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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number: 0-21039
STRAYER EDUCATION, INC.
(Exact name of registrant as specified in its charter)
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MARYLAND 52-1975978
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1025 FIFTEENTH STREET, N.W., WASHINGTON, D.C. 20005
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (202) 408-2424
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None None
(Title of class:) (Name of each exchange on which registered:)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. X Yes No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of
Registrant is $87,727,860 (based upon the last sale price of the Common Stock as
reported on the Nasdaq National Market System on March 18, 1997). The number
of shares of Common Stock outstanding as of March 18, 1997 was 9,450,000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Definitive Proxy Statement for its
1997 Annual Meeting of Stockholders (which is expected to be filed with the
Commission within 120 days after the end of the Registrant's 1996 fiscal year)
are incorporated by reference into Part III of this Report.
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PART I
ITEM I. BUSINESS.
OVERVIEW
Strayer Education, Inc. (the "Company"), through its wholly-owned
subsidiary, Strayer College, Inc. ("Strayer" or the "College") is a regional
proprietary institution of higher education that offers undergraduate and
graduate degree programs to more than 8,000 students at eight campuses in
Washington, D.C. and Northern Virginia. In early 1996, the College received
state approval to operate its first degree-granting campus in Maryland and the
College will begin offering classes at its ninth campus in Prince George's
County, Maryland in the 1997 Spring quarter. The College is accredited by the
Commission on Higher Education of the Middle States Association of Colleges and
Schools ("Middle States"), one of the six regional collegiate accrediting
agencies recognized by the U.S. Department of Education. The majority of
Strayer students are working adults pursuing their first college degree to
improve their job skills and advance their careers. Of students enrolled in
Strayer programs at the beginning of the 1996 Fall quarter, approximately 60%
were age 30 or over and approximately 64% were engaged in a part-time course of
study. The College considers a full-time student to be one who completes 13.5
course credits in an academic quarter. In the 1996 Fall quarter, Strayer
students completed an average of 9.1 course credits.
Upon completion of the Company's initial public offering in July 1996,
the Company acquired the College and Education Loan Processing, Inc. ("ELP"), a
finance company that purchases and services student loans, principally for the
College, and administers the Strayer Education Loan Program (the "SEL
Program").
CAMPUS ORGANIZATION
The College organizes its academic programs and administrative
operations on a decentralized campus basis to increase its responsiveness to
student needs. A Campus Dean and a Campus Coordinator oversee the academic and
administrative functions, respectively, at each campus. Each campus is staffed
with personnel performing admissions, academic counseling, financial aid and
career development functions.
A learning resources center at each campus supports the College's
instructional programs. Each learning resources center contains a library and
computer laboratories and is operated by a full-time manager and support staff.
CURRICULUM
The College offers a business-oriented curriculum to equip students
with specialized knowledge and skills for careers in business, industry and
government. The Academic Curriculum Committee reviews and revises the
College's course offerings periodically to improve the educational programs and
respond to changing and competitive job markets. The College formed a
Curriculum Advisory Board in 1993 to support the program evaluation process.
The Curriculum Advisory Board consists of College faculty, current and former
Strayer students, and representatives of more than 20 private and federal
sector employers in the greater Washington, D.C. area. The Curriculum Advisory
Board also studies the career progress of College alumni. The College uses
these studies to make decisions about curriculum development, resource
allocation and faculty appointments.
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The College offers programs in the following areas:
BACHELOR OF SCIENCE (B.S.) DEGREE MASTER OF SCIENCE (M.S.) DEGREE
--------------------------------- -------------------------------
Accounting Business Administration
Business Administration Information Systems
Computer Information Systems Professional Accounting
Economics
ASSOCIATE IN ARTS (A.A.) DEGREE DIPLOMA (CAREER DIVISION)
------------------------------- -------------------------
Accounting Computer Information Systems
Business Administration
Computer Information Systems
Economics
General Studies
Marketing
Each undergraduate degree program emphasizes oral and written
communication skills as well as mathematics and various disciplines in the
humanities and social sciences. In addition to its degree and diploma
programs, the College offers classes to non-degree, non-program students
wishing to take courses for personal or professional enrichment.
Although all of the College's programs and courses are offered at each
campus, the College adapts its offerings to the preferences of the student
population at each location. In addition, Strayer students may enroll in
courses at more than one campus. The following table shows Strayer's
enrollment by major, program and campus location at the beginning of the 1996
Fall quarter:
COLLEGE ENROLLMENT BY MAJOR, PROGRAM
AND CAMPUS LOCATION -- 1996 FALL QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
Campus
------
Major Washington, Takoma
- ----- ----------- ------
Program D.C. Park Arlington Alexandria Woodbridge Loudoun Manassas Fredericksburg Total
------- ---- ---- --------- ---------- ---------- ------- -------- -------------- -----
Accounting....... AA 47 19 6 12 9 9 8 16 126
BS 138 43 76 69 84 54 83 59 606
MS 26 10 25 11 14 7 9 5 107
Business AA 156 42 33 27 29 33 23 56 399
Administration... BS 309 113 201 206 211 179 197 170 1586
MS 97 51 119 66 62 46 50 60 551
Computer * 77 85 36 60 83 43 69 65 518
Information AA 211 104 55 61 72 52 41 73 669
Systems.......... BS 356 159 282 408 361 259 276 201 2302
Information
Systems.......... MS 43 21 71 65 82 58 48 43 431
Economics........ AA 3 0 1 0 0 1 0 0 5
BS 13 10 4 7 3 0 0 0 37
General
Studies.......... AA 27 3 19 15 7 2 6 2 81
Marketing........ AA 14 1 0 0 0 0 2 0 17
Non-Degree/
Non-Program**.... --- 186 113 94 92 40 128 61 23 737
----- ---- ---- ---- ---- ---- ---- ---- ----
Total Enrollment. 1703 774 1022 1099 1057 871 873 773 8172
===== ==== ==== ==== ==== ==== ==== ==== ====
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------
* Diploma Program.
** Includes undeclared majors.
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The College allows students to apply credits earned in one program
toward attainment of a more advanced degree. For example, a student originally
pursuing a Diploma in Computer Information Systems can extend his original
objective by taking additional courses leading to an A.A. degree in Computer
Information Systems, a B.S. degree in Computer Information Systems, and
ultimately an M.S. degree in Information Systems. The curriculum design
provides students a level of competency and a measure of attainment in the
event they interrupt their education or choose to work in their field of
concentration prior to obtaining their final degree.
The following table illustrates the number and type of degrees granted
in each of the last five years:
DEGREES AND DIPLOMAS CONFERRED
FOR THE YEARS 1992 TO 1996
Year
ended
- ------------
June 30, 1992 June 30, 1993 June 30, 1994 June 30, 1995 June 30, 1996
------------- ------------- ------------- ------------- -------------
Diploma
Program 714 826 702 652 368
Associate's
Degrees 129 168 217 239 248
Bachelor's
Degrees 398 453 673 787 823
Master's
Degrees 161 193 290 293 278
---------- ---------- ---------- ---------- ----------
TOTAL 1,402 1,640 1,882 1,971 1,717
========== ========== ========== ========== ==========
FACULTY
The College seeks to appoint faculty who hold appropriate academic
credentials, are dedicated, active professionals in their field, and are
committed to teaching working adults. In accordance with its educational
mission, the College focuses the efforts of its faculty on teaching. The
normal load for a full-time faculty member is four courses per quarter for each
of three quarters, or 12 courses per academic year. With the approval of the
Campus Deans, faculty members may teach a fifth course per quarter and extra
courses during the summer quarter for additional compensation. The College
requires full-time faculty members to hold counseling hours at least two hours
per week for each course they teach.
Strayer provides financial support for faculty members seeking to
update their skills and knowledge. The College maintains a tuition plan that
reimburses instructors enrolled in advanced degree programs for one-half of
their tuition charges. Strayer conducts annual in-house faculty workshops in
each discipline. The College also fully reimburses its faculty for their costs
in receiving computer-related instruction and training to keep current in
information technology developments.
ACCREDITATION AND APPROVALS
The College has been accredited by Middle States, an accrediting agency
recognized by the Department of Education, since 1981. Accreditation is a
system for recognizing educational institutions and their programs for a
performance, integrity and quality that entitles them to the confidence of the
educational community and the public. In the United States, this recognition
comes primarily through private voluntary associations of institutions and
programs of higher education. These associations establish criteria for
accreditation, evaluate institutions and professional programs for
accreditation, and publicly designate those which meet their criteria.
Accredited schools are subject to periodic review by accrediting bodies to
ensure that the schools maintain the performance, integrity and quality
required for accreditation.
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Middle States reaffirmed the College's accreditation in 1995. The
College is required to submit an interim status report to Middle States in
April 1997, and the next scheduled evaluation visit by Middle States is
currently set for the academic year 1999-2000.
Middle States is the same accrediting agency that grants institutional
accreditation to other degree-granting public and private colleges and
universities in its region. Accreditation by Middle States is an important
attribute of the College. Colleges and universities depend on accreditation in
evaluating transfers of credit and applications to graduate schools. Employers
rely on the accredited status of institutions when evaluating a candidate's
credentials, and parents and high school counselors look to accreditation for
assurance that an institution has quality educational standards. Moreover,
scholarship commissions often restrict their awards to students attending
accredited institutions, and institutional accreditation is necessary to
qualify for eligibility for federal student financial assistance.
The College is authorized to offer its programs by the D.C. Education
Licensure Commission, the Virginia State Council of Higher Education and the
Maryland Higher Education Commission.
The College is authorized by the Immigration and Naturalization
Service of the U.S. Department of Justice to admit foreign students. The
College also employs certain foreign faculty members and administrators in
accordance with U.S. immigration laws. In addition, Strayer is approved for
the education of veterans and members of the selective reserve and their
dependents, as well as for the rehabilitation of handicapped students.
Approximately 7% of the College's students are veterans or reservists.
STUDENT CHARACTERISTICS
The College's students are primarily working adults. At the beginning
of the 1996 Fall quarter, approximately 64% of the enrollment consisted of
part-time students, approximately 79% attended classes at night or on weekends,
and approximately 55% were women. The approximate age distribution of the
students was as follows:
AGE PERCENTAGE OF STUDENTS
--- ----------------------
21 or under . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8%
22 to 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31%
30 to 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37%
40 to 49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19%
50 or over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%
Age unknown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
At the beginning of the 1996 Fall quarter, approximately 66% of the
College's enrollment consisted of Virginia residents. Maryland residents and
District of Columbia residents accounted for 22% and 12% of the enrollment,
respectively. Reflecting the attraction of the greater Washington, D.C. area
for international students, students from over 50 countries collectively
represented 9% of the 1996 Fall quarter enrollment.
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STUDENT RECRUITMENT
The College focuses its recruitment efforts on attracting students
with the motivation and ability to complete its business-oriented educational
programs. To generate interest among potential students, Strayer's marketing
staff primarily employs direct mailings and television, radio and newspaper
advertising. The College monitors the effectiveness of its various marketing
efforts in producing student enrollment. Referrals constitute the most
important source of inquiries from potential students.
The marketing department tracks and forwards to the College's
admissions representatives responses to its direct mail and advertising
campaigns. Admissions representatives at each campus pursue expressions of
interest in Strayer by arranging interviews for prospective students. The
representatives also conduct campus tours and otherwise assist prospective
students in the application process. At December 31, 1996, the College employed
43 admissions representatives.
The College has entered into articulation agreements with Germanna
Community College, Northern Virginia Community College and Prince George's
Community College to facilitate enrollment of students seeking to transfer
course credits earned at these institutions. The College sponsors recruitment
events at the campuses of each of these community colleges.
STUDENT ADMISSIONS
The College seeks to ensure that incoming students have the necessary
academic background to succeed in their course of study at Strayer. Students
attending the College's undergraduate programs must possess a high school
diploma or a General Educational Development Certificate. All students must
also pass placement exams or submit acceptable standardized test scores. For
admission to the College's degree programs, students must attain a certain
level of proficiency in English and mathematics. Students attending the
College's graduate programs must have a bachelor's degree from an accredited
institution. If a student's undergraduate major varies widely from the
student's proposed graduate course of study, certain undergraduate foundation
courses may be necessary for admission to some of the highly technical courses
offered at the graduate level.
International students applying for admission must meet the same
admission requirements as other students. Those students whose native language
is not English must provide evidence that they are able to use the English
language with sufficient facility to do college-level work in an
English-speaking institution.
TUITION AND FEES
Strayer charges tuition by the credit hour. All courses offered are
4.5 credit hours. As of January 1, 1997, undergraduate, full-time students are
charged at the rate of $170 per credit hour. Undergraduate, part-time students
are charged at the rate of $180 per credit hour. Courses in graduate programs
are charged at the rate of $240 per credit hour. Accordingly, a full-time
student seeking to obtain a bachelor's degree in four years currently would pay
approximately $7,650 per year in tuition. The College implemented tuition
increases of 7.7%, 7.1% and 6.3% in 1994, 1995 and 1996, respectively.
Generally, tuition must be paid (or arrangements made therefor) prior
to the beginning of a quarter. If a student withdraws from a course before
completion, federal regulations permit the College to retain a specified
percentage of the tuition, which varies with the percentage of the course
completed.
Students finance their Strayer education in a variety of ways. A
significant number of students utilize federal financial aid programs. In
addition, many of Strayer's working adult students finance their own education
or receive full or partial tuition reimbursement from their employers. Strayer
offers grants, loans (including loans under the SEL Program), scholarships and
work-study programs as financing options for its students.
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STRAYER COLLEGE EDUCATIONAL FOUNDATION
Strayer students are eligible to receive awards from the Strayer
College Educational Foundation (the "Foundation"), a non-profit organization
that provides scholarships and grants to college students, active duty military
personnel and high school students in the greater Washington, D.C. area.
Through December 31, 1996, the Foundation has awarded $74,280 in grants and
scholarships.
SEL PROGRAM
In 1995, Strayer began the SEL Program of loans for eligible students
as an alternative to government-sponsored student loans. In 1996, the College
originated 1,263 SEL loans aggregating approximately $3.2 million. The SEL
Program enables the College to reduce the significant administrative costs
incurred by it in processing loans under Title IV Programs and lessens the
College's dependence on federal student financial aid programs. The College
believes that the SEL Program also helps it to attract and retain qualified
students.
The Company designed the SEL Program for working adult students. The
loans generally have maturities ranging from one to six years after graduation
and bear interest at a fixed rate that is competitive with rates under Title IV
Programs. Monthly loan payments begin the first month after the loan date and
generally vary between $200 and $300, including loan principal as well as
interest. Borrowers make principal payments while still enrolled, thereby
reducing the debt they otherwise would assume upon completion of their studies.
