e10vq
UNITED STATES
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 quarterly period ended March 31, 2010
Commission File No. 0-21039
Strayer Education, Inc.
(Exact name of registrant as specified in this charter)
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Maryland
(State or other jurisdiction of incorporation
or organization)
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52-1975978
(I.R.S. Employer
Identification No.) |
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1100 Wilson Blvd., Suite 2500
Arlington, VA
(Address of principal executive offices)
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22209
(Zip Code) |
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Registrants telephone
number, including area code: (703) 247-2500
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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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(check one)
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o No þ
As of April 15, 2010, there were outstanding 13,914,137 shares of Common Stock, par value $0.01
per share, of the Registrant.
STRAYER EDUCATION, INC.
INDEX
FORM 10-Q
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PART I FINANCIAL INFORMATION |
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Item 1. Financial Statements |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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15 |
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19 |
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19 |
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20 |
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20 |
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20 |
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21 |
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22 |
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CERTIFICATIONS |
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EX-31.1 |
EX-31.2 |
EX-32.1 |
EX-32.2 |
2
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
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December 31, |
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March 31, |
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2009 |
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2010 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
63,958 |
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$ |
91,266 |
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Marketable securities available for sale, at fair
value |
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52,558 |
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52,716 |
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Tuition receivable, net of allowances for doubtful accounts of $6,175 and $7,053 at December
31, 2009 and March 31, 2010, respectively |
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165,142 |
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180,886 |
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Other current assets |
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8,317 |
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9,724 |
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Total current assets |
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289,975 |
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334,592 |
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Property and equipment, net |
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84,675 |
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90,996 |
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Deferred income taxes |
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9,316 |
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9,705 |
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Restricted cash |
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500 |
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500 |
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Other assets |
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1,339 |
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1,258 |
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Total assets |
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$ |
385,805 |
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$ |
437,051 |
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LIABILITIES & STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
21,261 |
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$ |
21,837 |
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Accrued expenses |
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7,794 |
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6,755 |
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Income taxes payable |
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5,100 |
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23,937 |
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Unearned tuition |
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149,804 |
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166,268 |
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Other current liabilities |
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281 |
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281 |
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Total current liabilities |
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184,240 |
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219,078 |
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Long-term liabilities |
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11,745 |
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12,173 |
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Total liabilities |
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195,985 |
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231,251 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock, par value $.01; 20,000,000 shares authorized;
13,957,596 and 13,914,137 shares issued and outstanding
at December 31, 2009 and March 31, 2010, respectively |
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140 |
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139 |
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Additional paid-in capital |
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1,157 |
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1,626 |
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Retained earnings |
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188,218 |
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203,750 |
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Accumulated other comprehensive income |
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305 |
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285 |
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Total stockholders equity |
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189,820 |
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205,800 |
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Total liabilities and stockholders equity |
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$ |
385,805 |
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$ |
437,051 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
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For the three months |
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ended March 31, |
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2009 |
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2010 |
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Revenues |
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$ |
124,478 |
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$ |
157,901 |
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Costs and expenses: |
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Instruction and educational support |
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39,069 |
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48,977 |
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Marketing and admissions |
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19,868 |
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24,745 |
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General and administration |
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17,930 |
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24,253 |
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Income from operations |
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47,611 |
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59,926 |
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Investment and other income |
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491 |
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244 |
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Income before income taxes |
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48,102 |
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60,170 |
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Provision for income taxes |
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19,049 |
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23,791 |
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Net income |
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$ |
29,053 |
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$ |
36,379 |
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Earnings per share: |
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Basic |
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$ |
2.09 |
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$ |
2.68 |
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Diluted |
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$ |
2.07 |
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$ |
2.65 |
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Weighted average shares outstanding: |
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Basic |
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13,875 |
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13,596 |
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Diluted |
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14,002 |
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13,729 |
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The accompanying notes are an integral part of these condensed consolidated financial
statements.
4
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(in thousands)
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For the three months |
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ended March 31, |
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2009 |
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2010 |
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Net income |
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$ |
29,053 |
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$ |
36,379 |
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Other comprehensive income: |
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Unrealized gains (losses) on investments,
net of taxes |
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206 |
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(20 |
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Comprehensive income |
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$ |
29,259 |
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$ |
36,359 |
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The accompanying notes are an integral part of these condensed consolidated financial
statements.
