Business description of Strategic-Education-Inc from last 10-k form
Strayer
Education, Inc. Executive Officers
For a description of Strayer Education, Inc.’s senior
management, see the biographical information set forth in
Item 10 below.
Outreach
To identify potential students, we engage in a broad range of
activities to inform working adults and their employers about
the programs we offer. These activities include direct mail,
online marketing, marketing to our existing students and
graduates, print and broadcast advertising, student referrals,
and corporate and government outreach activities. Direct
response methods (direct mail and online advertising) are used
to generate inquiries from potential students. Strayer
University maintains booths and information tables at
appropriate conferences and expos, as well as at transfer days
at community colleges. We also depend on the recommendation of
our alumni network to protect Strayer’s reputation and
promote its quality education. Our
business-to-business
outreach efforts include personal telephone calls, distribution
of information through corporate intranets and human resource
departments, and
on-site
information meetings. We record inquiries in our database and
track
11
them through to application and registration. Additionally, we
provide information about new programs and new locations to
students and alumni to encourage them to return for further
education.
Student
Profile
The majority of Strayer University students are working adults
completing their first college degree to improve their job
skills and advance their careers. Of the students enrolled in
Strayer University’s programs at the beginning of the 2010
fall quarter, approximately 63% were age 31 or older and
approximately 87% were engaged in part-time study (fewer than
three courses each quarter). In the 2010 fall quarter, our
students registered for an average of 8.1 course credits (about
two classes per student).
Strayer University has a very diverse student population. At the
beginning of the 2010 fall quarter, approximately 74% of
students were minorities and approximately 67% of students were
women. Approximately 2% of the University’s students were
international, and approximately 2% were active duty military
personnel. Strayer University prides itself on making
post-secondary education accessible to working adults who were
previously unable to take advantage of educational opportunities.
The following is a breakdown of our students by program level as
of the 2010 fall term:
Bachelor’s
Master’s
Associate
Total Degree
Diploma
Undergraduate Certificate
Graduate Certificate
Undeclared
Total Non-Degree
Total Students
Our business is seasonal and as a result, our quarterly results
of operations tend to vary within the year due to student
enrollment patterns. Enrollment generally is highest in the
fourth quarter, or fall term, and lowest in the third quarter,
or summer term.
Student
Admissions
Students attending Strayer University’s undergraduate
programs must possess a high school diploma or a General
Educational Development (GED) Certificate. Students attending
Strayer University’s graduate programs must have a
bachelor’s degree from an accredited institution and meet
certain other requirements. If a student’s undergraduate
major varies widely from the student’s proposed graduate
course of study, certain undergraduate prerequisite courses may
also be necessary for admission. To maximize undergraduate
students’ chances for academic success and to ensure they
receive the support they need, Strayer University evaluates
incoming student’s proficiency in fundamental English and
math prior to the first quarter’s registration.
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
perform college-level work in an English-speaking institution.
Tuition
and Fees
Strayer charges tuition by the course. Tuition rates may vary in
states with specific regulations governing tuition costs. Each
course is 4.5 credit hours. As of January 1, 2011,
undergraduate full-time students are charged $1,590 per course.
Undergraduate part-time students are charged $1,665 per course.
Students in graduate programs are charged at the rate of $2,175
per course. Accordingly, a full-time student seeking to obtain a
bachelor’s degree in four years currently would pay
approximately $16,000 per year in tuition. Strayer University
implemented a tuition price increase of approximately 5% per
course effective January 1, 2011, which is reflected in the
above tuition rates. Under a variety of different programs,
Strayer University offers scholarships and tuition discounts to
active duty military students and in connection with various
corporate and government sponsorship and tuition reimbursement
arrangements.
Career
Development Services
Although most of Strayer University’s students are already
employed, the University actively assists its students and
alumni with job placement and other career-related matters
through career development offices in each region where the
University has 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.
Strayer University sponsors career fairs in the fall and spring
quarters for students and alumni to discuss career opportunities
with companies and governmental agencies.
We regularly conduct alumni surveys to monitor the career
progression of our graduates and to support outcome assessment
efforts required by Middle States and state regulators.
Employees
As of December 31, 2010, we had 2,099 full-time
employees including 406 full-time faculty members.
Full-time faculty members teach on average 4-5 courses per
quarter. The remainder of the classes are taught by adjunct
faculty who normally teach 1-2 courses per quarter. Although we
had approximately 2,300 adjunct faculty, not all of them teach
every quarter. In the 2010 fall quarter, approximately 30% of
our courses were taught by full-time faculty. We also employed
1,885 non-faculty staff in information systems, financial aid,
recruitment and admissions, student administration, marketing
and human resources, corporate accounting and other
administrative functions. Of our non-faculty staff, 1,693 were
employed full-time and 192 were employed part-time. Because we
are not a research university, all faculty are expected to spend
their time teaching and advising students.