At December 31, 1996, there were a total of 1,213 loans outstanding with an
aggregate loan balance of approximately $2.9 million and an average individual
loan balance of approximately $2,400.
Loans under the SEL Program are unsecured. Strayer's underwriting
involves a credit evaluation of each applicant.
STUDENT RETENTION
Strayer dedicates significant resources to assisting students in
overcoming the personal and academic obstacles that can interfere with
completion of a course of study. Each campus provides students with scheduled
tutoring sessions and with academic counseling centers that are staffed by
full-time faculty members for eight hours each week day. In addition, the
College assigns each student an academic adviser and offers developmental
courses for students whose record indicates a need for academic support.
Strayer considers factors relating to student retention in the performance
evaluation of every full-time faculty member.
Notwithstanding Strayer's student retention programs, some students at
the College, as in other higher education institutions, end their studies prior
to program completion. In the last five award years, the College's student
withdrawal rate ranged from approximately 23% to approximately 27%. The
withdrawal rate for the 1995-96 federal award year was 24.9%. Student
withdrawals have a negative financial and marketing effect on the College. The
College experiences some decline in student enrollment during each academic
quarter from the enrollment level at the beginning of the quarter. The College
is obligated to make refunds of unearned tuition with respect to students who
withdraw during an academic quarter.
CAREER DEVELOPMENT SERVICES
The College actively assists its students and alumni with job
placement and other career-related matters through career development offices
located at eight of its campuses. Strayer's career development personnel
conduct workshops on employment-related topics (including resume preparation,
interviewing techniques and job search strategies), maintain job listings,
arrange campus interviews by employers and provide other placement assistance.
The College sponsors career fairs in the Fall and Spring quarters for students
and alumni to discuss career opportunities with companies and governmental
agencies in the greater Washington, D.C. area.
The College conducts annual alumni surveys to monitor the career
progression of its graduates and to comply with the Middle States and state
requirement to perform outcome assessments. The reliability of the survey data
largely depends on the information reported to the College. The 1996 alumni
survey, which had an approximately 15% overall response rate, indicated that
only 4% of those responding were unemployed. Approximately 74% of
undergraduate alumni responding indicated that their Strayer education
sufficiently prepared them for their present occupation and more than 93% of
graduate degree alumni responding credit Strayer for the achievement of their
professional goals. According to the
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survey, Strayer's greatest assets, in order of importance, are campus
locations, schedule variety, instructor knowledge and personal class sizes.
Strayer students and graduates are employed in a wide range of
regional and local companies, many of whom are in the information technology
industry. Federal governmental agencies also provide a significant source of
employment.
COMPETITION
The postsecondary education market in Strayer's market area is highly
competitive. The College competes with traditional public and private two-year
and four-year colleges, other for-profit schools and alternatives to higher
education, such as employment and military service. Public colleges may offer
programs similar to those of the College at a lower tuition level, due to
government subsidies, government and foundation grants, tax-deductible
contributions and other financial sources not available to proprietary
institutions. Tuition at private institutions is generally higher, and in some
cases significantly higher, than the tuition at the College. Many of the
College's competitors have greater financial and personnel resources than the
College.
The College competes with other educational institutions primarily
based on the quality of its business-oriented curriculum and instruction, its
flexible schedules and convenient classroom locations, and its responsiveness
to changing educational requirements of the workplace. Few of the College's
competitors have modified their programs to meet the special needs of working
adult students, although management believes that more may do so in the future.
EMPLOYEES
During 1996, the College employed 526 faculty members, of whom 73 were
full-time and 453 part-time, and 279 non-faculty staff in information systems,
financial aid, recruitment and admissions, payroll and human resources,
corporate accounting, and other administrative functions. Of the College's
non-faculty staff, 193 were employed full-time and 86 part-time.
LICENSING, ACCREDITATION AND
FINANCIAL AID REGULATION
STATE LICENSURE
The College is dependent on the authorization of each state within which
the College offers educational programs to allow it to operate and to grant
degrees or diplomas to students. The College is subject to extensive regulation
in each of the three jurisdictions (the District of Columbia, Virginia and
Maryland) in which it currently operates. State laws and regulations affect the
College's operations and may limit the ability of the College to introduce
educational programs or establish new campuses. State authorization is also
required in order for an institution to become and remain eligible to
participate in Title IV Programs.
The College was granted a permanent license by the D.C. Education Licensure
Commission (the "D.C. Commission") in 1990 following the purchase of the College
by Mr. and Mrs. Ron K. Bailey. If the D.C. Commission finds an accredited
institution in full compliance with D.C. licensure requirements, the D.C.
Commission grants a permanent license, which remains in effect indefinitely,
subject to periodic review and amendment due to change in ownership,
accreditation status, location, degrees or certificates offered, and other
conditions.
After the opening of the Takoma Park campus in 1992, the D.C. Commission
conducted a site visit and issued an evaluation report containing certain
findings of deficiency with respect to advertising and publications, graduate
programs, governance, administration, budgeting, library and computer facilities
and resources, student outcomes assessment, student health and other services,
and access for disabled students. The D.C. Commission is authorized to grant a
provisional license based on its determination that an institution complies, or
within a reasonable period of time can comply, with all applicable regulatory
requirements. A provisional license is issued for a fixed period of time and may
be subject to conditions which the D.C. Commission deems necessary to achieve
full compliance. In March 1993, the D.C. Commission granted the College a
provisional license for a period of three years on the conditions that, among
others, the College submit a progress report by March 1994 and employ a
compliance specialist to assist it in meeting licensure
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requirements. The College engaged a compliance specialist and submitted a
progress report to the D.C. Commission in February 1994.
In March 1996, the D.C. Commission extended the College's provisional
license through March 1997 with a site visit planned for the Fall of 1996 or
the Spring of 1997. After conducting a site visit in January 1997, the evaluator
submitted a report recommending that Strayer increase its administrative staff
to accommodate enrollment growth; make changes in faculty appointments,
including awarding tenure to appropriate faculty members, employing more
full-time faculty with doctoral degrees, employing full-time faculty to teach
approximately 60 percent of the classes at all sites, considering faculty rank,
and increasing the faculty role in institutional governance; expand facilities
for libraries, faculty offices, student records, computer laboratories, and
meetings; correct minor errors in the College's catalog; encourage student
participation in the College newspaper; and repair a wheelchair ramp. The
evaluator recommended that the College's authority to operate as a
degree-granting institution in the District of Columbia be renewed for five
years if the College rectified deficiencies in the areas of faculty, physical
plant, and library within six months. The College submitted a response to the
evaluation report on March 13, 1997. In its response, while accepting a number
of the evaluator's recommendations, the College maintained that it was in full
compliance with all of the D.C. Commission's standards for licensure and merited
a permanent license. The D.C. Commission is expected to act on the College's
license renewal application at its meeting on March 27, 1997, prior to the
expiration of the College's license on March 31, 1997.
The College began offering its educational programs in Virginia in 1981.
The Virginia State Council of Higher Education approved the College's first
Northern Virginia site in 1982. On November 15, 1995, the State Council of
Higher Education for Virginia granted the College a term of full approval ending
November 30, 1998.
In 1995, the College applied to establish a branch campus in Prince
George's County, Maryland, to offer degree-granting programs up to the master's
degree level in accounting, business administration and computer information
systems. In February 1996, the Maryland Higher Education Commission ("MHEC")
advised the College of the approval of its application to operate in Maryland as
an out-of-state institution. The College is preparing to open a campus in Prince
George's County, Maryland, for the 1997 Spring quarter, which begins in April.
MHEC gave the College permission to offer courses at the Computer Sciences
Corporation facilities in Hanover, Maryland, beginning in July 1996, and to
offer the Master of Science in Computer Information Systems at the Southern
Maryland Higher Education Center beginning in the 1996 Fall quarter.
ACCREDITATION
An institution must be accredited by an accrediting agency recognized by
the Department of Education in order to be eligible to participate in Title IV
Programs. The HEA requires accrediting agencies recognized by the Department of
Education to review many aspects of an institution's operations in order to
ensure that the education or training offered by the institution is of
sufficient quality to achieve, for the duration of the accreditation period, the
stated objective for which the education or training is offered. Under the
HEA, a recognized accrediting agency must perform regular inspections and
reviews of institutions of higher education, including unannounced site visits
to institutions such as the College that provide vocational education and
training. In accordance with that requirement, Middle States conducted an
unannounced site visit to the College in April 1996 and in its report stated
that Strayer had represented itself with honesty and integrity regarding its
prebaccalaureate occupationally specific programs.
Middle States, a collegiate accrediting agency recognized by the Department
of Education, accredited the College in 1981 and reaffirmed the College's
accreditation in November 1995. The College is required to submit an interim
status report to Middle States in April 1997, which will address planning
efforts as they relate to expansion of enrollments and additional off-campus
sites and to facilities. Middle States' next scheduled evaluation visit to the
College is currently set for the academic year 1999-2000. Middle States has
updated certain of its policies to conform to new HEA requirements. The College
expects that its next accreditation review will be conducted under the new
requirements.
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IMMIGRATION
The College is authorized by the Immigration and Naturalization Service
("INS") of the U.S. Department of Justice to admit foreign students. The College
also employs certain foreign faculty members and administrators in accordance
with U.S. immigration laws. Foreign students, other than resident aliens,
intending citizens, and residents of certain Pacific islands, are ineligible to
participate in Title IV Programs. Immigration legislation enacted in 1996
imposed additional requirements on higher education institutions to collect
information concerning, and to verify the immigration status of, foreign
students. The College has established procedures designed to comply with U.S.
immigration laws. If the College fails to comply with these laws, the INS could
take enforcement action, which could result in the withdrawal of foreign
students enrolled at Strayer, loss of authorization to admit foreign students
or loss of foreign faculty members and administrators.
FINANCING STUDENT EDUCATION
In the 1997 Winter quarter, approximately 37.8% of the College's students
participated in one or more of the federally supported student financial aid
programs. A substantial portion (approximately 48% in 1996) of the College's
revenues are derived from tuition financed under Title IV Programs.
The College's financial aid programs are designed to assist eligible
students whose financial resources are inadequate to meet the cost of education.
Aid is awarded on the basis of financial need, generally defined under the HEA
as the difference between the cost of attending a program of study and the
amount a student can reasonably be expected to contribute to those expenses. All
recipients of financial aid must maintain a satisfactory grade point average and
progress in a timely manner toward completion of a program of study.
Title IV Programs
The College maintains eligibility for its students to participate in the
following Title IV Programs:
Federal Family Education Loans. Pursuant to the Federal Family Education
Loan Program (the "FFEL Program"), which includes the Federal Stafford Loan
("Stafford") program and the Federal PLUS program, students and their parents
can obtain from lending institutions subsidized and unsubsidized student loans,
which are guaranteed by the federal government. The obligation to begin repaying
Stafford loans is deferred until six months after the student graduates,
withdraws or ceases to be enrolled on at least a half-time basis. Students who
demonstrate financial need may qualify for a subsidized Stafford loan, and the
federal government will pay the interest on the loan while the student is in
school and for six months after the student's graduation or withdrawal.
Unsubsidized Stafford loans are available to students without demonstrated
financial need or in some cases in addition to a subsidized Stafford loan. The
unsubsidized Stafford loan program now incorporates the former Federal
Supplemental Loans for Students program. In 1996, approximately 41.2% of the
College's revenues were derived from Stafford loans. PLUS Loans are made
available to parents of dependent students and accounted for approximately 1.1%
of the College's revenues in 1996. The maximum amount of any PLUS loan is the
difference between the student's estimated cost of attendance at the
institution and the estimated financial resources reasonably available to that
student.
Pell Grants. Grants under the Federal Pell Grant ("Pell") program, which
are available to eligible students based on financial need and other factors,
accounted for approximately 5.6% of the College's revenues in 1996.
Campus-Based Programs. The "campus-based" Title IV Programs include the
Federal Supplemental Educational Opportunity Grant program, the Federal
Work-Study program, and the Federal Perkins Loan ("Perkins") program.
Tuition received by the College under these programs accounted for less than
1.0% of the College's revenues in 1996.
Direct Student Loans. In 1993, Congress enacted the William D. Ford
Federal Direct Loan Program (the "Direct Loan Program"), under which the
Department of Education makes loans directly to students, rather than
guaranteeing loans made by lending institutions. The Direct Loan Program has
been phased in
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beginning in 1994-95. The College was approved to participate in this program
beginning July 1, 1996, and anticipates beginning to make loans under this
program in 1997.
Other Financial Aid Programs
In addition to the College's own student loan and scholarship programs,
eligible students at the College may participate in educational assistance
programs administered by the U.S. Department of Veterans Affairs, the U.S.
Department of Defense, the District of Columbia and private organizations.
FINANCIAL AID REGULATION
To be eligible to participate in Title IV Programs, the College must comply
with specific standards and procedures set forth in the HEA and the regulations
issued thereunder by the Department of Education. An institution must, among
other things, be authorized by each state within which it operates to offer its
educational programs and be accredited by a recognized accrediting agency. The
institution must also be certified by the Department of Education to
participate in Title IV Programs, which requires, among other things, that the
institution meet certain standards of administrative capability and financial
responsibility. For purposes of the Title IV Programs, the College and all of
its campuses are considered to be a single "institution" so that Department of
Education requirements applicable to an "institution" are applied to all of the
College's campuses in the aggregate rather than on an individual basis.
The College is currently certified to participate in Title IV Programs. The
HEA requires the Department of Education to review every institution of higher
education for continued participation in Title IV Programs by July 23, 1997, on
a schedule established by the Department. The College submitted its application
for recertification to the Department on March 14, 1997. The timely submission
of the recertification application will allow the College to continue to
participate in Title IV Programs pending the Department's action on the
application. As a result of the Department of Education's recertification
review, if the Department of Education determined that an institution did not
meet all applicable standards, the institution could be recertified for a
limited period of time or placed on provisional certification status or its
certification permitted to expire. Provisional certification does not limit an
institution's access to Title IV Program funds, but does subject the institution
to closer review by the Department of Education and may subject the institution
to summary adverse action if it commits violations of Title IV Program
requirements. Based on its Perkins loan cohort default rate for the most recent
year, the College could be placed on provisional certification status. See "--
Student Loan Defaults".
The regulatory scheme applicable to the College has been subject to
frequent revisions, many of which have increased the level of scrutiny to which
higher education institutions are subjected and raised the applicable standards.