5
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY
(in thousands, except share data)
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Retained |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income (Loss) |
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Total |
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Balance at December 31, 2008 |
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14,089,189 |
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$ |
141 |
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$ |
17,185 |
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$ |
158,834 |
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$ |
(79 |
) |
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$ |
176,081 |
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Exercise of stock options |
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20,000 |
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1,691 |
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1,691 |
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Excess tax benefit from exercise of stock
options and vesting of restricted shares |
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1,471 |
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1,471 |
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Repurchase of common stock |
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(348,085 |
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(3 |
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(22,713 |
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(37,352 |
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(60,068 |
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Restricted stock grants, net of forfeitures |
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252,833 |
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2 |
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(2 |
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Stock-based compensation |
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2,368 |
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2,368 |
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Common stock dividends |
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(7,120 |
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(7,120 |
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Change in net unrealized gains (losses) on
marketable securities, net of income tax |
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206 |
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206 |
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Net income |
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29,053 |
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29,053 |
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Balance at March 31, 2009 |
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14,013,937 |
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$ |
140 |
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$ |
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$ |
143,415 |
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$ |
127 |
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$ |
143,682 |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Retained |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Earnings |
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Income (Loss) |
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Total |
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Balance at December 31, 2009 |
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13,957,596 |
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$ |
140 |
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$ |
1,157 |
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$ |
188,218 |
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$ |
305 |
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$ |
189,820 |
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Exercise of stock options |
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6,667 |
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|
452 |
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|
452 |
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Excess tax benefit from exercise of stock
options and vesting of restricted shares |
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1,581 |
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1,581 |
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Repurchase of common stock |
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(66,900 |
) |
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(1 |
) |
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(4,623 |
) |
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(10,377 |
) |
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(15,001 |
) |
Restricted stock grants, net of forfeitures |
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16,774 |
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Stock-based compensation |
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3,059 |
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3,059 |
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Common stock dividends |
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(10,470 |
) |
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(10,470 |
) |
Change in net unrealized gains (losses) on
marketable securities, net of income tax |
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(20 |
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(20 |
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Net income |
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36,379 |
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36,379 |
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Balance at March 31, 2010 |
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13,914,137 |
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$ |
139 |
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$ |
1,626 |
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$ |
203,750 |
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$ |
285 |
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$ |
205,800 |
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The accompanying notes are an integral part of these condensed consolidated financial
statements.
6
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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For the three months ended March 31, |
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2009 |
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2010 |
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Cash flows from operating activities: |
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Net income |
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$ |
29,053 |
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$ |
36,379 |
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Adjustments to reconcile net income to net cash provided by
operating activities: |
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Amortization of gain on sale of
assets |
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(71 |
) |
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(70 |
) |
Amortization of deferred rent |
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(93 |
) |
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(105 |
) |
Depreciation and
amortization |
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3,200 |
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|
4,198 |
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Deferred income taxes |
|
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(998 |
) |
|
|
(740 |
) |
Stock-based compensation |
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|
2,368 |
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|
3,059 |
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Changes in assets and liabilities: |
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Tuition receivable, net |
|
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(2,827 |
) |
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(15,744 |
) |
Other current assets |
|
|
1,017 |
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|
(1,043 |
) |
Other assets |
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|
25 |
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|
62 |
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Accounts payable |
|
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(3,864 |
) |
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|
2,246 |
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Accrued expenses |
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|
377 |
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(1,039 |
) |
Income taxes
payable/receivable |
|
|
19,893 |
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|
20,418 |
|
Excess tax benefits from stock-based payment
arrangements |
|
|
(1,471 |
) |
|
|
(1,581 |
) |
Unearned tuition |
|
|
456 |
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|
16,464 |
|
Deferred lease incentives |
|
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|
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|
603 |
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|
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Net cash provided by operating
activities |
|
|
47,065 |
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|
63,107 |
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Cash flows from investing activities: |
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Purchases of property and
equipment |
|
|
(6,584 |
) |
|
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(12,170 |
) |
Purchases of marketable
securities |
|
|
(337 |
) |
|
|
(191 |
) |
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Net cash used in investing
activities |
|
|
(6,921 |
) |
|
|
(12,361 |
) |
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Cash flows from financing activities: |
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|
|
|
|
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Common dividends paid |
|
|
(7,120 |
) |
|
|
(10,470 |
) |
Proceeds from exercise of stock
options |
|
|
1,691 |
|
|
|
452 |
|
Excess tax benefits from stock-based payment
arrangements |
|
|
1,471 |
|
|
|
1,581 |
|
Repurchase of common stock |
|
|
(60,068 |
) |
|
|
(15,001 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(64,026 |
) |
|
|
(23,438 |
) |
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(23,882 |
) |
|
|
27,308 |
|
Cash and cash equivalents beginning of period |
|
|
56,379 |
|
|
|
63,958 |
|
|
|
|
|
|
|
|
Cash and cash equivalents end of
period |
|
$ |
32,497 |
|
|
$ |
91,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Purchases of property and equipment included in accounts
payable |
|
$ |
337 |
|
|
$ |
1,247 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial
statements.