Intellectual
Property
In the ordinary course of business, we develop many kinds of
intellectual property that are or will be the subject of
copyright, trademark, service mark, patent, trade secret or
other protections. Such intellectual property includes our
courseware materials for classes taught online or other
distance-learning means and business know-how and internal
processes and procedures developed to respond to the
requirements of its operations and various education regulatory
agencies. We also claim rights to the mark “STRAYER”
for educational services and have obtained federal registration
of the mark.
Regulation
Regulatory
Environment
As an institution of higher education accredited by Middle
States and operating in multiple states, Strayer University is
subject to accreditation rules and varying state licensing and
regulatory requirements. In addition, the federal Higher
Education Act and the regulations promulgated thereunder require
all higher education institutions that participate in the
various financial aid
programs under Title IV of the Higher Education Act
(Title IV programs), including Strayer University, both to
comply with detailed substantive and reporting requirements and
to undergo periodic regulatory scrutiny. The Higher Education
Act mandates specific regulatory responsibility for each of the
following components of the higher education regulatory triad:
(1) the institutional accrediting agencies recognized by
the U.S. Secretary of Education (“Secretary of
Education”); (2) state education regulatory bodies;
and (3) the federal government through the
U.S. Department of Education (“Department of
Education”). The regulations, standards and policies of
these regulatory agencies are subject to frequent change.
Accreditation
Strayer University has been institutionally accredited since
1981 by Middle States, a regional accrediting agency recognized
by the Secretary of Education. Strayer University’s current
period of accreditation by Middle States extends through 2017.
Accreditation is a system for recognizing educational
institutions and their programs for integrity, educational
quality, faculty, physical resources, administrative capability
and financial stability that signifies that they merit 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, conduct peer-review evaluations of institutions
and programs, and publicly designate those institutions that
meet their standards. Accredited schools are subject to periodic
review by accrediting bodies to determine whether such schools
maintain the performance, integrity and quality required for
accreditation.
Middle States accredits degree-granting public and private
colleges and universities in its region (including Delaware,
Washington, D.C., Maryland, New Jersey, New York,
Pennsylvania, Puerto Rico and U.S. Virgin Islands),
including distance education programs offered by those
institutions. Accreditation by Middle States is an important
attribute of Strayer University. Colleges and universities
depend on accreditation in evaluating transfers of credit and
applications to graduate schools. Employers rely on the
accreditation status of institutions when evaluating a
candidate’s credentials or considering tuition
reimbursement programs. Students rely on accreditation status
for assurance that an institution maintains quality educational
standards.
In order for institutions to be eligible to participate in
federal student financial assistance programs, they must be
accredited by an entity approved by the Department of Education.
The Higher Education Act charges the National Advisory Committee
on Institutional Quality and Integrity (NACIQI) with
recommending to the Secretary of Education which accrediting or
specific state approval agencies should be recognized as
reliable authorities for judging the quality of post-secondary
institutions and programs. Middle States was most recently
recognized through the NACIQI process in 2007 and must
periodically seek re-recognition. The Middle States Commission
is a division of the Middle States Association of Colleges and
Schools (“Middle States Association”). In June 2010,
the Department of Education found that, because of efforts by
the Middle States Association to increase control over the
Middle States Commission, the accrediting agency was no longer
“separate and independent,” as required for
recognition by the Department of Education for federal student
financial aid purposes. The Department of Education required the
Middle States Commission to come into compliance with that
standard by December 15, 2010. The Middle States Commission
informed accredited institutions in January 2011 that it had
resolved the controversy with the Middle States Association.
Middle States maintains its recognition by the Department of
Education and is scheduled for its next review in Spring 2012 by
NACIQI for renewal of recognition.
As with all its regulatory relationships, Strayer University
strives to maintain close contact with, and to provide frequent
status updates to, Middle States regarding matters pertinent to
accrediting standards and policies. This regular contact keeps
Middle States informed of the University’s planned
activities and aims to ensure that the University’s
performance continues to meet Middle States’ expectations.
To this end, Strayer University is committed to evaluating
periodically its own performance, submitting reports to Middle
States and making any necessary improvements to continue
meeting Middle States’ accreditation standards as the
University grows and expands geographically. If an
institution’s performance were ever not to meet its
accrediting agency’s (or other regulator’s)
expectations or applicable standards, then its operations could
be conditioned, or severely constrained or even curtailed,
depending on the severity of the non-compliance. Accordingly,
Strayer University endeavors proactively to keep Middle States
(and all of its other regulators) fully informed and satisfied
with its performance and strives to maintain good regulatory
relationships as a key University priority.