In the 1992 reauthorization of the HEA, Congress imposed significant new and
more stringent standards governing institutions participating in Title IV
Programs, including new standards for institutional eligibility and the timing,
scope of and procedures for eligibility and certification reviews and
accrediting agency approval. The new standards are designed to limit
institutional dependence on Title IV Program funds, prevent institutions with
unacceptable student loan default rates from participating in Title IV Programs
and, in general, require institutions to satisfy certain criteria intended to
protect the integrity of the Title IV Programs, notably criteria regarding
administrative capability and financial responsibility. The regulatory
standards in effect at the time of reviews by regulatory authorities and the
College's compliance with those standards may affect the operations of the
College and its ability to participate in Title IV Programs.
The new standards are consistent with the increased scrutiny and regulation
to which providers of postsecondary education have been subjected as a result of
increased concern over fraud and abuse in Title IV Programs. Congress and the
Department of Education have recently focused in particular upon the operations
of proprietary institutions, such as the College. Certain elements of the
regulatory scheme applicable to the College are described below. The current
regulatory scheme may be modified through the reauthorization of the HEA, which
Congress will consider in 1997.
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Increased Regulatory Scrutiny
The 1992 amendments to the HEA formalized, modified and strengthened the
regulatory structure known as the "Program Integrity Triad," which consists of
the Department of Education, recognized accrediting agencies, and state higher
education regulatory bodies. Congress intended this initiative to increase the
regulatory scrutiny of postsecondary educational institutions. In addition to
the Program Integrity Triad, other participants in Title IV Programs, notably
student loan guarantee agencies, also have enforcement authority.
The HEA was most recently reauthorized by the Congress in 1992, at which
time funding for the Title IV Programs was authorized through September 30,
1997, with an automatic one-year extension if the HEA were not reauthorized by
that date. The Congress has commenced the reauthorization process, but the
reauthorization is not expected to be completed until late 1997 or during 1998.
Although there is no present indication that the Congress will decline to
reauthorize the Title IV Programs, at this time it is not possible to predict
the outcome of the reauthorization process. There can be no assurance that
federal funding will continue to be available for any or all Title IV Programs
for proprietary institutions such as the College, that such funding will be
maintained at current levels for any or all such programs, that current
requirements for student and institutional participation will be unchanged, or
that one or more present Title IV Programs will not be replaced by other
programs with materially different student or institutional eligibility
requirements or benefits. An elimination of certain Title IV Programs, a
reduction in federal funding levels of such programs, material changes in the
requirements for participation in such programs, or the substitution of
materially different programs could reduce the ability of certain students to
finance their education, which in turn could lead to lower enrollments at the
College or require the College to increase its reliance upon alternative
sources of student financial aid. Given the significant percentage of the
Company's revenues that are indirectly derived from the Title IV Programs, the
loss of or a significant reduction in Title IV Program funds available to the
College's students could have a material adverse effect on the Company.
In addition to the HEA reauthorization, President Clinton and members of
Congress have proposed various changes in the Internal Revenue Code to assist
students and their parents in meeting the cost of higher education. Among other
changes, the President has proposed the "Hope Scholarship," which would provide
a nonrefundable tax credit of up to $1,500 a year for two years for tuition and
fees of postsecondary education. Students would be required to maintain at least
a "B" average and meet certain other eligibility requirements to qualify for the
second year of the tax credit. Members of Congress and representatives of the
higher education community have expressed some concerns about these proposals,
including the possibility of review of student grade point averages by the
Internal Revenue Service. Congress has commenced consideration of these proposed
changes in the Internal Revenue Code, but is not expected to complete that
consideration until later in 1997. At this time it is not possible to predict
whether Congress will enact any of the proposed tax reforms, to what extent
Congress may modify them in the process of enactment, or to what extent such tax
benefits, if enacted, may be available to students attending proprietary
institutions such as the College.
Administrative Capability
Department of Education regulations specify extensive criteria by which an
institution must establish that it has the requisite "administrative capability"
to participate in Title IV Programs. To meet the administrative capability
standards, an institution, among other things, must not have cohort default
rates above specified levels, must have various procedures in place for
safeguarding federal funds, must not be, and not have any principal or affiliate
who is, debarred or suspended from federal contracting or engaging in activity
that is cause for debarment or suspension, and must not otherwise appear to lack
administrative capability.
If the Department of Education determines that an institution is not
administratively capable solely because it fails to comply with the cohort
default rate standards of administrative capability, the Department will certify
the institution's continuing eligibility to participate in Title IV Programs on
a provisional basis for no more than three years. See "Licensing, Accreditation
and Financial Aid Regulation -- Financial Aid Regulation -- Student Loan
Defaults." During the period of provisional certification, the institution must
comply with any additional conditions included in its program participation
agreement. If the Department of
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Education determines that a provisionally certified institution is unable to
meet its responsibilities under its program participation agreement, it may
revoke the institution's certification to participate in Title IV Programs.
Based on an inspection conducted by the Office of Inspector General of the
Department of Education in mid-1992, the Department of Education concluded that
there were serious deficiencies at that time in the College's administration of
federal student financial aid programs. The Department of Education cited late
and unpaid refunds, lack of refund notification, unpaid credit balances, a high
student withdrawal rate, lack of exit counseling documentation, incorrect loan
certifications and missing financial aid transcripts. Because of these
deficiencies, the Department of Education transferred the College from the
"advance" system of payment of Title IV Program funds, under which an
institution requests and receives funding from the Department of Education in
advance based on anticipated needs, to the "reimbursement" system of payment,
under which the institution must disburse funds to eligible students and
document their eligibility for Title IV Program funds before receiving such
funds from the Department of Education. The College disputed various of the
Department of Education's findings but took steps to correct certain
institutional weaknesses identified by the Department of Education, including
creating new administrative positions dealing with Title IV Programs, hiring
additional financial aid officers, increasing training for financial aid
officers and other College officials, preparing a financial aid manual, and
developing new computer systems. Further, following an internal audit, the
College in 1993 and 1994 repaid to the government certain Title IV funds for
which the College determined its documentation was inadequate. Following these
remedial actions, the Department of Education returned the College to the
advance system of payment, effective December 7, 1995.
Based on the Department of Education review, the College's principal
guaranty agency, American Student Assistance Corporation ("ASA"), imposed a
temporary emergency suspension on new loan guarantees to students enrolled at
the College in April 1993. After conducting a program review, ASA limited its
guaranty to loans for students who had previous loans guaranteed by ASA. In
December 1993, after conducting a followup review, ASA removed the limitation on
the College's participation in the FFEL guaranteed student loan programs. In
August 1994, ASA advised the College that its corrective measures and plan of
action were satisfactory and the program review was closed.
Department of Education regulations permit an institution to enter into a
written contract with a third-party servicer for the administration of any
aspect of the institution's participation in Title IV Programs. The third-party
servicer must, among other obligations, comply with Title IV requirements and be
jointly and severally liable with the institution for any violation by the
servicer of any Title IV provision. The College has written contracts with two
third-party servicers, which it has, as required, reported to the Department of
Education. Financial Aid Management for Education, Inc., which has served the
College since 1983, certifies FFEL Program loan applications, prepares reports
from the College to the Department of Education, issues checks for the Pell and
campus-based programs, and issues and collects Perkins loans. Unger and
Associates, Inc. provides certain default management services to the College in
connection with the FFEL Programs, including notices to students of the
commencement of their repayment obligations, skiptracing, and preclaims
assistance.
Financial Responsibility
The HEA and Department of Education regulations prescribe extensive
standards of financial responsibility that institutions such as the College must
satisfy to participate in Title IV Programs. Among these standards are general
standards requiring the institution to provide the services described in its
official publications and statements; to provide the administrative resources
necessary to comply with Title IV requirements; and to meet all of its financial
obligations, including required refunds and any repayments to the Department of
Education for debts and liabilities incurred in programs administered by the
Department. A for-profit institution such as the College must also: (i)
demonstrate an "acid test" ratio (defined as the ratio of cash, cash equivalents
and current accounts receivable to current liabilities) of at least 1-to-1 at
the end of its latest fiscal year; (ii) not have had operating losses in either
or both of its two latest fiscal years that in sum result in a decrease in
tangible net worth in excess of 10% of the institution's tangible net worth at
the beginning of the two-year period; and (iii) have had a positive tangible net
worth for its latest fiscal year. For
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the fiscal year ended December 31, 1996, the College's "acid test" ratio was
1.69-to-1. The College did not have operating losses in either of its two most
recent fiscal years and had a positive tangible net worth for its latest fiscal
year. Unless the institution meets specific alternative criteria, it must
submit an irrevocable letter of credit, payable to the Department of Education,
in an amount equal to 25% of the total dollar amount of refunds that the
institution paid on Title IV Programs in the previous fiscal year. The College
has submitted such a letter of credit in the amount of $500,000. An institution
will not be considered to be financially responsible if it exhibits certain
characteristics of poor past performance, including, among other
considerations, unpaid liabilities for Title IV violations, recent limitation,
suspension or termination actions, recent audit or program review findings
resulting in repayment of more than 5% of Title IV funds received for the
relevant year, failure to submit timely and acceptable audit reports, and
failure to resolve satisfactorily program review or audit findings. Based on
its audited financial statements for 1995 and 1996, as submitted to the
Department of Education, the College believes it satisfies each of the
applicable financial responsibility standards. In 1996, the Department of
Education issued proposed regulations that would establish new measures of
financial responsibility. The Department has extended the period for comment on
the proposed regulations three times because of concerns expressed by members
of the higher education community about the proposed standards. It is not
possible to predict the outcome of this rulemaking proceeding at this time.
Student Loan Defaults
Under the HEA, an educational institution may lose its eligibility to
participate in some or all of the Title IV Programs if defaults on the repayment
of federally guaranteed student loans by its students exceed certain rates. A
rate of student defaults (known as a "cohort default rate") is calculated for
each institution annually by determining the rate at which borrowers who become
subject to their repayment obligation in one federal fiscal year default by the
end of the following federal fiscal year. For certain purposes described below,
the Department of Education calculates a weighted average cohort default rate
for the institution's students who enter repayment and default on a FFEL Program
or Direct Loan Program loan.
If the Department of Education notifies an institution that its cohort
default rate for FFEL Program loans equals or exceeds 25% for each of the three
most recent federal fiscal years, the institution's participation in the FFEL
Program ends 30 days after the notification, unless the institution timely
appeals that determination on specified grounds and according to specified
procedures. An institution's participation in the Direct Loan Program ends 30
days after notification that any combination of its FFEL Program cohort default
rate, its Direct Loan Program cohort default rate, or its weighted average
cohort default rate equals or exceeds 25% for each of the three most recent
federal fiscal years, unless the institution timely appeals. An institution
whose participation terminates under these provisions may not participate in the
relevant program for a period of up to three federal fiscal years. The
Department of Education also may initiate a proceeding to limit, suspend or
terminate an institution's participation in the FFEL Program if it has any
combination of an FFEL Program, Direct Loan Program or weighted average cohort
default rate that is equal to or greater than 25% for each of the three most
recent federal fiscal years. The Department of Education may initiate a
proceeding to limit, suspend or terminate an institution's participation in all
Title IV Programs if it has an FFEL Program, Direct Loan Program or weighted
average cohort default rate that exceeds 40% for any federal fiscal year.
If an institution's FFEL cohort default rate equals or exceeds 25% in any
of the three most recent federal fiscal years, or if its cohort default rate for
loans under the Perkins program exceeds 15% for any federal award year, the
institution may be placed on provisional certification status. Provisional
certification does not limit an institution's access to Title IV Program funds;
however, an institution with provisional status is under closer review by the
Department of Education and may be subject to summary adverse action if it
commits violations of Title IV Program requirements. The College's cohort
default rates on FFEL Program loans for the 1992, 1993 and 1994 federal fiscal
years, the most recent years for which this information is available, were
10.6%, 16.6% and 16.0%, respectively. The average default rates for proprietary
institutions nationally were 30.2%, 23.9% and 21.1% in fiscal years 1992, 1993
and 1994, respectively. The College's Perkins cohort default rates in federal
award years 1994, 1995, and 1996 were 4.0%, 11.6% and 18.6%, respectively. Thus,
based on its most recent Perkins cohort default rate, the College could be
placed on provisional certification status, which would subject it to closer
review by the Department of Education. If the College were placed on provisional
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certification status for this reason and reduced its Perkins cohort default rate
below 15% in a subsequent year, the College could ask the Department of
Education to remove the provisional status. The College has not made any new
Perkins loans for more than a year, and is in the process of withdrawing
voluntarily from participation in the Perkins program.
The "85/15 Rule"
Under what is commonly referred to as the "85/15 Rule," the HEA provides
that proprietary institutions, such as the College, are eligible to participate
in Title IV Programs only if they derive no more than 85% of their revenues from
Title IV Programs, as determined in accordance with a formula in the
regulations. A proprietary institution that violates the "85/15 Rule" loses its
eligibility to participate in Title IV Programs for at least one year. During
1996, the College derived 48% of its revenues from tuition financed under Title
IV Programs.
Incentive Compensation
As a part of an institution's program participation agreement with the
Department of Education, the institution must certify that it will neither
provide, nor contract with any entity that provides, any commission, bonus or
other incentive payment based directly or indirectly on success in securing
enrollments or financial aid to any person or entity engaged in any student
recruitment, admission or financial aid awarding activity. Although there can be
no assurance that the Department of Education will not find deficiencies in the
College's present or former compensation plans, the College believes that its
compensation plan complies with the HEA.
Potential Effect of Regulatory Violations
If the College fails to comply with the regulatory standards governing
Title IV Programs, the Department of Education could impose one or more
sanctions, including transferring the College to the reimbursement system of
payment, requiring repayment of certain Title IV funds, certifying the College's
eligibility on a provisional basis, taking emergency action, referring the
matter for criminal prosecution, or initiating proceedings to impose a fine or
to limit, suspend or terminate the participation of the College in Title IV
Programs. In addition, the College's guarantee agencies could limit, suspend or
terminate its eligibility to provide guaranteed student loans in the event of
certain regulatory violations. Although there are no such sanctions currently in
force, and the College does not believe any such sanctions are contemplated, if
such sanctions were imposed against the College and resulted in a substantial
curtailment of the College's participation in Title IV Programs, the College
would be materially and adversely affected.