7
STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Information as of March 31, 2009 and 2010 is unaudited.
1. Nature of Operations
Strayer Education, Inc. (the Company), a Maryland corporation, conducts its operations through
its wholly owned subsidiary, Strayer University, Inc. (the University). The University is an
accredited institution of higher education that provides undergraduate and graduate degrees in
various fields of study through 80 campuses (including three campuses opened for the 2010 winter
term and four opened for the 2010 spring term) in Alabama, Arkansas, Delaware, Florida, Georgia,
Kentucky, Louisiana, Maryland, Mississippi, New Jersey, North Carolina, Ohio, Pennsylvania, South
Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Washington, D.C., and worldwide via
the Internet. With the Companys focus on the student, regardless of whether he or she chooses to
take classes at a physical campus or online, it has only one reporting segment.
2. Significant Accounting Policies
The consolidated financial statements include the accounts of the Company and its subsidiaries, the
University and Education Loan Processing, Inc. The University is the only subsidiary that is
currently active. All inter-company accounts and transactions have been eliminated in the
consolidated financial statements.
All information as of December 31, 2009 and March 31, 2009 and 2010, and for the three months ended
March 31, 2009 and 2010 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 Company. Certain
information and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or omitted. These
condensed consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2009. The results of operations for the three months ended March
31, 2010 are not necessarily indicative of the results to be expected for the full fiscal year.
The Companys educational programs are offered on a quarterly basis. Approximately 97% of the
Companys revenues during the three months ended March 31, 2010 consisted of tuition revenue.
Tuition revenue is recognized in the quarter of instruction. Tuition revenue is shown net of any
refunds, withdrawals, corporate discounts, scholarships and employee tuition discounts. At the
time of registration, a liability (unearned tuition) is recorded for academic services to be
provided and a tuition receivable is recorded for the portion of the tuition not paid upfront in
cash. Revenues also include application fees, placement test fees, withdrawal fees,
textbook-related income and other income, which are recognized when incurred.
8
3. Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the periods. Diluted earnings per share reflects the
potential dilution that could occur assuming vesting, conversion or exercise of all dilutive
unexercised stock options and restricted stock. The dilutive effect of stock options was
determined using the treasury stock method. Stock options are not included in the computation of
diluted earnings per share when the stock option exercise price of an individual grant exceeds the
average market price for the period. At March 31, 2009 and 2010, all issued and outstanding stock
options were included in the calculation.
Set forth below is a reconciliation of shares used to compute earnings per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
ended March 31, |
|
|
2009 |
|
2010 |
Weighted average shares outstanding used to compute basic earnings per share |
|
|
13,875 |
|
|
|
13,596 |
|
Incremental shares issuable upon the
assumed exercise of stock options |
|
|
57 |
|
|
|
41 |
|
Unvested restricted stock |
|
|
70 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted earnings per share |
|
|
14,002 |
|
|
|
13,729 |
|
|
|
|
|
|
|
|
|
|
4. Credit Facility
The Company maintains a credit facility with borrowing availability of $15.0 million. Interest on
any borrowings under the facility will accrue at an annual rate of 1.25% above the London Interbank
Offered Rate. There was no outstanding balance or fee payable on the facility as of March 31,
2010.
5. Stockholders Equity
Common stock
A total of 20,000,000 shares of common stock, par value $0.01, have been authorized. As of
December 31, 2009 and March 31, 2010, the Company had 13,957,596 and 13,914,137 shares of common
stock issued and outstanding, respectively. Commencing in the fourth quarter of 2009, the Company
increased the annual cash dividend from $2.00 to $3.00 per share, or from $0.50 to $0.75 per share
quarterly.
Stock-based compensation
As required by the Stock Compensation Topic, ASC 718, the Company measures and recognizes
compensation expense for all share-based payment awards made to employees and directors, including
employee stock options and employee stock purchases related to the Companys Employee Stock
Purchase Plan, based on estimated fair values. Stock-based compensation expense recognized in the
Condensed Consolidated Statements of Income for the three months ended March 31, 2009 and 2010 is
based on awards ultimately expected to
9
vest and, therefore, has been adjusted for estimated
forfeitures. The Company is required to estimate forfeitures at the time of grant and revise, if
necessary, the estimate in subsequent
periods if actual forfeitures differ from those estimates. The forfeiture rate used is based on
historical experience.