In 2006, Strayer University completed a comprehensive self study
report, which was submitted to Middle States in support of
Strayer University’s request for early reaffirmation of
accreditation prior to Middle States’ next scheduled
accreditation review in 2011. Our objective is to provide a high
quality post-secondary education to working adult students, and
participation in academic peer review processes is an important
way to help us meet that objective. Middle States reviewed
Strayer University’s report and on June 28, 2007,
reaffirmed Strayer University’s accreditation for
10 years through 2017. All of Strayer University’s new
campus locations and other substantive changes require prior
Middle States approval.
In 2000, the agencies that accredit higher education
institutions in various regions of the United States
adopted a Policy Statement on Evaluation of Institutions
Operating Interregionally. Under that policy, both the home
regional accreditor and the host regional accreditor cooperate
to evaluate an institution that delivers education at a physical
site in the host accreditor’s region. Although the home
region is solely responsible for final accreditation actions, as
we open campuses in regions outside Middle States’ region,
the host regional accreditors may elect to participate in the
accreditation process of such expansion operations.
State
Education Licensure
Licensure
of Physical Campuses
Strayer University is required by the federal Higher Education
Act to be legally authorized to provide educational programs in
the states in which the University is physically located. We are
authorized to offer our programs by the applicable educational
regulatory agencies in all states where our physical campuses
and online delivery facilities are located. We are dependent
upon the authorization of each state where we are physically
located to allow us to operate and to grant degrees, diplomas or
certificates to students in those states. We are subject to
extensive regulation in each of the following 22 jurisdictions:
Alabama, Arkansas, Delaware, Florida, Georgia, Indiana,
Kentucky, Louisiana, Maryland, Mississippi, New Jersey, North
Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas,
Utah, Virginia, West Virginia, Wisconsin and
Washington, D.C. We will be subject to similar extensive
regulation in those additional states in which we may expand our
operations in the future. State laws and regulations affect our
operations and may limit our ability to introduce educational
programs or establish new campuses.
On October 29, 2010, the Department of Education adopted
new regulations regarding state authorization that set new
requirements for state authorization to suffice for purposes of
Title IV eligibility. The new regulations will require some
states to enact or amend state education licensure laws to
conform to federal requirements and enable institutions in the
state to continue to participate in the Title IV programs.
These new regulations go into effect on July 1, 2011, but
institutions may seek up to two one-year extensions if they
submit an explanation from the state as to how the extension
will permit the state to comply with the new federal
requirements. Strayer University is carefully reviewing the new
regulations with the state licensing agencies and believes the
states in which it is licensed will be in compliance with the
new requirements.
Licensure
of Online Programs
The increasing popularity and use of the Internet and other
technology for the delivery of education has led and may lead to
the adoption of new laws and regulatory practices in the
United States or foreign countries or to interpretation of
existing laws and regulations to apply to such services. These
new laws and interpretations may relate to issues such as the
requirement that online education institutions be licensed as a
school in one or more jurisdictions even where they have no
physical location. New laws, regulations, or interpretations
related to doing business over the Internet could increase
Strayer University’s cost of doing business, affect its
ability to increase enrollments and revenues, or otherwise have
a material adverse effect on our business.
On October 29, 2010, the Department of Education adopted
new regulations, effective July 1, 2011, regarding state
authorization of online programs. The revised rules specify that
an institution offering distance post-secondary education must
meet any state requirements for it to be legally offering
post-secondary distance or correspondence education in that
state. Strayer University has implemented a process for
obtaining the required state authorization and believes that it
will be in compliance with the new rules by the effective date.
Department
of Education
To be eligible to participate in Title IV programs, Strayer
University must comply with specific standards and procedures
set forth in the Higher Education Act and the regulations issued
thereunder by the Department of Education. An institution must,
among other things, be authorized to offer its educational
programs by each state in which it is physically located and
maintain institutional accreditation by a recognized accrediting
agency as discussed above. The institution also must be
certified by the Department of Education to participate in
Title IV programs and follow Department of Education rules
regarding the awarding and processing of funds issued under the
Title IV programs. For purposes of the Title IV
programs, Strayer University and all of its campuses are
considered to be a single institution of higher education, such
that Department of Education requirements applicable to an
institution of higher education are generally applied to all of
Strayer University’s campuses in the aggregate rather than
on an individual basis. As frequently occurs for institutions
with pending applications for recertification, Strayer
University, including each of its campuses, is currently
certified to participate in Title IV programs on a
month-to-month
basis pending completion of the Department of Education’s
review of the application.