If the College lost its eligibility to participate in Title IV Programs, or
if the amount of available federal student financial aid were reduced, the
College would seek to arrange or provide alternative sources of revenue or
financial aid for students. The SEL Program would provide one such alternative,
but there can be no assurance that the SEL Program could provide loans
sufficient to make up for the loss of Title IV Program funds. Although the
College believes that one or more private organizations would be willing to
provide financial assistance to students attending the College, there is no
assurance that this would be the case, and the interest rate and other terms of
such student financial aid might not be as favorable as those for Title IV
Program funds. The College may be required to guarantee all or part of such
alternative assistance or might incur other additional costs in connection with
securing alternative sources of financial aid. Accordingly, the loss of
eligibility of the College to participate in Title IV Programs would be
expected to have a material adverse effect on the College even if it could
arrange or provide alternative sources of revenue or student financial aid.
RESTRICTIONS ON ADDING LOCATIONS AND EDUCATIONAL PROGRAMS
State requirements and accrediting agency standards may in certain
instances limit the ability of the College to establish additional locations and
programs. District of Columbia regulations require institutions to submit an
application for an amended license in order to add a new program or location.
The Virginia State Council of Higher Education requires institutions to obtain
approval prior to offering new educational
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programs at existing sites or instruction for degree credit at a new site
located more than 25 miles or 30 minutes' travel time from a central location.
Maryland law and regulations require institutions to obtain the approval of MHEC
in order to offer an instructional program not specified in its certificate of
approval or to offer more than one-third of the credit-bearing coursework
leading toward a certificate or degree at a location not specified in its
certificate of approval. Middle States requires institutions that it accredits
to notify it in advance of implementing new programs or locations, and upon
notification may undertake a review of the institution's accreditation. Based on
its current understanding of how these standards will be applied, the College
does not believe that these standards will have a material adverse effect on the
College or its expansion plans.
The HEA requires proprietary institutions of higher education to be in full
operation for two years before qualifying to participate in Title IV Programs.
However, the applicable regulations permit an institution that is already
qualified to participate in Title IV Programs to establish an additional
location that may immediately qualify, unless the location was acquired from
another institution that has ceased offering educational programs at that
location and has unpaid Title IV liabilities. The new location must satisfy all
other applicable requirements for institutional eligibility, including approval
of the additional location by the relevant state authorizing agency and the
institution's accrediting agency. In addition, a location that qualifies as a
"branch campus" must meet extensive regulatory requirements, including the
standards of administrative capability and financial responsibility discussed
above. The College's expansion plans assume its continued ability to establish
new campuses as additional locations of the College's main campus without
incurring the two-year delay in participation in Title IV Programs. The loss of
state authorization or accreditation by the College or an existing campus, or
the failure of the College or a new campus to obtain state authorization or
accreditation, would render the College ineligible to participate in Title IV
Programs in that state or at that location.
The Department of Education requires an institution to provide notice of an
additional location that offers at least 50%, but less than 100%, of an
educational program. The Department of Education may, in its discretion, require
the institution to apply for approval before it awards or disburses Title IV
Program funds to students enrolled at such location. The Department of Education
regulations provide that that determination is based on the percentage of an
educational program that is offered at the new location and on the financial and
administrative capability of the institution. An institution must apply to the
Department of Education for approval before it awards or disburses Title IV
Program funds to students enrolled at a new branch campus or a new location at
which it offers 100% of an educational program.
Generally, if an institution eligible to participate in Title IV Programs
adds an educational program after it has been designated as an eligible
institution, the institution must apply to the Department of Education to have
the additional program designated as eligible. However, an institution is not
obligated to obtain Department of Education approval of an additional program
that leads to an associate, baccalaureate, professional or graduate degree or
which prepares students for gainful employment in the same or related recognized
occupation as an educational program that has previously been designated as an
eligible program at that institution and meets certain minimum length
requirements. In the event that an institution erroneously determines that an
educational program is eligible for Title IV funds without the Department of
Education's express approval, the institution may be liable for repayment of
Title IV aid provided to students in that program. The College does not believe
that the Department of Education's regulations will create significant obstacles
to its plans to add new programs.
DISTANCE LEARNING
On March 13, 1997, the College submitted a proposed plan for a distance
learning program called "Strayer ONLINE" to the D.C. Education Licensure
Commission. The College expects the D.C. Commission to act on the proposed plan
at its meeting on March 27, 1997. Subject to the D.C. Commission's favorable
action, the College intends to submit the proposed plan to the Virginia State
Council of Higher Education, the Maryland Higher Education Commission, and
Middle States for their approval. Subject to regulatory approvals, the College
intends to offer its existing degree and diploma programs through Strayer
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ONLINE via Internet-based telecommunications instruction, beginning in 1997 with
master's and upper-level undergraduate courses in accounting, business
administration, and computer information systems and expanding to most master's
courses offered by the College by 1999 and most upper-level undergraduate
courses by 2000. Beginning in the 1998 Spring quarter and as appropriate
software becomes available, the College anticipates extending Strayer ONLINE to
most lower level undergraduate courses and to the diploma program. The College
is establishing facilities for Strayer ONLINE at a Distance Learning Center in
Lorton, Virginia. Tuition and other charges for courses offered through Strayer
ONLINE would be the same as for courses on campus. The College anticipates that
the same sources of student financial assistance will be generally available for
students enrolled through Strayer ONLINE as for students enrolled on campus. The
availability of Title IV Program funds to students enrolled through Strayer
ONLINE, however, would be limited in that, among other restrictions, Strayer
will adjust the amount of aid available to students enrolled in Strayer ONLINE
to take into account any significant reductions in the students' cost of
attendance arising from the use of telecommunicated instruction and will limit
the amount of Title IV Program assistance available to students enrolled in the
diploma program to that which is available to students enrolled in
correspondence courses.
The delivery of educational services, whether through conventional
classroom means or through the use of distance learning technologies, including
courses offered via the Internet, is primarily regulated at the state level. The
D.C. Commission requires that a course or program offered by "correspondence,
extension, telecommunications or in summer session" be consistent with the
objectives and purposes of the institution and "consistent with and comparable
in quality to courses offered to students regularly enrolled on a full-time
basis." If courses offered by the College through the Internet or other
technology are found to be inferior to those otherwise offered by the College,
or such courses are inconsistent with the objectives and purposes that the
College presented to the D.C. Commission and the D.C. Commission approved, the
D.C. Commission could initiate an adverse action proceeding, up to and including
seeking the termination of the College's license to operate in the District of
Columbia. Virginia requires institutions, including those otherwise authorized
to operate within the State, to obtain approval from the Virginia State Council
of Higher Education before offering any instructional program via
telecommunications at a specific site within the State. Maryland requires
institutions authorized to operate in Maryland to submit a prospectus and
request for approval to offer programs by telecommunications instruction. While
certain states assert the legal right to regulate the provision of
telecommunications instruction to students residing within their respective
jurisdictions even where the offering institution is not physically present
within that state, the Company is unaware of any instances where under such
circumstances an institution has been barred from so operating.
Middle States has adopted guidelines for the incorporation of distance
learning programs within the scope of accreditation, and has submitted the
guidelines to its membership for approval. The College believes that Strayer
ONLINE meets the standards adopted by Middle States. The six regional
accrediting agencies, including Middle States, have informally agreed that they
will not assert authority over the offering of courses via telecommunications
offered by an institution that is not physically present within their
geographic area, but will defer to the authority of the accrediting agency
within whose region the home campus of the institution is located.
The HEA imposes a limit on the amount of correspondence study an
institution may offer and remain an eligible institution. However, the HEA
further states that a student enrolled in a course of instruction that is
offered in whole or in part through telecommunications and which leads to a
recognized associate, bachelor or graduate degree conferred by such institution
is not considered to be enrolled in a correspondence course, unless the total
number of telecommunications and correspondence courses offered by the
institution equals or exceeds fifty percent of the total number of courses
offered by the institution. The HEA also excludes from Title IV Program
participation institutions at which more than one half of the enrolled students
are enrolled in correspondence courses, except that the Secretary of Education
is authorized to waive this limitation at his discretion in the case of colleges
offering two- or four-year programs leading to an associate's or bachelor's
degree. Department of Education regulations grant an automatic waiver where
students enrolling in correspondence courses receive five percent or less of the
total Title IV Program funds received by all students enrolled at the
institution. The HEA defines "telecommunications" as the use of television,
audio, or
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computer transmission, including open broadcast, closed circuit, cable,
microwave, or satellite, audio conferencing, computer conferencing, or video
cassette or discs. The courses the College will offer through Strayer ONLINE are
offered through "telecommunications" as that term is defined in the HEA. The
College does not anticipate that the number of students enrolled in its diploma
program through Strayer ONLINE will equal or exceed one half of the College's
total enrollment, or that the number of courses offered through Strayer ONLINE
will equal or exceed the total number of courses offered on its campuses. The
College will monitor enrollment in and the offering of courses on Strayer ONLINE
to ensure that the prescribed limits are not exceeded.
CHANGE IN OWNERSHIP RESULTING IN A CHANGE OF CONTROL
Many states and accrediting agencies require institutions of higher
education to report or obtain approval of certain changes in ownership or other
aspects of institutional status, but the types of and triggers for such
reporting or approval vary among states and accrediting agencies. The D.C.
Commission may require an institution licensed by it to apply to amend its
license prior to a change in ownership. The applicable laws and regulations of
Virginia and Maryland do not specifically address reporting of changes in
ownership. The College's accrediting agency, Middle States, requires
institutions that it accredits to inform it in advance of any substantive
change, including a change that significantly alters the ownership or control of
the institution. Examples of substantive changes requiring advance notice to
Middle States include changes in the legal status, ownership or form of control
of the institution, such as the sale of a proprietary institution. Middle States
must approve a substantive change in advance in order to include the change in
the institution's accreditation status.
The HEA provides that an institution which undergoes a change in ownership
resulting in a change of control loses its eligibility to participate in the
Title IV Programs and must apply to the Department of Education in order to
reestablish such eligibility. An institution is ineligible to receive Title IV
Program funds during the period prior to recertification. The HEA further
defines one of the events that would trigger a change in ownership resulting in
a change of control as the transfer of the controlling interest of the stock of
the institution or its parent corporation. For a publicly-traded corporation,
the securities of which are required to be registered under the Exchange Act,
such as the Company, the Department of Education regulations implementing the
HEA define a change in ownership resulting in a change of control as occurring
when a change of control of the corporation takes place that gives rise to the
obligation on the part of the corporation to file a Form 8-K with the SEC
notifying that agency of the change of control.
Ron K. Bailey currently owns approximately 62.4% of the Company's
outstanding stock jointly with his wife. If Mr. or Mrs. Bailey were to die, the
surviving spouse would become the sole owner of those shares. The HEA and
Department of Education implementing regulations allow a change in ownership
upon the retirement or death of an owner to be treated as not resulting in a
change of control if it involves the sale or transfer of the owner's ownership
interest to a family member or to a person with an ownership interest who has
been involved in the management of the institution for at least two years.
However, the Department of Education requires schools to report such events to
the Department of Education for review. District of Columbia, Virginia and
Maryland law and Middle States policies do not specifically address changes in
ownership resulting from the retirement or death of an owner. However, it is
possible that one or more of these regulatory bodies would consider such a
change in ownership to be a
18
19
substantive change that must be reported by the institution and would require
review or reauthorization of the institution.
Under INS regulations, if a school that is approved to admit foreign
students changes ownership, approval will be automatically withdrawn 60 days
after the change of ownership unless the school files a new petition for school
approval within 60 days of that change of ownership. If, after conducting a
review, the INS district director finds that the school's approval should not be
continued, the district director must institute proceedings to withdraw the
school's approval. After the Company was formed and the initial public offering
of its stock was completed, the College timely notified the INS of the change in
ownership, and the INS continued the College's approval to admit foreign
students. The College expects that it will again be required to file a petition
for school approval with the INS within 60 days after the Offering.
If the College underwent a change of control that required reapproval by
any state authority, Middle States or any federal agency, and any required
regulatory approval were significantly delayed, limited or denied, there could
be a material adverse effect on the College's ability to offer certain
educational programs, award certain degrees or diplomas, operate one or more of
its locations, admit certain students or participate in Title IV Programs,
which in turn would materially and adversely affect the College's operations. A
change that required approval by a state regulatory authority, Middle States or
a federal agency could also delay the College's ability to establish new
campuses or educational programs and may have other adverse regulatory effects.
Furthermore, the suspension from Title IV Programs and the necessity of
obtaining regulatory approvals in connection with a change of control may
materially limit the College's flexibility in future financings or acquisition
transactions.
VETERANS BENEFITS
Pursuant to federal law providing benefits for veterans and reservists, the
College is approved for education of veterans and members of the selective
reserve and their dependents by the state approving agency in the District of
Columbia and Virginia. The College expects to seek approval to offer educational
programs to veterans and other eligible persons in Maryland at an appropriate
time.
ITEM 2. PROPERTIES.
The College leases eight of its nine campuses, five of which are owned by
corporations controlled by the College's President, Ron K. Bailey. The leases
with these corporations all have ten-year terms expiring in 2006, with three
five-year renewal terms. Of the remaining leases, one has a term that expires in
2002 with two five-year renewal options, one has a term that expires in 1998,
with a three-year renewal option and the third lease has a term that expires in
2000, with three one-year renewal options. With the exception of the Arlington
and Prince George's County leases, the leases contain purchase options. See
"Certain Transactions -- Lease of Campus Facilities" and Note 9 to the
Company's consolidated financial statements. The table below sets forth certain
information regarding each of the College's properties at December 31, 1996:
19
20
NUMBER OF
NUMBER OF COMPUTER AREA IN
LOCATION CLASSROOMS WORKSTATIONS SQUARE FEET
--------------------------------- ---------- ------------ -------------
Washington, D.C . . . . . . . . . . . . 21 110 33,000
Alexandria, Virginia . . . . . . . . . . 15 71 22,000
Arlington, Virginia . . . . . . . . . . 12 80 26,000
Woodbridge, Virginia . . . . . . . . . . 17 64 20,800
Manassas, Virginia . . . . . . . . . . . 17 52 20,800
Loudoun Campus (Ashburn), Virginia . . . 13 76 33,000
Fredericksburg, Virginia . . . . . . . . 13 62 17,500
Takoma Park (Washington, D.C.) . . . . . 15 48 21,800
Prince George's County, Maryland . . . . 6 76 6,000
ITEM 3. 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 Company's property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were voted upon during the fourth quarter of 1996.
20
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is traded on the Nasdaq National Market under the symbol
"STRA." The following table sets forth, for the periods indicated, the high
and low prices of the Company's Common Stock, as reported on the Nasdaq
National Market. The initial public offering price on July 25, 1996, was
$10.00 per share.