Stock-based compensation plans
A total of 3,000,000 shares have been approved by the Companys stockholders for grants under the
Companys 1996 equity compensation plan (the Plan). The Plan provides for the granting of stock
options intended to qualify as incentive stock options and also provides for the grant of
non-qualifying options and restricted stock to employees, officers and directors of 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 options granted under the Plan is ten years.
In February 2010, the Companys Board of Directors approved grants of 25,219 shares of restricted
stock to certain employees pursuant to the Companys existing annual equity compensation program.
These shares vest over a three year period. The Companys stock price closed at $206.39 on the
date of these restricted stock grants.
In April 2010, the Company awarded a total of approximately 3,000 shares of restricted stock to
various non-employee members of the Companys Board of Directors, as part of the Companys annual
director compensation program. The Companys stock price closed at $248.75 on the date of this
restricted stock grant.
The table below sets forth the restricted stock activity for the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Number of |
|
|
average grant |
|
|
|
shares |
|
|
price |
|
Balance, December 31, 2009 |
|
|
352,740 |
|
|
$ |
194.39 |
|
Grants |
|
|
25,219 |
|
|
$ |
206.39 |
|
Vested shares |
|
|
(27,096 |
) |
|
$ |
105.85 |
|
Forfeitures |
|
|
(8,445 |
) |
|
$ |
169.36 |
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
|
342,418 |
|
|
$ |
202.79 |
|
|
|
|
|
|
|
|
At March 31, 2010, total stock-based compensation cost which has not yet been recognized was
$55.0 million, all for unvested restricted stock. This cost is expected to be recognized over the
next 82 months on a weighted-average basis. Excluding the February 2009 grant of 183,680 shares to
the Chief Executive Officer, which vest on February 10, 2019, the remaining costs are expected to
be recognized over the next 37 months on a weighted-average basis.
The table below sets forth the stock option activity for the three months ended March 31, 2010 and
other stock option information at March 31, 2010:
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Number of |
|
|
Weighted- |
|
|
average |
|
|
|
|
|
|
shares |
|
|
average |
|
|
remaining |
|
|
Aggregate intrinsic |
|
|
|
underlying |
|
|
exercise |
|
|
contractual life |
|
|
value(1) (in |
|
|
|
options |
|
|
price |
|
|
(yrs.) |
|
|
thousands) |
|
Balance, December 31, 2009 |
|
|
106,667 |
|
|
$ |
104.81 |
|
|
|
2.0 |
|
|
$ |
11,489 |
|
Grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises |
|
|
(6,667 |
) |
|
$ |
67.84 |
|
|
|
|
|
|
|
|
|
Forfeitures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
|
100,000 |
|
|
$ |
107.28 |
|
|
|
1.8 |
|
|
$ |
13,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested, March 31, 2010 |
|
|
100,000 |
|
|
|
|
|
|
|
1.8 |
|
|
$ |
13,624 |
|
Exercisable, March 31, 2010 |
|
|
100,000 |
|
|
|
|
|
|
|
1.8 |
|
|
$ |
13,624 |
|
|
|
|
(1) |
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value
(the difference between the Companys 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 holders had all option holders exercised their options on the
respective trading day. The amount of aggregate intrinsic value will change based on the fair
market value of the Companys common stock. |
At March 31, 2010, the Company had 100,000 options outstanding, all of which were exercisable
at an exercise price of $107.28 per share and with a remaining contractual life of 1.8 years.