Other
Approvals
Strayer University is approved by appropriate authorities for
the education of veterans and members of the selective reserve
and their dependents, as well as for the rehabilitation of
veterans. In addition, Strayer University is authorized by the
U.S. Department of Homeland Security to admit foreign
students for study in the United States subject to applicable
requirements. The U.S. Department of Homeland Security,
working with the U.S. Department of State, has implemented
a mandatory electronic reporting system for schools that enroll
foreign students and exchange visitors. The University is also
authorized to participate in state financial aid programs in
Pennsylvania, Florida and Vermont.
Financing
Student Education
Students finance their Strayer University education in a variety
of ways. A significant number of students receive loans or
grants directly from the Department of Education. In the 2010
fall term, approximately 73% of Strayer University’s
students participated in one or more Title IV programs.
Many financial aid programs are designed to assist eligible
students whose financial resources are inadequate to meet the
cost of education. With these programs, financial aid is awarded
on the basis of financial need, generally defined under the
Higher Education Act as the difference between the cost of
attending a program of study and the amount a student reasonably
can be expected to contribute to those expenses. All recipients
of federal student financial aid must maintain a satisfactory
grade point average and progress in a timely manner toward
completion of a program of study.
In addition, many of our working adult students finance their
own education or receive full or partial tuition reimbursement
from their employers. Congress has enacted several tax credits
for students pursuing higher education and has provided for a
tax deduction for interest on student loans and exclusions from
income of certain tuition reimbursement amounts. Eligible
students at Strayer University may also participate in
educational assistance programs administered by the District of
Columbia, the Commonwealth of Pennsylvania, the State of
Florida, State of Vermont, private organizations, the
U.S. Department of Veterans Affairs, and the
U.S. Department of Defense (“DOD”).
Congress recently expanded education benefits available to
veterans who have served on active duty since September 11,
2001. Under the relevant law, known as the Post-9/11 Veterans
Educational Assistant Act of 2008, sometimes referred to as the
“New GI Bill,” eligible veterans may receive, among
other benefits, benefits for tuition purposes up to the cost of
in-state tuition at the most expensive public institution of
higher education in the state where the veteran is enrolled.
Eligible veterans who are not enrolled in wholly distance
education programs also may receive monthly housing stipends.
Recent amendments make certain changes in the law. For example,
the tuition and fee benefit will be based on the net cost to the
student (after accounting for state and federal aid,
scholarships, institutional aid, fee waivers, and similar
assistance), subject to a cap of $17,500 for non-public domestic
institutions, effective August 1, 2011. In addition, for
the first time students pursuing an educational program solely
through distance learning will be eligible to receive a housing
stipend, equal to half the amount available to students
attending classroom-based programs or programs that combine
classroom learning and distance learning.
On August 6, 2010, DOD issued a proposed rule that would
increase oversight of educational programs offered to active
service members participating in the military’s tuition
assistance program. The proposed rule would require that before
receiving tuition assistance, an institution sign a Memorandum
of Understanding outlining certain commitments and agreements
between the institution and DOD. Congress held hearings and
issued a report in 2010 criticizing use of military tuition
assistance and veterans benefits by for-profit institutions.
Title IV
Programs
Strayer University maintains eligibility for its students to
participate in the following Title IV programs:
Federal
Financial Aid Regulation
To be eligible to participate in Title IV programs, Strayer
University must comply with specific standards and procedures
set forth in the Higher Education Act and the regulations issued
thereunder by the Department of Education. As part of those
participation standards, the Department of Education determines
whether, among other things, the institution meets certain
standards of administrative capability and financial
responsibility. The institution must also follow extensive
Department of Education rules regarding the awarding and
processing of funds issued under the Title IV programs.
Some of the key provisions regarding institutional eligibility
and processing federal financial aid are described below.
Program
Participation Agreement
Each institution participating in Title IV programs must
enter into a Program Participation Agreement with the Department
of Education. Under the agreement, the institution agrees to
follow the Department of Education’s rules and regulations
governing Title IV programs. On June 4, 2010, Strayer
University submitted its fully completed recertification
application for renewal of its current program participation
agreement to the Department of Education. Because the
recertification application was submitted more than 90 calendar
days before September 30, 2010 (the term of the current
agreement), the University’s eligibility to participate in
federal student financial aid programs continues on a
month-to-month
basis while the recertification is pending with the Department
of Education.