High Low
---- ---
1996:
Third Quarter (July 25 through September 30) . . . . . . . . $ 17.88 $ 10.25
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . 23.00 16.38
1997:
First Quarter (through March 24) . . . . . . . . . . . . . . $ 27.25 $ 21.00
The last sales price of the Common Stock on March 25, 1997, as reported on
the Nasdaq National Market, was $21.75 per share. As of March 17, 1997, there
were approximately 7 holders of record. The Company believes that there are a
number of holders of Common Stock whose shares are held in nominee accounts by
brokers.
The Company has established a policy of declaring quarterly cash dividends at
the rate of $0.0625 per share ($0.25 annually) on the Company's Common Stock.
The amount of dividends payable in the future will be reviewed periodically by
the Company's Board of Directors in light of the Company's earnings, financial
condition, capital needs and regulatory considerations. There is no requirement
or assurance that dividends will be paid.
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22
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE
AND OPERATING DATA AMOUNTS).
The following table sets forth, for the periods and at the dates indicated,
selected consolidated financial data for the Company. The financial information
as of December 31, 1993, 1994, 1995 and 1996 and for each of the years then
ended has been derived from the Company's consolidated financial statements,
which statements have been audited by Coopers & Lybrand L.L.P., independent
accountants. The financial information as of December 31, 1992 and for
the year then ended has been derived from the College's financial statements,
which statements have been audited by other independent accountants. The
information set forth below is qualified by reference to and should be read in
conjunction with the Company's consolidated financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this annual report.
YEAR ENDED DECEMBER 31,
-----------------------------------------------
INCOME STATEMENT DATA: 1992 1993 1994 1995 1996
------- ------- ------- ------- -------
Revenues
Tuition...................................... $22,961 $28,545 $33,238 $36,934 $42,775
Fees and other............................... 832 823 1,019 1,262 2,230
------- ------- ------- ------- -------
23,793 29,368 34,257 38,196 45,005
------- ------- ------- ------- -------
Costs and expenses
Instruction and educational support.......... 9,262 14,185 14,740 16,168 17,808
Selling and promotion........................ 2,758 3,092 3,667 4,281 4,457
General and administration(1)................ 9,278 7,847 10,648 11,571 6,749
------- ------- ------- ------- -------
21,298 25,124 29,055 32,020 29,014
------- ------- ------- ------- -------
Income from operations......................... 2,495 4,244 5,202 6,176 15,991
Investment and other income.................... 184 180 350 875 1,061
------- ------- ------- ------- -------
Income before taxes............................ 2,679 4,424 5,552 7,051 17,052
Provision for income taxes(2).................. -- -- -- -- 2,740
------- ------- ------- ------- -------
Net income..................................... $ 2,679 $ 4,424 $ 5,552 $ 7,051 $14,312
======= ======= ======= ======= =======
Cash dividends per common share................ $0.0625
=======
PRO FORMA DATA:(3)
Income before income taxes..................... $17,052
Income taxes................................... 6,649
-------
Net income..................................... $10,403
=======
Net income per share........................... $ 1.24
=======
Weighted average shares outstanding(4)......... 8,410
=======
OPERATING DATA:
Enrollment(5).................................. 5,600 6,200 6,800 7,400 8,200
AT DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 3,609 $ 2,191 $ 5,564 $ 8,992 $11,777
Working capital................................ 3,063 5,195 5,934 8,327 15,574
Total assets................................... 14,396 16,279 19,824 25,878 47,822
Long-term liabilities.......................... 62 -- -- -- 189
Total liabilities.............................. 10,146 9,651 10,487 10,539 12,411
Total stockholders' equity..................... 4,250 6,628 9,337 15,339 35,411
22
23
- ---------------
(1) Includes bonus payments to the former stockholder of the College (the "S
Corporation Stockholder") of $0.9 million in 1992, $3.5 million in 1993,
$5.5 million in 1994, and $6.2 million in 1995 for the payment of income
taxes by the S Corporation Stockholder on undistributed S Corporation
income. In connection with the Company's initial public offering, effective
July 25, 1996, the Company acquired the College and ELP, as a result of
which the College and ELP changed their tax status from S Corporations to C
Corporations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Background and Overview."
(2) Historical data for 1992 through 1995 do not reflect any provision for
income taxes. The College and ELP were S Corporations during such periods
and therefore were not subject to income tax.
(3) Reflects the formation of the Company and the acquisition of the College by
the Company as if those events had taken place on January 1, 1996. Following
the termination of their status as S Corporations prior to completion of the
Company's initial public offering, the College and ELP became subject to
federal and state income tax. The pro forma data reflects the application of
statutory corporate income tax rates to net income as if the termination of
the S Corporation status of the College and ELP had occurred on January 1,
1996. The effective pro forma income tax rate for the year ended December
31, 1996 was 39%.
(4) Shares have been adjusted to reflect the acquisition of the College by the
Company and the issuance of 1,401,000 shares of Common Stock which, when
multiplied by the net per share proceeds of the initial public offering,
would have been necessary to fund distributions to the S Corporation
Stockholder during the 12 months ended July 1996, to the extent such
distributions exceeded net income during the same period. These
distributions included those made subsequent to the closing of the initial
public offering to the S Corporation Stockholder in respect of earnings
previously subject to income tax during the College's period as an S
Corporation.
(5) Reflects student enrollment as of the beginning of the Fall academic quarter
for each year indicated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Seasonality."
23
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause a difference include, but are not limited to, those discussed
elsewhere in this annual report.
BACKGROUND AND OVERVIEW
The College is a regional proprietary institution of higher education
offering undergraduate and graduate degree programs at nine campuses in the
greater Washington, D.C. area. The Company was incorporated in May 1996 to
acquire all of the outstanding capital stock of the College and ELP from Mr. and
Mrs. Ron K. Bailey, the previous sole stockholder of the College. Upon
completion of the Company's initial public offering in July 1996, the College
and ELP, which administers the SEL Program, became direct subsidiaries of the
Company.
Revenues, operating income and net income have increased in each of the
last three years. From 1994 through 1996, revenues increased approximately
31.4%, operating income increased approximately 207%, and net income increased
157.8%. Over the three-year period, tuition revenue accounted for approximately
96% of total revenue. The number of students increased approximately 20.9% from
6,760 at the beginning of the 1994 Fall quarter to 8,172 at the beginning of
the 1996 Fall quarter, and tuition rates increased approximately 14% over the
last three years.
Since 1993, the Company relocated three campuses to larger facilities,
expanded information technology course offerings, added more weekend classes,
increased its marketing programs, and began the SEL Program. In 1995, the
Company added personnel in the areas of human resources, facilities management
and administration to support its plans for expansion. In addition, in 1996, the
Company purchased its Loudoun, Virginia campus facility, leased a facility in
Maryland for the opening of its Prince George's County campus and added course
offerings through the Internet.
The College's principal source of revenue is tuition collected from its
students. The academic year of the College is divided into four quarters which
approximately coincide with the four quarters of the calendar year. Students
generally must pay the entire tuition for each course prior to the beginning of
the quarter. If a student withdraws from a course prior to completion, the
College refunds a portion of the tuition. When students register for courses,
tuition is recorded as unearned tuition, which is recognized as courses are
taught through the academic quarter. Revenues also consist in part of fees and
other revenues derived principally from application fees, "no show" fees and
bookstore sales. When a student registers for a course but does not attend any
classes, which can have the effect of denying a place in the course to another
student, the College imposes a "no show" fee. Student enrollment information
presented herein reflects enrollment as of the beginning of the Fall academic
quarter for the applicable year, which is the beginning of the academic year and
the industry practice for measuring enrollments at educational institutions.
The College records tuition receivable when students register for the
academic quarter, generally prior to the end of the previous academic quarter.
Because the College's academic quarters coincide with the calendar quarters,
tuition receivable at the end of any calendar quarter largely represents student
tuition for the following academic quarter which is included in current
liabilities as unearned tuition. Based upon past experience and judgment, the
College establishes an allowance for doubtful accounts with respect to accounts
receivable not included in unearned tuition. Any uncollected account more than
six months past due is charged against the allowance. The College's historical
bad debt expense as a percentage of revenue for the year ended December 31,
1994, 1995 and 1996 was 1.9%, 1.7% and 1.8%, respectively.
The College's expenses consist of instruction and educational support
expenses, selling and promotional expenses and general and administration
expenses. Instruction and educational support expenses generally contain items
of expense directly attributable to the educational activity of the College.
This expense category includes salaries and benefits of faculty, academic
administrators, and student support personnel, including financial aid officers,
registrars and career counselors. Instruction and educational support expenses
also include cost of educational supplies and facilities, including rent on
campus leases, certain costs of establishing and maintaining computer
laboratories and all other physical plant and occupancy costs with the exception
of costs attributable to one floor of the Arlington campus used for
administrative purposes.
24
25
Selling and promotional expenses include salaries and benefits of personnel
engaged in recruitment, admissions, promotion and development, as well as costs
of advertising and production of marketing materials.
General and administration expenses include salaries and benefits of
personnel engaged in accounting, personnel, compliance and other business
functions and plant and occupancy costs attributable to such functions. Further,
as discussed below, general and administration expenses prior to 1996 reflect
payments made to the S Corporation Stockholder for taxes payable by that
stockholder with respect to the College's income.
Prior to 1996, the College each year paid the S Corporation Stockholder
amounts sufficient to pay the income tax liabilities of the College for income
earned under Subchapter S of the Internal Revenue Code of 1986. These amounts
were paid as bonuses (subject to payroll taxes and benefits) and were reflected
in general and administration expenses. These bonus payments totaled $5.5
million and $6.2 million for the fiscal years ended 1994 and 1995, respectively.
Amounts paid to the stockholder from January 1, 1996 through July 25, 1996 (the
date of completion of the Company's initial public offering of Common Stock)
with respect to the College's income were paid as distributions to the
stockholder and not to the stockholder as a bonus. Unlike bonuses, such
distributions are not reflected as general and administration expenses. As of
July 25, 1996, the Company terminated the College's S Corporation status and
became subject to corporate income taxation on a consolidated basis.
Investment and other income consist primarily of earnings on investments.
RESULTS OF OPERATIONS
The following table sets forth certain combined income statement data as a
percentage of revenues for the periods indicated:
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -----
Revenues:
Tuition................................................... 97.0% 96.7% 95.0%
Fees and other............................................ 3.0 3.3 5.0
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Costs and expenses:
Instruction and educational support....................... 43.0 42.3 39.6
Selling and promotional................................... 10.7 11.2 9.9
General and administration................................ 31.1 30.3 15.0
----- ----- -----
Income from operations...................................... 15.2 16.2 35.5
Investment and other income................................. 1.0 2.3 2.4
----- ----- -----
Income before taxes......................................... 16.2 18.5 37.9
Provision for income taxes.................................. -- -- 6.1
----- ----- -----
Net income.................................................. 16.2% 18.5% 31.8%
===== ===== =====
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Tuition revenues increased approximately 15.8% from $36.9
million in 1995 to $42.8 million in 1996 due to a 9.6% increase in the number of
students in 1996 and a 6% tuition increase for 1996. Fees and other revenue
increased approximately 76.7% from $1.3 million in 1995 to $2.2 million in 1996,
primarily as a result of the increased activity in ELP, the Company's
wholly-owned financing subsidiary.
Instruction and educational support expenses. Instruction and educational
support expenses increased approximately 10.1% from $16.2 million in 1995 to
$17.8 million in 1996 due to an increase in the number of personnel to support
increased enrollment, salary increases and the upgrade of campus computer
laboratories.
25
26
Selling and promotional expenses. Selling and promotional expenses
increased approximately 4.1% from $4.3 million in 1995 to $4.5 million in 1996,
due principally to increased advertising costs.
General and administration expenses. General and administration expenses
decreased 41.7% from approximately $11.6 million in 1995 to $6.8 million in
1996. The primary reason for the decrease was the fact that the Company did not
pay a bonus to its stockholder in respect of income taxes in 1996. Excluding the
$6.2 million bonus in 1995, general and administration expenses would have
increased approximately 25% due to increases in expenses associated with being a
public company and increases in the number of administrative personnel to
support increased enrollment.
Income from operations. Income from operations increased approximately
159% from $6.2 million in 1995 to $16 million in 1996. This increase was due to
the increase in student enrollment in 1996 and due to the fact that the College
did not pay bonuses to its stockholder, as discussed above.
Net income. Net income increased approximately 103% from $7.1 million in
1995 to $14.3 million in 1996 because of the factors discussed above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Tuition revenue increased 11.1% from $33.2 million in 1994 to
$36.9 million in 1995, due to an 8.8% increase in the number of students in 1995
and a 7.1% tuition increase effective for 1995. Average course credits per
student were lower in 1995 than in 1994. Fees and other revenue increased 23.8%
from $1.0 million in 1994 to $1.3 million in 1995, primarily as a result of the
enrollment growth, an increase in "no show" fees, which the College first
imposed in 1994, and interest income on student loans.
Instruction and educational support expenses. Instruction and educational
support expenses increased 9.7% from $14.7 million in 1994 to $16.2 million in
1995. Salaries and benefits for instructional personnel in all of the College's
educational programs were higher as a result of salary increases, the addition
of personnel to support increased enrollments and the hiring of full-time
managers for the computer laboratory at each campus. Physical plant and
occupancy costs also increased substantially in 1995 because of the relocation
of the Manassas and Woodbridge campuses to new and larger facilities with higher
lease rates. Partially offsetting those increases were reduced expenditures for
student financial aid in 1995.
Selling and promotional expenses. Selling and promotional expenses
increased 16.7% from $3.7 million in 1994 to $4.3 million in 1995, due
principally to increased advertising costs, particularly for television
advertising.
General and administration expenses. General and administration expenses
increased 8.7% from $10.6 million in 1994 to $11.6 million in 1995, due
principally to an increase in the bonus paid to the S Corporation Stockholder in
respect of income taxes. Excluding the bonuses in both years, general and
administration expenses would have increased 4.4% from $5.2 million in 1994 to
$5.4 million in 1995. The increase was primarily attributable to higher
personnel costs incurred by the addition of new administrative staff to support
expansion of the College's on-site programs and graduate enrollment. The effect
of the increase was partially offset by lower financing costs resulting from the
College's return in 1995 to full access to Title IV Programs. In 1993 and 1994,
regulatory action prevented the College from making full use of Title IV Program
student financial aid for its students. In order to make loans available on
terms comparable to federally guaranteed student loans, the College contracted
with a private company, which purchased loans made by the College to students at
a substantial discount from their face value. The discount was recorded as a
cost of financing reflected in general and administration expenses. In 1995,
there was no comparable cost of financing expense.
Income from operations. Income from operations increased 18.7% from $5.2
million in 1994 to $6.2 million in 1995 because of the factors discussed above.