The following table summarizes information regarding all share-based payment arrangements for the
three months ended March 31, 2009 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2010 |
|
Proceeds from stock options exercised |
|
$ |
1,691 |
|
|
$ |
452 |
|
Excess tax benefits related to share-based
payment arrangements |
|
$ |
1,471 |
|
|
$ |
1,581 |
|
Intrinsic value of stock options exercised(1) |
|
$ |
1,604 |
|
|
$ |
1,184 |
|
|
|
|
(1) |
|
Intrinsic value of stock options exercised is estimated by taking the difference between the
Companys closing stock price on the date of exercise and the exercise price, multiplied by
the number of options exercised for each option holder and then aggregated. |
11
Valuation and Expense Information Under Stock Compensation Topic ASC 718
The following table summarizes the stock-based compensation expense recorded for the three months
ended March 31, 2009 and 2010 by expense line item (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2010 |
|
Instruction and educational support |
|
$ |
408 |
|
|
$ |
603 |
|
Marketing and admissions |
|
|
37 |
|
|
|
48 |
|
General and administration |
|
|
1,923 |
|
|
|
2,408 |
|
|
|
|
|
|
|
|
Stock-based compensation expense included in operating expense |
|
|
2,368 |
|
|
|
3,059 |
|
Tax benefit |
|
|
938 |
|
|
|
1,209 |
|
|
|
|
|
|
|
|
Stock-based compensation expense, net of tax |
|
$ |
1,430 |
|
|
$ |
1,850 |
|
|
|
|
|
|
|
|
In May 1998, the Company adopted the Strayer Education, Inc. Employee Stock Purchase Plan
(ESPP), which was re-authorized on April 28, 2009 for an additional 10 years. Under the ESPP,
eligible employees may purchase shares of the Companys common stock, subject to certain
limitations, at 90% of its market value at the date of purchase. Purchases are limited to 10% of an
employees eligible compensation. The aggregate number of shares of common stock that may be made
available for purchase by participating employees under the ESPP is 2,500,000 shares.
6. Marketable Securities
Most of the Companys excess cash is invested in bank overnight deposits, money market funds, and a diversified, short-term,
investment grade, tax-exempt bond fund to minimize the Companys principal risk and to benefit from
the tax efficiency of the funds underlying securities. As of March 31, 2010, the Company had a
total of $52.7 million invested in the short-term, tax-exempt bond fund. The investments are
considered available-for-sale as they are not held for trading and will not be held to maturity,
in accordance with the Investments-Debt and Equity Securities Topic, ASC 320. The Company records
the net unrealized gains and losses for changes in fair value as a component of accumulated other
comprehensive income in stockholders equity. Realized gains and losses from the sale of
marketable securities are based on the specific identification method. At March 31, 2010, all of the Companys investments were classified as Level 1. Items not subject
to fair value reporting include cash and cash equivalents and restricted cash totaling $91.8
million.
12
7. Long-Term Liabilities
Lease Incentives
In conjunction with the opening of new campuses and the renovating of existing ones, the Company,
in some instances, was reimbursed by the lessors for improvements made to the leased properties. In
accordance with the Operating Leases Subtopic, ASC 840-20, these improvements were capitalized as
leasehold improvements and a long-term liability was established for the reimbursements. The
leasehold improvements and the long-term liability are amortized on a straight-line basis over the
corresponding lease terms, which range from five to ten years. As of December 31, 2009 and March
31, 2010, the Company had deferred lease incentives of $3.7 million and $3.9 million, respectively.
Deferred Rent
In accordance with ASC 840-20, the Company records rent expense on a straight-line basis over the
initial term of a lease. The difference between the rent payment and the straight-line rent
expense is recorded as a long-term liability. As of December 31, 2009 and March 31, 2010 the
Company had deferred rent associated with its lease obligations of $6.2 million and $6.5 million,
respectively.
Sale of Campus Building and Deferred Gain
In conjunction with the sale and lease back of its Loudoun, Virginia campus building in June 2007,
the Company realized a gain of $2.8 million before tax, which is deferred and recognized over the
10-year lease term. The non-current portion of this gain, which was $1.8 million and $1.7 million
at December 31, 2009 and March 31, 2010, respectively, is recorded as a long-term liability.
8. Income Taxes
The Fair Value Measurements and Disclosures Topic, ASC 740, requires the Company to determine
whether uncertain tax positions should be recognized within the Companys financial statements. As
a result of the implementation of ASC 740, no material adjustment in the liability for unrecognized
income tax benefits was recognized. The amount of unrecognized tax benefits at the adoption date
of January 1, 2007 and at March 31, 2010 is immaterial. The Company recognizes interest and
penalties related to uncertain tax positions in income tax expense. As of March 31, 2010, the
amount of accrued interest related to uncertain tax positions was immaterial. The tax years
2006-2009 remain open to examination by the major taxing jurisdictions in which the Company is
subject.
9. Recent Accounting Pronouncements
In June 2008, the FASB issued paragraph ASC 260-45-61A of the Earnings Per Share Topic. This
paragraph requires certain share-based payment awards that entitle holders to receive
non-forfeitable dividends before they vest to be treated as participating securities in basic and
diluted EPS calculations. ASC 260-45-61A is effective for the first fiscal year beginning after
December 15, 2008. The adoption of ASC 260-45-61A, effective January 1, 2009, did not have a
material effect on the Companys consolidated financial statements.