Provisional
Certification
In certain circumstances, including a change in ownership
resulting in a change of control, the Department of Education
may certify an institution’s continuing eligibility to
participate in Title IV programs on a provisional basis
that may extend no longer than through the end of the third
complete award year (July 1 — June 30) from the
date of provisional certification. During the period of
provisional certification, the institution must comply with any
additional conditions included in its program participation
agreement. If the Department of Education determines that a
provisionally certified institution is unable to meet its
responsibilities under its program participation agreement, it
may seek to revoke or further condition the institution’s
certification to participate in Title IV programs with
fewer due process protections for the institution than if it
were fully certified. Strayer University’s current program
participation agreement is not provisional.
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 comply with all
applicable Title IV program regulations, 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, must submit in a timely
manner all reports and financial statements required by the
regulations and must not otherwise appear to lack administrative
capability.
Financial
Responsibility
The Higher Education Act and Department of Education regulations
establish extensive standards of financial responsibility that
institutions such as Strayer University must satisfy in order to
participate in Title IV programs. These standards generally
require that an institution provide the services described in
its official publications and statements, properly administer
the Title IV programs in which it participates and 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
of Education.
Department of Education standards utilize a complex formula to
assess financial responsibility. The standards focus on three
financial ratios: (1) equity ratio (which measures the
institution’s capital resources and ability to borrow);
(2) primary reserve ratio (which measures the
institution’s financial viability and liquidity) and
(3) net income ratio (which measures the institution’s
ability to operate at a profit or within its means). An
institution’s financial ratios must yield a composite score
of at least 1.5 for the institution to be deemed financially
responsible without alternative measures and further federal
oversight. Strayer University has applied the financial
responsibility standards to its audited financial statements as
of and for the year ended December 31, 2010, and based on
its composite score and other relevant factors, Strayer believes
that Strayer University meets the Department of Education’s
financial responsibility standards.
Student
Loan Defaults
Under the Higher Education Act, an educational institution may
lose its eligibility to participate in some or all of the
Title IV programs if defaults on the repayment of Direct
Loan or FFEL Program loans by its students exceed certain
levels. The Department of Education uses a specific methodology
to determine default rates and imposes varying sanctions based
upon the results of that calculation. As discussed below, the
current cohort default rate calculation and threshold for
regulatory sanctions will change effective 2014 as a result of
the reauthorization of the Higher Education Act through the
HEOA, which was effective August 18, 2008.
The Department of Education calculates a rate of student
defaults (known as a cohort default rate) for each institution
with 30 or more borrowers entering repayment in a given federal
fiscal year. The Department of Education includes in the cohort
all student borrowers at the institution who entered repayment
on any Direct or FFEL Program loan during that year. The cohort
default rate is the percentage of those borrowers who default by
the end of the following federal fiscal year, resulting in a
two-year cohort default rate. Because of the need to collect
data on defaults, the Department publishes cohort default rates
two years in arrears; for example, in the fall of 2010, the
Department issued cohort default rates for federal fiscal year
2008.
The Department of Education may take adverse action against an
institution if it has excessive cohort default rates, including
the following:
An institution whose participation ends under either of the
foregoing provisions may not participate in the relevant
programs for the remainder of the fiscal year in which the
institution receives the notification, as well as for the next
two fiscal years.
The regulations also address cohort default rates for
institutions that have undergone a change in status, such as
acquisition or merger of institutions and acquisition of another
institution’s branches or locations. Strayer
University’s cohort default rates for the 2006, 2007, and
2008 federal fiscal years, the three most recent years for which
this information is available, were 3.8%, 6.0%, and 6.7%,
respectively. The average cohort default rates for proprietary
institutions nationally were 9.7%, 11.0%, and 11.6% for federal
fiscal years 2006, 2007, and 2008, respectively.
Cohort
Default Rate Provisions Effective 2014
In 2008, Congress, through the HEOA, modified the cohort default
rate provisions related to Title IV loans in two
significant ways, described below. The HEOA provides, however,
that the current method of calculating cohort default rates will
be used to determine any sanctions on institutions until 2014,
when three consecutive years of official cohort default rates
calculated under the new formula will be available.
First, under the new provisions, the period for measuring
defaults will be expanded by one year, resulting in a three-year
cohort default rate. Beginning with cohort default rate
calculations for federal fiscal year 2009, the cohort default
rate is the percentage of borrowers who become subject to their
repayment obligation in the relevant federal fiscal year and
default by the end of the second federal fiscal year following
that fiscal year.
Second, the cohort default rate ceiling will increase from 25%
to 30%. This change has several consequences:
The revisions to the cohort default rate rule did not change the
existing provision that an institution generally loses
eligibility to participate in Title IV loan programs if its
most recent cohort default rate is greater than 40%.
Final Department of Education regulations on the new cohort
default rate provisions, effective as of July 1, 2010
clarify that the Department will issue two cohort default
rates — both a two-year cohort default rate and a
three-year cohort default rate — for fiscal years 2009
through 2011. The final regulations indicate that the Department
will rely on the two-year cohort default rate and related
thresholds to determine institutional eligibility until 2014,
when the Department issues official three-year cohort default
rates for the fiscal year 2011 cohort.