Net income. Net income increased 27.0% from $5.6 million in 1994 to $7.1
million in 1995 because of the factors discussed above.
26
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SEASONALITY
The Company's quarterly results of operations tend to vary significantly
within a year because of student enrollment patterns. Enrollment generally is
highest in the fourth, or Fall, quarter, and lowest in the third, or Summer,
quarter. In 1996, enrollments at the beginning of the Winter, Spring, Summer and
Fall academic quarters were 7,096, 7,100, 4,851 and 8,172, respectively. Costs
are generally not affected by the seasonal factors and do not vary significantly
on a quarterly basis. To some extent, however, instructional and educational
support expenses are lower in the third quarter because fewer part-time faculty
are needed.
The following table sets forth the Company's revenues on a quarterly basis
for the years ended December 1994, 1995 and 1996.
QUARTERLY REVENUE
(DOLLARS IN THOUSANDS)
1994 1995 1996
------------------- ------------------- -------------------
THREE MONTHS ENDED AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------------------------- ------- ------- ------- ------- ------- -------
March 31.................... $ 9,169 27% $10,635 28% $12,415 28%
June 30..................... 8,427 25 9,702 25 11,614 26
September 30................ 7,501 22 7,221 19 8,305 18
December 31................. 9,160 26 10,638 28 12,671 28
------- --- ------- --- ------- ---
Total for Year.............. $34,257 100% $38,196 100% $45,005 100%
======= === ======= === ======= ===
LIQUIDITY AND CAPITAL RESOURCES
Prior to the initial public offering of its Common Stock, the Company
financed its operating and capital requirements through cash generated from
operating activities or, in the case of ELP, capital contributions from ELP's
stockholder. The Company realized net proceeds of approximately $31.3 million
from the initial public offering, of which it used $19.8 million to fund S
Corporation distributions, $1.1 million to fund the acquisition of ELP and $3.1
million to fund the purchase of the Loudoun campus. The remaining $7.3 million
was used to fund the SEL Program and for working capital purposes, including
improvements to the College's computer laboratories.
During 1996, the Company generated cash from operating activities of $13.6
million. This cash and the remaining proceeds from the Company's initial public
offering resulted in an increase in cash and cash equivalents and marketable
securities from $12.6 million at December 31, 1995 to $26.9 million at December
31, 1996. In addition, the Company is negotiating a credit facility from a bank
in an amount not to exceed $10.0 million. Interest on any borrowings under such
a facility would accrue at an annual rate not to exceed 0.75% above the London
Interbank Offered Rate. The Company would not pay a fee for this facility, but
in the event of any borrowings, an origination fee of 1% would be due on the
amounts borrowed from time to time thereunder.
The Company believes that existing cash and cash equivalents, marketable
securities, cash generated from operating activities and, if necessary, cash
borrowed under the credit facility will be sufficient to meet the Company's
requirements for at least the next 24 months. If the College decides to
purchase a campus facility, it may finance the acquisition with indebtedness.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's historical
operations.
27
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Strayer Education, Inc.
Report of Independent Accountants................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996........................ F-3
Consolidated Statements of Income for each of the three years in the period ended
December 31, 1996................................................................ F-4
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended December 31, 1996.................................................. F-5
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1996.......................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts...................................... F-15
All other schedules are omitted because they are not applicable or the
required information is included in the consolidated financial statements or
notes thereto.
F-1
29
INDEPENDENT ACCOUNTANTS REPORT
Board of Directors and Stockholders, Strayer Education, Inc.
We have audited the accompanying consolidated balance sheets of Strayer
Education, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
December 31, 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. We have also audited the financial statement schedule
listed in the index on page F-1 of this Form 10-K. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Strayer Education,
Inc. and subsidiaries as of December 31, 1995 and December 31, 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Washington, D.C.
January 31, 1997
F-2
30
STRAYER EDUCATION, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------
1995 1996
------- -------
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 8,992 $11,777
Marketable securities available for sale, at market.................... 498 5,057
Short-term investments -- restricted................................... 720 807
Tuition receivable, net of allowances for doubtful accounts of $155 and
$164, respectively.................................................. 7,873 8,923
Inventories............................................................ 725 923
Other current assets................................................... 58 309
------- -------
Total current assets........................................... 18,866 27,796
Student loans receivable, net of allowances for losses................... 932 2,799
Property and equipment, net.............................................. 2,874 7,063
Investments in marketable securities available for sale, at market....... 3,134 10,070
Other assets............................................................. 72 94
------- -------
Total assets................................................... $25,878 $47,822
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................................. $ 360 $ 332
Accrued expenses....................................................... 542 710
Unearned tuition....................................................... 9,504 11,150
Other current liabilities.............................................. 133 30
------- -------
Total current liabilities...................................... 10,539 12,222
Deferred income taxes.................................................... -- 189
------- -------
Total liabilities.............................................. 10,539 12,411
------- -------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized in 1996,
no shares issued or outstanding..................................... -- --
Common stock:
1995 -- Par value $10; 500 shares authorized; 375.5 shares issued
and outstanding.................................................... 4 --
1996 -- Par value $.01; 20,000,000 shares authorized; 9,450,000
shares issued and outstanding...................................... -- 95
Additional paid-in capital............................................. 2,100 31,192
Retained earnings...................................................... 13,077 3,893
Net unrealized gains on investments, net of deferred income taxes of
$152 in 1996........................................................ 158 231
------- -------
Total stockholders' equity..................................... 15,339 35,411
------- -------
Total liabilities and stockholders' equity..................... $25,878 $47,822
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
31
STRAYER EDUCATION, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
Revenues:
Tuition..................................................... $33,238 $36,934 $42,775
Fees and other.............................................. 1,019 1,262 2,230
------- ------- -------
34,257 38,196 45,005
------- ------- -------
Costs and Expenses:
Instruction and educational support......................... 14,740 16,168 17,808
Selling and promotion....................................... 3,667 4,281 4,457
General and administration.................................. 10,648 11,571 6,749
------- ------- -------
29,055 32,020 29,014
------- ------- -------
Income from operations...................................... 5,202 6,176 15,991
Investment and other income................................... 350 875 1,061
------- ------- -------
Income before taxes......................................... 5,552 7,051 17,052
Provision for income taxes.................................... -- -- 2,740
------- ------- -------
Net income.................................................. $ 5,552 $ 7,051 $14,312
======= ======= =======
PRO FORMA INFORMATION:
Income before income taxes.................................. $17,052
Income taxes................................................ 6,649
-------
Net income.................................................. $10,403
=======
Net income per share........................................ $ 1.24
=======
Weighted average shares outstanding......................... 8,410
=======
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
32
STRAYER EDUCATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
UNREALIZED
COMMON STOCK ADDITIONAL GAINS
-------------------- PAID-IN RETAINED (LOSSES) ON
SHARES AMOUNT CAPITAL EARNINGS INVESTMENTS TOTAL
----------- ------ ---------- -------- ----------- --------
Balance, December 31, 1993... 375.5 $ 4 $ -- $ 6,624 $ -- $ 6,628
Distributions to
stockholders............ -- -- -- (2,800) -- (2,800)
Net unrealized losses on
investments............. -- -- -- -- (43) (43)
Net income................. -- -- -- 5,552 -- 5,552
----------- --- ------- -------- ----- --------
Balance, December 31, 1994... 375.5 4 -- 9,376 (43) 9,337
Distributions to
stockholders............ -- -- -- (3,350) -- (3,350)
Capital contributions by
stockholder in
connection with
formation of ELP........ -- -- 2,100 -- -- 2,100
Net unrealized gains on
investments............. -- -- -- -- 201 201
Net income................. -- -- -- 7,051 -- 7,051
----------- --- ------- -------- ----- --------
Balance, December 31, 1995... 375.5 4 2,100 13,077 158 15,339
Formation of Strayer
Education, Inc.......... 1,000 -- 1 -- -- 1
Exchange of Strayer
Education, Inc. common
stock for Strayer
College, Inc. common
stock................... 5,998,624.5 56 (56) -- -- --
Proceeds from sale of
common stock, net of
offering expenses of
$3,187.................. 3,450,000 35 31,278 -- -- 31,313
Payment to stockholder for
acquisition of ELP...... -- -- (943) (117) -- (1,060)
Distributions to
stockholders............ -- -- (1,188) (22,788) -- (23,976)
Cash dividends ($.0625 per
share).................. -- -- -- (591) -- (591)
Net unrealized gains on
investments............. -- -- -- -- 73 73
Net income................. -- -- -- 14,312 -- 14,312
----------- --- ------- -------- ----- --------
Balance, December 31, 1996... 9,450,000 $ 95 $ 31,192 $ 3,893 $ 231 $ 35,411
=========== === ======= ======== ===== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
33
STRAYER EDUCATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
Cash flows from operating activities:
Net income.................................................. $ 5,552 $ 7,051 $14,312
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization............................ 448 688 1,021
Provision for student loan losses........................ -- 49 205
Deferred income taxes.................................... -- -- (75)
Changes in assets and liabilities:
Short-term investments -- restricted..................... -- (317) (87)
Tuition receivable, net.................................. 2,230 940 (1,050)
Inventories.............................................. 13 (179) (198)
Other assets............................................. (65) 167 (161)
Trade accounts payable................................... (18) (220) (28)
Accrued expenses......................................... 153 83 167
Unearned tuition......................................... 776 113 1,646
Other current liabilities................................ (14) 75 (103)
Student loans originated or acquired........................ -- (1,481) (3,314)
Collections on student loans receivable..................... -- 500 1,030
Proceeds from sale of loans................................. -- -- 212
------- ------- --------
Net cash provided by operating activities........... 9,075 7,469 13,577
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment......................... (1,500) (1,162) (5,208)
Purchases of marketable securities.......................... (6,586) (7,993) (16,640)
Maturities of marketable securities......................... 5,238 6,386 5,370
Other....................................................... 8 (22) --
------- ------- --------
Net cash used in investing activities .............. (2,840) (2,791) (16,478)
------- ------- --------
Cash flows from financing activities:
Distributions to stockholders............................... (2,800) (3,350) (23,976)
Dividends paid.............................................. -- -- (591)
Proceeds from sale of common stock and
additional capital contributions by ELP stockholder...... -- 2,100 31,313
Acquisition of ELP.......................................... -- -- (1,060)
Other....................................................... (62) -- --
------- ------- --------
Net cash provided by (used in) financing
activities........................................ (2,862) (1,250) 5,686
------- ------- --------
Net increase in cash and cash requirements.......... 3,373 3,428 2,785
Cash and cash equivalents -- beginning of period.............. 2,191 5,564 8,992
------- ------- --------
Cash and cash equivalents -- end of period.................... $ 5,564 $ 8,992 $11,777
======= ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
34
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Strayer Education, Inc. (the Company) was formed on May 10, 1996, as a
Maryland corporation, and was capitalized on May 15, 1996 with cash of $1,000.
The Company commenced operations on July 25, 1996.
On July 30, 1996, the Company completed an initial public offering of its
common stock. The Company sold 3,450,000 shares in the offering at a price of
$10 per share. Net proceeds to the Company were $31,313,000. Prior to the
closing of the offering, the Company exchanged 5,999,000 shares of its common
stock for 100% of the outstanding common stock of Strayer College, Inc. (the
College). Approximately $19,838,000 of the net proceeds of the offering were
paid to the stockholders of the College as a distribution of earnings on which
the stockholders had previously paid income taxes during the period the College
was an S Corporation.
Contemporaneously with the closing of the initial public offering, the
Company acquired Education Loan Processing, Inc. (ELP) at a purchase price of
$1,060,000, ELP's net book value. ELP was incorporated in December 1994 and
began operations in January 1995. ELP was wholly owned by a stockholder of the
Company.
Under generally accepted accounting principles, the College's and ELP's
bases in their assets and liabilities were carried over to the Company and the
operations of the College, ELP and the Company were retroactively combined in a
manner similar to a pooling of interest, because these acquisitions were
combinations of entities under common control. All significant intercompany
accounts and transactions have been eliminated.
Consistent with the financial statements included in the Company's
prospectus and the reorganization of the Company in connection with the
completion of the initial public offering, the 1994 and 1995 financial
statements are presented on a combined basis and the 1996 financial statements
are presented on a consolidated basis. The accompanying 1996 financial
statements include the accounts of the Company, the College and ELP,
collectively referred to herein as the "Company" or "Companies."
2. NATURE OF OPERATIONS
The College is a proprietary accredited institution of higher education
that provides undergraduate and graduate degrees in various fields of study
through its eight campuses in the District of Columbia and Virginia.
ELP is a finance company that purchases and services student loans,
principally for the College. For purposes of the consolidated balance sheets,
all of ELP's assets and liabilities have been classified as current assets and
liabilities with the exception of student loans receivable, which have been
classified as noncurrent consistent with industry practice.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of operating cash and cash invested in
short-term certificates of deposit, commercial paper, and U.S. government
obligations. The Companies place their cash and temporary cash investments with
high quality credit institutions. The Companies consider all highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Investments
The Companies' investments are considered "available-for-sale," and, as
such, are stated at market value. The net unrealized gains and losses are
reported as a component of stockholders' equity. Realized gains or losses from
the sale of marketable securities are based on the specific identification
method.
F-7
35
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tuition Revenues
Tuition income is deferred at the time of registration and is recognized as
income, net of any refunds or withdrawals, ratably throughout each respective
quarter session. Advance registrations for the next quarter are shown as
unearned tuition.
Student Loans Receivable
Student loans receivable are stated at the amount of unpaid principal,
reduced by an allowance for loan losses. Interest income from student loans is
recognized using the interest method.
Provisions for estimated losses on student loans are charged to income in
amounts sufficient to maintain the allowance at a level considered adequate to
cover the losses of principal and interest in the existing loan portfolio, based
upon historical trends, economic conditions and other information. ELP's
charge-off policy is based on a loan-by-loan review; however, any loan with
payments more than 120 days past due is written off against the allowance.
Concentration of Credit Risk
The Companies place their cash and temporary cash investments with high
credit quality institutions. At times cash and cash equivalent balances may be
in excess of the FDIC insurance limit. The Companies have not experienced any
losses on their cash and cash equivalents.
Tuition receivables are not collateralized, however, credit risk is
minimized as a result of the diverse nature of the College's student base in the
Washington, D.C. area. The College establishes an allowance for doubtful tuition
accounts based upon factors surrounding historical trends and other information.
Student loans are receivable from the College's students. The Companies
perform credit evaluations and require cosigners in some instances to minimize
credit risk.