13
In May 2009, the FASB issued the Subsequent Events Topic, ASC 855, which establishes general
accounting and disclosure guidelines for events that occur after the balance sheet date but before
financial statements are issued or available to be issued. The Company adopted the provisions of
ASC 855 effective June 15, 2009.
In June 2009, the FASB issued The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a replacement of FASB Statement No. 162 (SFAS 168).
Under the new FASB ASC, SFAS 168 is now the Generally Accepted Accounting Principles Topic (ASC
105). The ASC becomes the single, authoritative source for US accounting and reporting standards
and supersedes all previously issued FASB statements and related accounting literature references
for reporting purposes. The Company adopted the provisions of ASC 105 for reporting periods ending
after September 15, 2009.
14
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Notice Regarding Forward Looking Statements
Certain of the statements included in this Managements 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 made pursuant to the Private Securities Litigation Reform Act of 1995
(Reform Act). These statements are based on the Companys current expectations and are subject
to a number of assumptions, risks and uncertainties. In accordance with the safe harbor provisions
of the Reform Act, the Company has identified important factors that could cause the actual results
to differ materially from those expressed in or implied by such statements. The assumptions,
uncertainties and risks include the pace of growth of student enrollment, our continued compliance
with Title IV of the Higher Education Act, and the regulations thereunder, as well as regional
accreditation standards and state regulatory requirements, competitive factors, risks associated
with the opening of new campuses, risks associated with the offering of new educational programs
and adapting to other changes, risks associated with the acquisition of existing educational
institutions, risks relating to the timing of regulatory approvals, our ability to continue to
implement our growth strategy, risks associated with the ability of our students to finance their
education in a timely manner, and general economic and market conditions. Further information
about these and other relevant risks and uncertainties may be found in the Companys annual report
on Form 10-K and its other filings with the Securities and Exchange Commission. The Company
undertakes no obligation to update or revise forward looking statements, except as may be required
by law.
Additional Information
We maintain a website at http://www.strayereducation.com. The information on our website is not
incorporated by reference in this Quarterly Report on Form 10-Q and our web address is included as
an inactive textual reference only. We make available, free of charge through our website, our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act as soon as reasonably practicable after we electronically file such material with, or furnish
it to, the SEC.
Results of Operations
In the first quarter of 2010, we generated $157.9 million in revenue, an increase of 27% compared
to the same period in 2009, as a result of enrollment growth of 21% and a 5% tuition increase at
the beginning of 2010. Income from operations was $59.9 million for the first quarter of 2010, an
increase of 26% compared to the same period in 2009. Net income was $36.4 million in the first
quarter of 2010, an increase of 25% compared to the same period in 2009. Diluted earnings per share
was $2.65 in the first quarter of 2010 compared to $2.07 in the same period in 2009, an increase of
28%.
15
Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
Enrollment. Enrollment at Strayer University for the 2010 winter term, which began January 11,
2010 and ended March 29, 2010, increased 21% to 55,106 students compared to 45,697 students for the
same term in 2009. Across the Strayer University campus network, new student enrollments increased
16% and continuing student enrollments increased 22%. Global online enrollments increased 39%,
while students taking 100% of their classes online (including campus based students) increased 19%.
The total number of students taking any courses online (including students at brick and mortar
campuses taking at least one online course) in the 2010 winter term increased 20% to 39,448.
Revenues. Revenues increased 27% to $157.9 million in the first quarter of 2010 from $124.5 million
in the first quarter of 2009, principally due to a 21% increase in enrollment and a 5% tuition
increase at the beginning of 2010.
Instruction and educational support expenses. Instruction and educational support expenses
increased $9.9 million, or 25%, to $49.0 million in the first quarter of 2010 from $39.1 million in
the first quarter of 2009. This increase was principally due to direct costs necessary to support
the increase in student enrollments, including faculty compensation, related academic staff
salaries and campus facility costs, which increased $3.6 million, $2.5 million, and $1.9 million,
respectively. Instruction and educational support expenses as a percentage of revenues decreased
to 31.0% in the first quarter of 2010 from 31.4% in the first quarter of 2009, largely due to
faculty costs growing at a lower rate than tuition revenue.
Marketing and admissions expenses. Marketing and admissions expenses increased $4.8 million, or
25%, to $24.7 million in the first quarter of 2010 from $19.9 million in the first quarter of 2009.