The Department of Education issued unofficial, trial three-year
cohort default rates for federal fiscal years 2006, 2007, and
2008. Three-year cohort default rates were generally expected to
be higher than two-year cohort default rates, because of both
the longer repayment history and current economic conditions.
Strayer’s trial three-year cohort default rates are 10.5%,
13.0%, and 14.0% for federal fiscal years 2006, 2007, and 2008,
respectively, the last years for which data is available and the
calculations have been completed. The average trial three-year
cohort default rates for proprietary institutions nationally
were 18.8%, 21.2%, and 25.0% for federal fiscal years 2006,
2007, and 2008, respectively.
As part of its compliance program related to the cohort default
rate, Strayer University provides entrance and exit counseling
to its students and engages the services of a third party to
counsel students once they are in repayment status regarding
their repayment obligations.
The
90/10 Rule
A requirement of the Higher Education Act, commonly referred to
as the 90/10 Rule, applies only to proprietary institutions of
higher education, which includes Strayer University. Under this
rule, a proprietary institution is prohibited from deriving from
Title IV funds, on a cash accounting basis (except for
certain institutional loans) for any fiscal year, more than 90%
of its revenues (as revenues are computed under the Department
of Education’s methodology).
The 90/10 Rule is a compliance obligation that is part of an
institution’s program participation agreement with the
Department of Education. A proprietary institution of higher
education that violates the 90/10 Rule for any fiscal year will
be placed on provisional status for two fiscal years.
Proprietary institutions of higher education that violate the
90/10 Rule for two consecutive fiscal years will become
ineligible to participate in Title IV programs for at least
two fiscal years and will be required to demonstrate compliance
with Title IV eligibility and certification requirements
for at least two fiscal years prior to resuming Title IV
program participation. In addition, the Department of Education
discloses on its website any proprietary institution of higher
education that fails to meet the 90/10 requirement, and reports
annually to Congress the relevant ratios for each proprietary
institution of higher education.
HEOA changes in 2008 generally codified the regulatory formula
for 90/10 rule calculations, but also expanded on the Department
of Education’s formula in certain respects, including by
broadening the categories of funds that may be counted as
non-Title IV revenue for 90/10 Rule purposes. The HEOA
provisions were effective on August 14, 2008, and the
Department of Education issued final regulations implementing
the 90/10 Rule and certain other HEOA provisions that were
effective July 1, 2010, but institutions could have, at
their discretion, implemented the 90/10 Rule regulations on or
after November 1, 2009. These regulations clarify the
treatment of certain types of revenue, and require institutions
to report in their annual financial statement audits not only
the percentage of revenues derived from Title IV funds
during the fiscal year, but also the dollar amounts of the
numerator and denominator of the 90/10 calculation and specified
categories of revenue. The regulations also shorten from 90 to
45 days the time period within which institutions must
notify the Secretary after the end of a fiscal year in which the
institution failed to meet the 90/10 Rule requirement.
Using the HEOA formula, Strayer University derived approximately
77% of its cash-basis revenues from Title IV program funds
in 2008, and 78% in 2009. Our computation for 2010 has not yet
been finalized and audited.
The key components of non-Title IV revenue for Strayer
University are individual student payments, employer tuition
reimbursement payments, veteran’s benefits, vocational
rehabilitation funds, private loans, state grants, and
scholarships. Certain members of Congress have proposed to
revise the 90/10 Rule to count DOD tuition assistance and
veterans education benefits along with Title IV revenue
toward the 90% limit.
Incentive
Compensation
As a part of an institution’s program participation
agreement with the Department of Education and in accordance
with the Higher Education Act, the institution may not provide
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,
admissions or financial aid awarding activity. Failure to comply
with the incentive payment rule could result in loss of
certification to participate in federal student financial aid
programs, limitations on participation in the federal student
financial aid programs, or financial penalties.
Effective July 1, 2011, the Department of Education
eliminated 12 “safe harbors” that had been established
in 2002 to define circumstances under which an institution would
not run afoul of the incentive payment prohibition. The final
rules prohibit payments made “in any part,” directly
or indirectly upon the success of securing enrollments or
financial aid, apply to all employees at an institution who are
engaged in or responsible for any student recruitment or
admission activity, limit “profit-sharing payments,”
and set rules for third-party contracts.
Although there can be no assurance that the Department of
Education would not find deficiencies in Strayer
University’s present or former employee compensation and
third-party contractual arrangements, Strayer University
believes that its employee compensation and third-party
contractual arrangements comply with the incentive compensation
provisions of the Higher Education Act in all material respects.