Inventories
Inventories, which consist of books and supplies held in campus bookstores,
are valued at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives ranging from 3 to 40 years. Depreciation amounted to $448,000, $688,000
and $1,021,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
Income Taxes
For the years ended December 31, 1994 and 1995, the financial statements of
the Companies do not include a provision for income taxes because the taxable
income of the College and ELP was included in the income tax returns of the
stockholders under the S Corporation elections.
In connection with the formation of Strayer Education, Inc., the initial
public offering of the Company's common stock, and the acquisition of the
College and ELP by Strayer Education, Inc., effective July 25, 1996, the
College and ELP are no longer treated as S Corporations for tax purposes. The
Companies now provide for deferred income taxes based on temporary differences
between financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the year in which the differences are expected to
reverse.
F-8
36
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Income Per Share
Pro forma weighted average shares outstanding reflect the acquisition of
the College by the Company in exchange for 5,999,000 shares of common stock, as
if it had occurred on January 1, 1996. Subsequent to the closing of the initial
public offering, the Company made a distribution to the stockholders of the
College in respect of earnings previously subject to income tax during the
College's period as an S Corporation (the "S Corp. Distribution"). As a result,
pro forma weighted average shares outstanding also give effect to the increase
in the number of shares which, when multiplied by the net per share proceeds of
the offering, would have been necessary to fund distributions to the
stockholders, including the S Corp. Distribution, during the 12 months ended
July 1996, to the extent that such distributions exceeded net income during the
same period. Fully diluted income per share was not significantly different from
the primary amount. Historical net income per share is presented in Note 11.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS
128 simplifies the existing earnings per share (EPS) computations under
Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises
disclosure requirements, and increases the comparability of EPS data on an
international basis. In simplifying the EPS computations, the presentation of
primary EPS is replaced with basic EPS, with the principal difference being that
common stock equivalents are not considered in computing basic EPS. In addition,
FAS 128 requires dual presentation of basic and diluted EPS. FAS 128 is
effective for financial statements issued for periods ending after December 15,
1997. The Company's pro forma basic and diluted EPS under FAS 128 would have
been $1.26 and $1.23, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of expenses during the
period reported. Actual results could differ from those estimates.
4. INVESTMENTS
Short-Term Investments -- Restricted
The U.S. Department of Education requires Title IV Program loan funds
collected in excess of amounts due for tuition to be kept in a separate cash or
cash equivalent account until such amounts can be remitted to students. These
funds are invested in short-term U.S. Treasury Notes with maturities of three
months or less.
F-9
37
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Marketable Securities
The cost and market value for each class of investments at December 31,
1995 and 1996 are as follows (in thousands):
1995
-------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
U.S. Government obligations..................... $ 2,499 $ 80 $ -- $ 2,579
Equity securities............................... 975 78 -- 1,053
------ ---- ------ ------
Total................................. $ 3,474 $158 $ -- $ 3,632
====== ==== ====== ======
1996
-------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
Certificates of deposit and money market
funds......................................... $ 632 $ -- $ -- $ 632
U.S. Government obligations..................... 10,416 137 -- 10,553
Equity securities............................... 3,695 247 -- 3,942
------- ---- ------ -------
Total................................. $14,743 $384 $ -- $15,127
======= ==== ====== =======
The contractual maturities of U.S. Government obligations at December 31,
1996 are as follows (in thousands):
MARKET
COST VALUE
-------- -------
Due in one year or less.................................. $ 3,930 $ 3,959
Due after one year through five years.................... 5,144 5,204
Due after five years through 10 years.................... 1,342 1,390
------- -------
Total.......................................... $ 10,416 $10,553
======= =======
5. PROPERTY AND EQUIPMENT
The composition of property and equipment as of December 31, 1995 and 1996
is as follows (in thousands):
1995 1996
------ -------
Land...................................................... $ -- $ 800
Buildings................................................. -- 2,319
Furniture and equipment................................... 3,910 5,321
Leasehold improvements.................................... 1,092 1,576
Vehicles.................................................. 63 52
------ -------
5,065 10,068
Less accumulated depreciation........................ 2,191 3,005
------ -------
$2,874 $ 7,063
====== =======
F-10
38
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STUDENT LOANS RECEIVABLE
Student loans receivable as of December 31, 1995 and 1996 are as follows
(in thousands):
1995 1996
---- ------
Student loans receivable outstanding, including accrued
interest.................................................. $981 $2,946
Allowance for loan losses................................... (49) (147)
---- ------
Student loans receivable, net.......................... $932 $2,799
==== ======
The interest rate on student loans is generally 7.5%. The Companies believe
the carrying value of the student loans approximates their fair value.
Annual principal payments due under the student loans outstanding at
December 31, 1996 are as follows (in thousands):
1997.............................................. $ 805
1998.............................................. 568
1999.............................................. 443
2000.............................................. 321
2001.............................................. 252
Thereafter........................................ 557
------
Total................................... $2,946
======
7. STOCK OPTION PLAN
In July 1996, the Company set aside 1,000,000 shares of common stock for
shares to be issued under the Company's 1996 Stock Option Plan (the Plan) that
provided for the grant of options intended to qualify as incentive stock
options, and provided for the grant of non-qualifying options to directors and
employees of the Company. Options may be granted to eligible employees of the
Companies at the discretion of the Board of Directors, at option prices based on
the fair market value of the shares at the date of grant. Vesting provisions are
at the discretion of the Board of Directors.
On July 24, 1996, the Board of Directors granted options to acquire 663,136
shares of stock at the initial offering price of $10.00 per share to all
full-time employees with at least one year of service, and to all members of the
Board of Directors. The options vest in three equal annual installments
beginning on July 25, 1997. At December 31, 1996, the total number of stock
options outstanding, after forfeitures, was 657,250, all of which expire on July
25, 2001.
F-11
39
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for the fair value of its stock options granted to
employees in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation expense
has been recognized for the Plan, since the exercise price of the options was
equal to the fair value of the underlying common stock on the date of grant. Had
compensation expense been determined based on the fair value of the options at
the grant dates consistent with that method of accounting under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," the Company's pro forma net income and net income per share for
the year ended December 31, 1996 would have been decreased as indicated below
(in thousands):
Net income:
As reported...................................................... $10,403
Pro forma........................................................ $10,204
Net income per common share:
As reported...................................................... $ 1.24
Pro forma........................................................ $ 1.21
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model using the following assumptions for grants
during the year ended December 31, 1996: fair value at date of grant of $3.40
per share; dividend yield of 1.0%; expected volatility of 35%; risk-free
interest rate of 6.52%; expected term of 4 years; and remaining contractual life
of the options of 4.58 years.
8. PROFIT SHARING PLAN
The College has a 401(k) profit sharing trust covering all eligible
employees of the College. Participants may defer a percentage of their salaries
or make contributions up to 10% of their total compensation. Employee
contributions are voluntary. Discretionary contributions are made by the College
in the fourth quarter of each year, and were $88,000, $94,000 and $119,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.
9. COMMITMENTS AND CONTINGENCIES
The College participates in various federal student financial assistance
programs which are subject to audit. Management believes that the potential
effects of audit adjustments, if any, for the periods currently under audit will
not have a material adverse effect on the Companies' financial position, results
of operations or cash flows.
The College has long-term noncancelable operating leases for eight of its
nine campuses and other administrative locations. ELP has a two-year
noncancelable operating lease for office space. Rent expense was $3,309,000,
$3,227,000 and $3,371,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. The College has the option to buy certain of the campus properties
at their fair market value as determined by independent appraisal. The
Washington D.C. campuses and three of the Virginia campuses are leased from the
President and a majority stockholder of the Company. Rent paid to the
stockholder was $1,339,000, $1,896,000 and $2,279,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-12
40
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The rents on these leases are subject to an annual increase based on a
stipulated price index. The minimum rental commitments for the Companies as of
December 31, 1996 are as follows (in thousands):
TOTAL AMOUNT
PAYABLE TO
STOCKHOLDER
TOTAL INCLUDED IN TOTAL
------- -----------------
1997............................................... $ 3,153 $ 2,126
1998............................................... 3,024 2,126
1999............................................... 2,758 2,126
2000............................................... 2,750 2,126
2001............................................... 2,648 2,126
2002............................................... 2,381 2,126
Thereafter......................................... 7,894 7,264
------- -------
$24,608 $20,020
======= =======
10. INCOME TAXES
The income tax provision for the year ended December 31, 1996 is summarized
below (in thousands). There was no income tax provision in 1994 or 1995 due to
the S Corporation status of the College and ELP during those years.
Current:
Federal........................................... $2,088
State............................................. 727
------
2,815
------
Deferred:
Federal........................................... (61)
State............................................. (14)
------
(75)
------
$2,740
======
The tax effects of the principal temporary differences that give rise to
the Companies' deferred tax liability are as follows (in thousands):
Tuition receivable and student loans................................. $ 112
Property and equipment............................................... (37)
Unrealized gains on marketable securities............................ (152)
-----
Net deferred tax liability........................................... $ (77)
=====
A reconciliation between the Companies' statutory tax rate and the
effective tax rate for the year ended December 31, 1996 is as follows:
Statutory federal rate................................................. 35%
Income attributable to period during which the College and ELP were S
Corporations......................................................... (24%)
State income taxes, net of federal benefits............................ 5%
---
Effective tax rate for year ended December 31, 1996.................... 16%
===
Cash payments for income taxes were $2,809,000 in 1996.
F-13
41
STRAYER EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma income taxes reflect the application of statutory corporate
income tax rates to the net income of the College and ELP as if the termination
of the S Corporation status of the Companies had occurred on January 1, 1996.
The components of the pro forma income tax provision as of December 31,
1996 are as follows (in thousands):
Current
Federal........................................... $5,526
State............................................. 1,198
------
6,724
Deferred............................................ (75)
------
$6,649
======
The effective pro forma income tax rate differs from the 35% statutory
federal rate principally as a result of state income taxes.
11. HISTORICAL INCOME PER SHARE
Historical income per share, computed on the basis of the weighted average
number of shares and share equivalents outstanding after giving effect to the
merger of the College and the Company, are as follows:
1994 1995 1996
---------- ---------- ----------
Net income per share........................... $ .93 $ 1.18 $ 1.88
Weighted average shares outstanding............ 6,000,000 6,000,000 7,592,806
Fully diluted income per share was not significantly different from the
primary amounts.
12. SUBSEQUENT EVENTS
The Company's Board of Directors declared a dividend of $.0625 per share to
stockholders of record as of January 3, 1997, and this dividend was paid on
January 17, 1997.
13. SUMMARIZED QUARTERLY FINANCIAL DATA (unaudited)
Quarterly financial information for 1995 and 1996 is as follows (in
thousands except per share data):
1995 Quarter Ended
------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
Total revenues $10,635 $9,702 $7,221 $10,638
Income (loss) from operations 2,944 1,949 (1,092) 2,375
Net income (loss) 3,092 2,133 (882) 2,708
1996 Quarter Ended
------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
Total revenues $12,415 $11,614 $8,305 $12,671
Income from operations 4,628 4,434 982 5,947
Net income 4,736 4,703 1,314 3,559
Pro forma information:
Income taxes 1,852 1,839 491 2,467
Net income 2,884 2,864 823 3,832
Net income per share 0.38 0.39 0.09 0.38
F-14
42
STRAYER EDUCATION, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE ADDITIONS BALANCE
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD EXPENSE DEDUCTIONS PERIOD
- -------------------------------------------------- ------------ ---------- ---------- -------
Deduction from asset account:
Allowance for doubtful accounts:
Year ended December 31, 1996................. $155 $788 $ (779) $ 164
Year ended December 31, 1995................. 135 655 (635) 155
Year ended December 31, 1994................. 453 665 (983) 135
Allowance for loan losses:
Year ended December 31, 1996................. 49 205 (107) 147
Year ended December 31, 1995................. -- 49 -- 49
F-15
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
28
44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers and directors of the Company:
NAME AGE POSITION
----------------------------------- --- -----------------------------------
Ron K. Bailey...................... 56 President, Treasurer and Director
Harry T. Wilkins................... 40 Chief Financial Officer
Stanley G. Elmore.................. 55 Chairman of the Board of Directors
Todd A. Milano..................... 44 Director
Jennie D. Seaton................... 67 Director
Roland Carey....................... 57 Director
Donald T. Benson................... 53 Director
G. Thomas Waite, III............... 45 Director
Donald Stoddard.................... 60 Director
Charlotte Beason................... 49 Director
Ron K. Bailey is the President and Treasurer and has been a director of the
Company since its formation. Mr. Bailey has been the President and a trustee of
the College since 1989 and the President and a director of ELP since its
formation in 1994. From 1980 to 1989, Mr. Bailey held a variety of
administrative positions with the College, including the position of Vice
President of the College. Before assuming his first full-time position with the
College in 1980, Mr. Bailey was a part-time faculty member of the College and
served as Director of Data Processing of the National Association of Home
Builders.
Harry T. Wilkins is the Chief Financial Officer of the Company and has been
the Director of Financial Affairs of the College since 1992. Prior to joining
the College, Mr. Wilkins was a Director with the accounting firm of Wooden &
Benson, Chartered from 1984 to 1992 and a member of the consulting practice of
the accounting firm of Deloitte Touche (then Deloitte, Haskins and Sells) from
1979 to 1984. Mr. Wilkins is a Certified Public Accountant.
Stanley G. Elmore has been a director of the Company since July 1996. Mr.
Elmore has been the Chairman of the Board of Trustees of the College since 1989.
Mr. Elmore has served as Projects and Programs Manager, Citibank Mid-Atlantic, a
position he has held for more than five years.
Todd A. Milano has been a director of the Company since July 1996. Mr.
Milano has been the Vice Chairman of the Board of Trustees of the College since
1992. Mr. Milano has served as President and Chief Executive Officer of Central
Pennsylvania Business School since 1989.
Dr. Jennie D. Seaton has been a director of the Company since July 1996.
Dr. Seaton has been a member of the Board of Trustees of the College since 1990.
Dr. Seaton is retired and was an Assistant Dean of Virginia Commonwealth
University from 1975 to 1994.
Roland Carey has been a director of the Company since July 1996. Mr. Carey
has been a member of the Board of Trustees of the College since 1990. Mr. Carey
is an Instructor with the Carl Sandburg School, a position he has held for more
than five years.
Donald T. Benson has been a director of the Company since July 1996. Mr.
Benson has been a member of the Board of Trustees of the College since 1992. Mr.
Benson has served as Vice President, Human Resources, of Aetna Life Insurance
Company since 1992. From 1976 to 1992, Mr. Benson was Senior Vice President,
Human Resources, of Connecticut General Insurance Corp. (CIGNA).
G. Thomas Waite, III has been a director of the Company since July 1996.
Mr. Waite has been a member of the Board of Trustees of the College since 1994.