This increase was principally due to the direct costs required to build the Strayer University
brand and attract prospective students, and the addition of admissions personnel, particularly at
new campuses. Marketing and admissions expenses as a percentage of revenues decreased to 15.7% in
the first quarter of 2010 from 16.0% in the first quarter of 2009, as the higher rate of tuition
growth offset incremental costs that were attributable to the opening of four new campuses for
spring term 2010 compared to three new campuses for the spring term in the prior year.
General and administration expenses. General and administration expenses increased $6.4 million, or
35%, to $24.3 million in the first quarter of 2010 from $17.9 million in the first quarter of 2009.
This increase was principally due to increased employee salaries and related costs, higher bad
debt expense, and other administrative expenses (e.g., professional services, travel, relocation,
etc.), which increased $1.2 million, $1.1 million, and $2.7 million, respectively, over the prior
year. General and administration expenses as a percentage of revenues increased to 15.4% in the
first quarter of 2010 from 14.4% in the first quarter of 2009 primarily due to the increase in
other administrative expenses.
Income from operations. Income from operations increased $12.3 million, or 26%, to $59.9 million in
the first quarter of 2010 from $47.6 million in the first quarter of 2009, due to the
aforementioned factors.
Investment and other income. Investment and other income decreased $0.3 million to $0.2 million in
the first quarter of 2010 from $0.5 million in the first quarter of 2009. The decrease was
principally due to lower investment yields partly offset by a higher average cash balance.
16
Provision for income taxes. Income tax expense increased $4.8 million, or 25%, to $23.8 million in
the first quarter of 2010 from $19.0 million in the first quarter of 2009, primarily due to the
increase in income before taxes attributable to the factors discussed above. Our effective tax
rate decreased slightly to 39.5% for the first quarter of 2010, compared to 39.6% for the first
quarter of 2009.
Net income. Net income increased $7.3 million, or 25%, to $36.4 million in the first quarter of
2010 from $29.1 million in the first quarter of 2009, because of the factors discussed above.
Liquidity and Capital Resources
At March 31, 2010, we had cash, cash equivalents and marketable securities of $144.0 million
compared to $116.5 million at December 31, 2009 and $84.0 million at March 31, 2009. At March 31,
2010, most of our excess cash was invested in bank overnight deposits, money market funds, and a
diversified, short-term, investment grade, tax-exempt bond fund to minimize our principal risk and
to benefit from the tax efficiency of the funds underlying securities. As of March 31, 2010, we
had a total of $52.7 million invested in the short-term, tax-exempt bond fund. At March 31, 2010,
the 1,184 issues in this fund had an average credit rating of AA, an average maturity of 1.5 years,
an average duration of 1.3 years, as well as an average yield to maturity of 0.9%. We had no debt
as of December 31, 2009 or March 31, 2010.
For the three months ended March 31, 2010, we reported $63.1 million net cash from operating
activities compared to $47.1 million for the same period in 2009. Capital expenditures were $12.2
million for the quarter ended March 31, 2010 compared to $6.6 million for the same period in 2009.
During the quarter ended March 31, 2010, we paid a regular, quarterly common stock dividend of
$10.5 million ($0.75 per share), and we received $0.5 million upon the exercise of 6,667 stock
options. During the three months ended March 31, 2010, we invested $15.0 million to repurchase
66,900 shares of common stock at an average price of $224.23 per share as part of a previously
announced common stock repurchase authorization. Our remaining authorization for common stock
repurchases was approximately $75.0 million at March 31, 2010.
In the first quarter of 2010, bad debt expense as a percentage of revenues was 3.2% which remained
unchanged from the same period in 2009. Days sales outstanding, adjusted to exclude tuition
receivable related to future quarters, was 13 days at the end of the first quarter of 2010 compared
to 15 days at the end of the first quarter of 2009.
Currently, we invest our cash in bank overnight deposits, money market funds and a short-term,
tax-exempt bond fund. In addition, we have available a $15.0 million line of credit facility.
There have been no borrowings under this credit facility. We believe that existing cash and cash
equivalents, cash generated from operating activities, and if necessary, cash borrowed under the
credit facility, will be sufficient to meet our requirements for at least the next 12 months.