Return
of Federal Funds
Under the Higher Education Act’s
return-of-funds
provision, an institution must return Title IV funds to a
Title IV program in a timely manner if a student received
funds from that program but did not earn them due to the
student’s withdrawal from the institution. In order to
determine if funds should be returned, the institution must
first determine the amount of Title IV program funds that
the student earned. If the student attends the institution, but
withdraws during the first 60% of any period of enrollment or
payment period, the amount of Title IV program funds that
the student earned is equal to a pro rata portion of the funds
for which the student would otherwise be eligible. Strayer
University uses the student’s last day of attendance as the
withdrawal date for purposes of return to Title IV.
Effective July 1, 2011, institutions that use the last day
of attendance are required to measure the last day of attendance
based on official attendance records, and “attendance”
for online classes must include participation in an academically
related activity. Strayer University’s current systems
allow for measurement on this basis. If the student withdraws
after the 60% point, then the student has earned 100% of the
Title IV program funds. The institution must return to the
appropriate Title IV programs, in a specified order, the
lesser of the unearned Title IV program funds or the
institutional charges incurred by the student for the period
multiplied by the percentage of unearned Title IV program
funds. An institution must return the funds no later than
45 days after the date of the institution determines that a
student withdrew.
If the funds are not returned in a timely manner, an institution
may be subject to adverse action, including being required to
submit a letter of credit equal to 25% of the refunds the
institution should have made in its most recently completed
fiscal year. Under Department of Education regulations, if
late returns of Title IV program funds constitute 5% or
more of students sampled in the institution’s annual
compliance audit for either of its two most recently completed
fiscal years, an institution generally must submit an
irrevocable letter of credit payable to the Secretary of
Education. In June 2008, the University, in connection with this
regulation, issued to the Department of Education an irrevocable
letter of credit in the amount of $1.4 million, which
expired in June 2009. Strayer University is no longer required
to maintain a letter of credit in connection with this
regulation.
Third-Party
Servicers
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 to the Secretary of Education for any
violation by the servicer of any Title IV provision. An
institution must report to the Department of Education new
contracts or any significant modifications to contracts with
third-party servicers as well as other matters related to
third-party servicers. Strayer University has written contracts
with third-party servicers, including Global Financial Aid
Services, Inc., which performs activities related to Strayer
University’s participation in Title IV programs, such
as certifying Title IV loan applications, preparing reports
from Strayer University to the Department of Education, and
issuing federal grant program payments. The University’s
agreement with Global Financial Aid Services expires
September 30, 2011. Strayer University also has a contract
with Sallie Mae Business Solutions for processing stipends due
to students and with General Revenue Corporation for loan
default prevention.
Lender
Relationships
As part of an institution’s program participation agreement
with the Department of Education, the institution must adopt a
code of conduct pertaining to student loans. Strayer University
has a code of conduct that it believes complies with the
provisions of HEOA in all material respects. In addition to the
code of conduct requirements that apply to institutions, HEOA
contains provisions that apply to lenders, prohibiting lenders
from engaging in certain activities as they interact with
institutions.
Prior to the termination of the FFEL Program on June 30,
2010, Strayer University was subject to rules applicable to
institutions that make available a list of recommended or
suggested federal loan lenders for use by potential borrowers.
Strayer University remains subject to those rules with respect
to private education loans. Strayer University believes that it
has complied with applicable regulations in all material
respects.
Restrictions
on Adding Locations and Educational Programs
State requirements and accrediting agency standards limit the
ability of Strayer University to establish additional locations
and programs. Most states require approval before institutions
can add new programs, campuses or teaching locations. Middle
States requires institutions that it accredits to notify it in
advance of implementing new programs or locations, which may
require additional approval. At its discretion, Middle States
may also conduct site visits to additional locations to ensure
that accredited institutions that experience rapid growth in the
number of additional locations maintain educational quality. All
new Strayer University campus locations require Middle States
approval before students are enrolled (see
“Accreditation” above). In addition, recent amendments
to the Higher Education Act require Middle States to monitor
institutions that are undergoing significant enrollment growth.
The Higher Education Act 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 in many circumstances permit an
institution that is already qualified to participate in
Title IV programs to establish additional locations that
are exempt from the two-year rule. These additional locations
generally may qualify immediately for participation in the
Title IV programs,
unless the location was acquired from another institution that
has ceased offering educational programs at that location and
has Title IV liabilities that it is not repaying in
accordance with an agreement to do so, and the acquiring
institution does not agree, among other matters, to be
responsible for certain liabilities of the acquired institution.
