
Grants		225,741		$	57.90
Vested shares		(51,916	)	$	164.22
Forfeitures		(47,487	)	$	214.80
Balance, June 30, 2013		560,777		$	135.25

 
Stock Options

In February 2013, the Company’s Board of Directors granted an option to purchase 100,000 shares of the Company’s common stock at an exercise price of $51.95 per share. The award vests in its entirety two years from the date of grant and expires eight years from the date of grant. The weighted average fair value of this option is estimated on the date of grant at $22.09 per share using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 0.877%; an expected life of five years; volatility of 48.49%; and dividend yield of 0% over the expected life of the option.

The table below sets forth the stock option activity for the three months ended June 30, 2013 and other stock option information at June 30, 2013:

	Number of shares			Weighted-average exercise price		Weighted-average remaining contractual life (yrs.)		Aggregate intrinsic value(1) (in thousands)
Balance, December 31, 2012		100,000		$	107.28		0.1	$	—
Grants		100,000			51.95
Forfeitures/Expirations		(100,000	)		107.28
Balance, June 30, 2013		100,000		$	51.95		7.5	$	—
Exercisable, June 30, 2013		—		$	—		—		—

(1)   The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the respective trading day and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had the options been exercised on the respective trading day. The amount of intrinsic value will change based on the fair market value of the Company’s common stock.

Valuation and Expense Information under Stock Compensation Topic ASC 718

At June 30, 2013, total stock-based compensation cost which has not yet been recognized was $43.7 million, all for unvested stock and stock option awards. This cost is expected to be recognized over the next 57 months on a weighted-average basis. Awards of approximately 344,000 shares of restricted stock and restricted stock units are subject to performance conditions. The accrual for stock-based compensation for performance awards is based on the Company’s estimates that such performance criteria are probable of being achieved. Such a determination involves significant judgment surrounding future operating performance of the Company. If the performance targets are not reached during the vesting period, or it is determined it is more likely than not that the performance criteria will not be achieved, related compensation expense is adjusted. 

The following table summarizes the stock-based compensation expense recorded for the three and six months ended June 30, 2012 and 2013 by expense line item (in thousands):

	For the three months ended June 30,				For the six months ended June 30,
	2012		2013		2012		2013
Instruction and educational support	$	891	$	844	$	1,562	$	1,941
Marketing		—		—		—		—
Admissions advisory		—		—		—		—
General and administration		2,549		2,138		4,268		3,291
Stock-based compensation expense included in operating expense		3,440		2,982		5,830		5,232
Tax benefit		1,359		1,187		2,302		2,082
Stock-based compensation expense, net of income tax	$	2,081	$	1,795	$	3,528	$	3,150

During the six months ended June, 2012 and 2013, the Company recognized a tax shortfall related to share-based payment arrangements of $0.4 million and $3.5 million, respectively. No stock options were exercised during the six months ended June 30, 2012 or 2013.