17
The table below sets forth our contractual commitments associated with operating leases as of March
31, 2010. Although they have historically been paid, dividends are not a contractual commitment
and, therefore, have been excluded from this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period (in thousands) |
|
|
|
|
|
|
Within 1 |
|
|
|
|
|
|
|
|
|
After 5 |
|
|
Total |
|
Year |
|
2-3 Years |
|
4-5 Years |
|
Years |
Operating leases |
|
$ |
234,455 |
|
|
$ |
28,745 |
|
|
$ |
62,014 |
|
|
$ |
55,249 |
|
|
$ |
88,447 |
|
New Campuses
We opened two new campuses for the 2010 summer term, both in new markets. The new campuses are
located in Dallas, Texas and in Jackson, Mississippi, which is the Universitys first in the state.
Including the seven new campuses successfully opened for the 2010 winter and spring terms, we have
now opened nine of the 13 new campuses planned for 2010.
18
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is subject to the impact of interest rate changes and may be subject to changes in the
market values of its future investments. The Company invests its excess cash in bank overnight
deposits, money market funds, and a short-term, tax-exempt bond fund. The Company has not used
derivative financial instruments in its investment portfolio.
Earnings from investments in bank overnight deposits, money market mutual funds, and short-term,
tax-exempt bond funds may be adversely affected in the future should interest rates change. The
Companys 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 that have declined in
market value due to changes in interest rates. As of March 31, 2010, a 10% increase or decrease in
interest rates would not have a material impact on the Companys future earnings, fair values, or
cash flows related to investments in cash equivalents or interest earning marketable securities.
ITEM 4: CONTROLS AND PROCEDURES
a) |
|
Disclosure Controls and Procedures. The Companys Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of the Companys disclosure controls and procedures
as of March 31, 2010. Based upon such review, the Chief Executive Officer and Chief Financial
Officer have concluded that the Company has in place, as of March 31, 2010, effective controls
and procedures designed to ensure that information required to be disclosed by the Company
(including consolidated subsidiaries) in the reports it files or submits under the Securities
Exchange Act of 1934, as amended, and the rules thereunder, is recorded, processed, summarized
and reported within the time periods specified in the Commissions rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in reports it files
or submits under the Securities Exchange Act is accumulated and communicated to the Companys
management, including its principal executive officer or officers and principal financial
officer or officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. |
|
b) |
|
Internal Control Over Financial Reporting. There have not been any changes in the Companys
internal control over financial reporting during the quarter ended March 31, 2010 that have
materially affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting. |
19
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company is involved in litigation and other legal proceedings
arising out of the ordinary course of its business. There are no pending material legal
proceedings to which the Company is subject or to which the Companys property is
subject.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously described in Part I,
Item 1A included in the Companys Annual Report on Form 10-K for the year ended December
31, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended March 31, 2010, the Company used $15.0 million to
repurchase shares of common stock under its repurchase program.(1) The
Companys remaining authorization for common stock repurchases was $75.0 million at
March 31, 2010 for use during the remainder of 2010. A summary of the Companys share
repurchases during the quarter is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of |
|
|
Approximate dollar |
|
|
|
|
|
|
|
|
|
|
|
shares purchased |
|
|
value of shares that |
|
|
|
Total number |
|
|
Average |
|
|
as part of publicly |
|
|
may yet be purchased |
|
|
|
of shares |
|
|
price paid |
|
|
announced plans |
|
|
under the plans or |
|
|
|
purchased |
|
|
per share |
|
|
or programs |
|
|
programs ($ mil) |
|
Beginning Balance
(at 12/31/09) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
90.0 |
|
January |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
90.0 |
|
February |
|
|
38,808 |
|
|
$ |
217.63 |
|
|
|
38,808 |
|
|
$ |
81.6 |
|
March |
|
|
28,092 |
|
|
$ |
233.36 |
|
|
|
28,092 |
|
|
$ |
75.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (at 3/31/10) |
|
|
66,900 |
|
|
$ |
224.23 |
|
|
|
66,900 |
|
|
$ |
75.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys repurchase program was announced on November 3, 2003 for repurchases up to
an
aggregate amount of $15 million in value of common stock through December 31, 2004. The Board
of
Directors amended the program on various dates increasing the amount authorized and extending
the
expiration date. |
Item 3. Defaults Upon Senior Securities.
None
Item 4. [Removed and Reserved]
Item 5. Other Information.
None
20
Item 6. Exhibits.
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Act. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Act. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
STRAYER EDUCATION, INC. |
|
|
|
|
|
By:
|
|
/s/ Mark C. Brown
|
|
Mark C. Brown
Executive Vice President and Chief Financial Officer
Date: April 30, 2010
22
Exhibit Index
|
|
|
Exhibit |
|
Description |
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Act. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Act. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
23