Mr. Waite has served as Treasurer for the Humane Society of the United States
since 1993. In 1992, Mr. Waite was the Director of Commercial Management of The
National Housing Partnership; from 1986 to 1991, he held the position of Senior
Vice President of Hurst
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Property Company. As a result of the insolvency of a real estate partnership in
which Mr. Waite served as a general partner, Mr. Waite filed for protection from
creditors under Chapter 11 of the Federal Bankruptcy Code in 1993, which
subsequently was converted to a Chapter 7 filing in 1993.
Dr. Donald Stoddard has been a director of the Company since July 1996. Dr.
Stoddard has been a member of the Board of Trustees of the College since 1995.
Dr. Stoddard is a Professor, Department of English, Anne Arundel Community
College, a position he has held since 1990. From 1979 to 1990, Dr. Stoddard was
the Coordinator, Collegiate Institutional Approval, of the Maryland Higher
Education Commission.
Dr. Charlotte Beason has been a director of the Company since July 1996.
Dr. Beason has been a member of the Board of Trustees of the College since 1995.
Dr. Beason is a Nurse at the U.S. Department of Veterans Affairs/Health Care
Reform Office, a position she has held for more than five years.
Directors of the Company are elected at the annual meeting of stockholders
and serve until their successors are duly elected and qualified or until their
earlier resignation or removal. Executive officers serve at the discretion of
the Board of Directors.
CERTAIN SIGNIFICANT EMPLOYEES OF THE COLLEGE
The following information is supplied with respect to certain other
significant employees of the College:
Younes P. Benab, Ph.D., 59, is the Academic Dean of the College, a position
he has held since 1986.
J. Chris Toe, Ph.D., 42, is the Director, Graduate Programs of the College,
a position he has held since 1994. Dr. Toe joined the College in 1993 as an
adjunct professor, becoming a full-time professor in 1994. Prior to joining the
College, Dr. Toe was an independent consultant.
James F. McCoy, Jr., 37, is the Administrative Dean of the College, a
position he has held since 1994. Mr. McCoy previously was Finance Team Leader,
Phillips Colleges, in 1994; Vice President of Operations, Brenell Institute,
from 1992 to 1994; and Operations Manager, Phillips Colleges, from 1983 to 1992.
Marla Boulter, 41, is the College's Director of College Relations, a
position she has held since 1995. Ms. Boulter joined the College in 1990 as an
accountant and was the College's Director of Marketing from 1991 to 1995.
Don R. Anderson, 54, is the Director of Facilities of the College, a
position he has held since 1988.
Robert E. Farmer, 58, is the Director of Human Resources of the College, a
position he has held since 1995. Mr. Farmer was the Campus Coordinator of the
Arlington campus from 1992 until 1995, and was the Director of Admissions at
that campus from 1990 to 1992. Mr. Farmer is a certified Professional in Human
Resources (PHR).
Piroj Piboolnuruk, 42, is the College's Director of Information Management,
a position he has held since 1992. Mr. Piboolnuruk was the College's coordinator
of Administrative Services from 1986 to 1992.
John Tucker, 56, is the College's Director of Distance Learning, a position
he has held since 1995. Mr. Tucker has been on the faculty of the College as an
Adjunct Professor since 1974 and was a director of systems engineering with the
Internal Revenue Service from 1988 to 1995. He is a certified computer
professional and has an extensive background as an educator in distance
learning.
David J. Spille, 30, is the Manager of Investor Relations, a position he
has held since February 1997. Prior to his employment at Strayer, Mr. Spille was
an Analyst at the Nasdaq Stock Market, Inc. from 1994 to 1997 and a Business
Analyst at E-Systems Incorporated from 1990 to 1994.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee, an Executive
Committee and a Compensation Committee.
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Audit Committee. The Audit Committee consists of non-management directors
and makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public accountants and reviews the adequacy of the Company's
internal accounting controls.
Executive Committee. The Executive Committee consists of Mr. Bailey and one
or more non-management directors and exercises such authority as is delegated to
it.
Compensation Committee. The Compensation Committee consists of three
non-management directors. The Compensation Committee determines the compensation
of the Company's executive officers, subject to the provisions of any employment
agreements, and administers the Company's 1996 Stock Option Plan.
COMPENSATION OF THE BOARD OF DIRECTORS
Directors are reimbursed for expenses incurred in connection with their
attendance at Board and Committee meetings, but currently receive no
compensation for serving as directors.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is hereby incorporated by reference
from the information to be contained under the caption "Compensation"
in the Company's 1997 Proxy Statement.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the ownership
of Common Stock as of March 15, 1997, by each person known by the Corporation
to be the beneficial owner of more than five percent (5%) of the outstanding
shares of Common Stock, each director of the Corporation, and all executive
officers and directors as a group. The information presented in the table is
based upon the most recent filings with the Securities and Exchange Commission
by such persons or upon information otherwise provided by such persons to the
Corporation.
SHARES BENEFICIALLY
NAMES OF BENEFICIAL OWNERS (1) OWNED
- ------------------------------ -----------------------
PERCENT
NUMBER OF CLASS
------ --------
Ron K. Bailey and Beverly W. Bailey . . 5,900,000 62.4%
Putnam Investments, Inc. (2)
One Post Office Square
Boston, Massachusetts 02109 . . . . . . 975,679 10.3
Stanley G. Elmore . . . . . . . . . . . 0 0
Todd A. Milano 4,540 *
Jennie D. Seaton . . . . . . . . . . . 0 0
Roland Carey 0 0
Donald T. Benson . . . . . . . . . . . 600 *
G. Thomas Waite, III . . . . . . . . . 0 0
Donald Stoddard 300 *
Charlotte Beason . . . . . . . . . . . 0 0
----------- -----------
All directors and executive officers as a group
(10 persons) 5,905,440 62.5%
- --------------------
*Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable within
60 days are deemed outstanding for purposes of computing the percentage
ownership of the person holding such option or warrant but are not deemed
outstanding for purposes of computing the percentage ownership of any other
person. Except where indicated otherwise, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Based on a Schedule 13G filed with the Securities and Exchange Commission
on January 31, 1997. These securities are owned by various institutional
investors that are clients of investment adviser subsidiaries of Putnam
Investments, Inc. ("PI)"), a wholly-owned subsidiary of Marsh & McClennan
Companies, Inc. ("M&MC"). For purposes of reporting requirements of the
Securities Exchange Act of 1934, PI and M&MC are each deemed to be
beneficial owners of these securities; however, each of PI and M&MC
expressly disclaims that beneficial ownership.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
LEASE OF CAMPUS FACILITIES
The Company has long-term noncancelable operating leases for eight of its
various campus locations. The rents on these leases are subject to an annual
increase based on a stipulated price index. Of the eight campus locations, five
of the campuses, including the Washington, D.C. campuses and three of the
Virginia campuses, were leased from corporations which are wholly-owned by Mr.
Bailey, the Company's President and majority stockholder. Rent paid to Mr.
Bailey under these five operating leases for the years ended December 31, 1994,
1995 and 1996 was $1,339,000, $1,896,000 and $2,279,000, respectively. Future
minimum rental commitments for all of the Company's eight leases and the five
campuses leased from Mr. Bailey as of December 31, 1996 was as follows (in
thousands):
AMOUNT PAYABLE TO AN
TOTAL LEASE AFFILIATE OF MR. BAILEY
COMMITMENTS INCLUDED IN TOTAL
----------- -----------------------
1997............................................... $ 3,153 $ 2,126
1998............................................... 3,024 2,126
1999............................................... 2,758 2,126
2000............................................... 2,750 2,126
2001............................................... 2,648 2,126
2002............................................... 2,381 2,126
Thereafter......................................... 7,894 7,264
------- -------
$24,608 $20,020
======= =======
Each of the five leases with Mr. Bailey has a 10-year term expiring in
May 2006. The Company has the option under each such lease to purchase at any
time during the term of the lease the related campus facility at its discretion
at the fair market value of such facility as determined by independent
appraisers.
The Company may lease additional campus facilities from entities owned or
controlled by Mr. Bailey. Any such leases will have market terms as determined
by an independent appraiser and be subject to the approval by a majority of
independent directors.
TRANSACTIONS WITH PRK INVESTMENTS, INC.
The College retained PRK Investments, Inc. ("PRK") to provide it with a
variety of services, including services related to computer equipment purchasing
and the College's compliance with the HEA and Department of Education
regulations applicable to Title IV Programs. See "Licensing, Accreditation and
Financial Aid Regulation -- Financial Aid Regulation -- Administrative
Capacity." Two-thirds of the PRK common stock is owned by children of Ron K.
Bailey, President and a director of the Company. The College paid PRK
approximately $257,000 for computer equipment purchasing and related services in
1996. In addition, pursuant to a contract with PRK, the College made monthly
payments of $20,000 to PRK for Title IV services from January 1, 1996 through
May 15, 1996. Beginning May 16, 1996, the computer equipment purchasing and
related services performed by PRK for the College, as well as the services
related to Title IV Programs, are performed by employees of the Company. The
College provided PRK office space on a rent-free basis in 1996 through May 15,
1996.
TRANSACTIONS WITH CAREER TRAINING INSTITUTE, INC.
College faculty and other employees have received computer-related
instruction and training in other occupational skills from Career Training
Institute, Inc. ("CTI"). Prior to December 31, 1996, eighty percent of the CTI
common stock was owned by children of Ron K. Bailey, President and a director of
the Company. The College paid CTI approximately $199,000 for its services in
1996. Management believes that CTI provided such services to the College on
terms at least as favorable to the College as the College could obtain
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from unaffiliated parties. The Company believes that the instruction provided by
CTI is not competitive with the current programs of the College.
REORGANIZATION TRANSACTIONS
On July 30, 1996, the Company completed an initial public offering of its
common stock. The Company sold 3,450,000 shares in the offering at a price of
$10 per share. Net proceeds to the Company were $31,313,000. Prior to the
closing of the offering, the Company exchanged 5,999,000 shares of its common
stock for 100% of the outstanding common stock of the College, which was held
jointly by Mr. and Mrs. Ron K. Bailey, in their capacity as the S Corporation
Stockholder. Approximately $19,838,000 of the net proceeds of the offering were
paid to the Baileys as a distribution of earnings on which they had previously
paid income taxes during the period the College was an S Corporation.
Contemporaneously with the closing of the initial public offering, the
Company acquired ELP at a purchase price of $1,060,000, ELP's net book value.
ELP was wholly owned by Mr. Ron K. Bailey, the Company's President and a
director of the Company.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
All required financial statements of the registrant are set forth under
Item 8 of this report of Form 10-K.
(a)(2) Financial Statement Schedules
All required financial statement schedules of the registrant are set forth
under Item 8 of this report on Form 10-K.
(a)(3) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------
3.01* -- Articles of Incorporation of the Company.
3.02* -- Amended and Restated Bylaws of the Company.
4.01* -- Specimen Stock Certificate.
10.01* -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc. and
Fredericksburg Investments, Inc.
10.02* -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc. and
Beacon Investments, Inc.
10.03* -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc. and
Battleview Investments, Inc.
10.04* -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc. and
Central Investments, Inc.
10.05* -- Lease Agreement, dated as of June 1, 1996, between Strayer College, Inc. and
Potomac Investments, Inc.
10.06* -- Lease Agreement, dated as of October 1, 1991, between Strayer College, Inc. and
GLM-Highland Building Limited Partnership.
10.07* -- Lease Agreement, dated as of June 15, 1993, between Strayer College, Inc. and
Alexandria Tech Center I.
10.08* -- Employment Agreement, dated as of June 1, 1996, between Strayer Education, Inc.
and Ron K. Bailey.
10.09* -- Employment Agreement, dated as of June 1, 1996, between Strayer College, Inc.
and Harry T. Wilkins.
10.10* -- 1996 Stock Option Plan
10.11* -- Form of Tax Indemnification Agreement
10.12* -- First Amendment to Agreement of Lease for Office Condominium Space, dated July
25, 1994, between Strayer College, Inc. and Cross Creek Associates Limited
Partnership.
10.13** -- Lease Agreement, dated as of February 29, 1996, between Confederation Life
Insurance Company (U.S.) in Rehabilitation and Strayer College, Inc.
10.14** -- Office Building Lease, dated as of July 26, 1996, between Nikowski Limited
Partnership and Strayer College, Inc.
10.15** -- Office Lease Agreement, dated as of June 17, 1996, between 1133 Fifteenth Street
Limited Partnership and Strayer College, Inc.
11.01 -- Earnings per Share Calculation
23.01 -- Consent of Coopers & Lybrand L.L.P.
24.01 -- Power of Attorney (contained in signature page).
27+ -- Financial Data Schedule.
- ---------------
* Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 333-3967).
** Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(No. 333-23601).
+ Included in electronic filing via EDGAR.
(b) Report on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
STRAYER EDUCATION, INC.
Date: March 26, 1997 By /s/ RON K. BAILEY
----------------------------------
Ron K. Bailey
Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Ron K. Bailey and Harry T. Wilkins, and each of them
individually, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and his name, place and stead
in any and all capacities, to sign the report and any and all amendments to
this report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney's-in-fact and agents, full power and authority to
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report
has been signed by the following persons in the capacities and on the date
indicated.
Signatures Title Date
- ---------- ----- ----
/s/ RON K. BAILEY Chief Executive Officer and March 26, 1997
- ----------------------------
Ron K. Bailey Director (Principal Executive
Officer)
/s/ HARRY T. WILKINS Chief Financial Officer March 26, 1997
- ---------------------------- (Principal Financial and
Harry T. Wilkins Accounting Officer)
/s/ STANLEY G. ELMORE Director March 26, 1997
- ----------------------------
Stanley G. Elmore
/s/ TODD A. MILANO Director March 26, 1997
- ----------------------------
Todd A. Milano
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52
/s/ JENNIE D. SEATON Director March 26, 1997
- --------------------------------
Jennie D. Seaton
/s/ ROLAND CAREY Director March 26, 1997
- --------------------------------
Roland Carey
/s/ DONALD T. BENSON Director March 26, 1997
- --------------------------------
Donald T. Benson
/s/ G. THOMAS WAITE Director March 26, 1997
- --------------------------------
G. Thomas Waite
/s/ DONALD STODDARD Director March 26, 1997
- --------------------------------
Donald Stoddard
/s/ CHARLOTTE BEASON Director March 26, 1997
- --------------------------------
Charlotte Beason
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EXHIBIT INDEX
Seq.
Exhibit Page
Number Description No.
- ------ ----------- ---
11.01 Earnings per Share Calculation
23.01 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
38