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. Strayer
University’s expansion plans assume its continued ability
to establish new campuses as additional locations of Strayer
University under such applicable regulations and thereby to
avoid incurring the two-year delay in participation in
Title IV programs. The loss of state authorization or
accreditation of Strayer University or an existing campus, or
the failure of Strayer University or a new campus to obtain
state authorization or accreditation, would render Strayer
University ineligible to participate in Title IV programs
at least in that state or at that location.
Department of Education regulations require institutions to
report to the Department of Education a new additional location
at which at least 50% of an eligible program will be offered, if
the institution wants to disburse Title IV program funds to
students enrolled at that location. For an institution like
Strayer University for which only notice is required, once the
institution reports the location to the Department of Education,
the institution may disburse Title IV program funds to
eligible students at that location if the location is licensed
and accredited. Institutions are responsible for knowing whether
they need approval, and institutions that add locations and
disburse Title IV program funds without having obtained any
necessary approval may be subject to administrative repayments
and other sanctions.
In the past, a degree-granting institution such as Strayer
University was not obligated to obtain Department of Education
approval of additional programs that lead to an associate,
bachelor’s, professional or graduate degree at a level for
which the Department of Education has already granted approval
(additional non-degree programs in new fields required advance
approval). However, under new rules adopted by the Department of
Education, effective July 1, 2011, a proprietary
institution (but not public or private non-profit colleges and
universities) must notify the Department of Education of new
programs if the program has a Classification of Instructional
Programs (“CIP”) code under the taxonomy of
instructional program classifications and descriptions developed
by National Center for Education Statistics (“NCES”)
that is different from any other program offered by the
institution, the program has the same CIP code as another
program offered by the institution but leads to a different
degree or certificate, or the institution’s accrediting
agency determines the program to be an additional program.
Notification must be made at least 90 days before the first
day of class. The institution may then proceed to offer the
program, unless the Department of Education advises the
institution that the additional educational program must be
approved. If Strayer University were to offer a new program
without approval after notice from the Department that approval
was required, the University may be liable for repayment of
Title IV aid received by the University or students in
connection with that program. Strayer does not believe that the
Department of Education’s regulations will significantly
affect the University’s plans to add new programs.
Other
Regulations Governing Title IV Programs
The Department of Education has enacted a comprehensive set of
regulations governing an institution’s participation in the
Title IV programs. If Strayer University were not to
continue to comply with these regulations, such non-compliance
might affect the operations of the University and its ability to
participate in Title IV programs.
Compliance
Reviews
Strayer University is subject to announced and unannounced
compliance reviews and audits by various external agencies,
including the Department of Education, its Office of Inspector
General, state licensing agencies, guaranty agencies, and
accrediting agencies. The Higher Education Act and Department of
Education regulations also require an institution to submit
annually to the Secretary of
Education a compliance audit of its administration of the
Title IV programs conducted by an independent certified
public accountant in accordance with Government Auditing
Standards and applicable audit guides of the Department of
Education’s Office of Inspector General. In addition, to
enable the Secretary of Education to make a determination of
financial responsibility, an institution must submit annually to
the Secretary of Education audited financial statements prepared
in accordance with Department of Education regulations.
In an August 2010 letter to members of the Senate Health,
Education, Labor and Pensions (HELP) Committee, the Secretary of
Education announced plans to increase the number of program
reviews by 50%, from 200 conducted in 2010 to 300 in 2011. On
August 5, 2010, the Department of Education notified
Strayer University that it would conduct a program review of the
University’s administration of Title IV programs. The
Department of Education has conducted its
on-site
inspection, and the results of the program review are pending.
We cannot predict when the review will be completed or what the
final results will be. If the program review finds that we
failed to comply with Title IV and its implementing
regulations, the Department of Education could impose sanctions
or conditions that could have a material adverse effect on our
operations and financial condition. The Department of
Education’s previous program review of Strayer University,
conducted in 2008, resulted in no material findings.
Potential
Effect of Regulatory Violations
If Strayer University fails to comply with the regulatory
standards governing Title IV programs, the Department of
Education could impose one or more sanctions, including
transferring Strayer University from the advance payment method
to the reimbursement or cash monitoring system of payment,
seeking to require repayment of certain Title IV funds,
requiring the University to post a letter of credit in favor of
the Department of Education as a condition for continued
Title IV certification, taking emergency action against the
University, referring the matter for criminal prosecution or
initiating proceedings to impose a fine or to limit, condition,
suspend or terminate Strayer University’s participation in
Title IV programs. Although there are no such sanctions
currently in force, if such sanctions or proceedings were
imposed against Strayer University and resulted in a substantial
curtailment, or termination, of the University’s
participation in Title IV programs or resulted in
substantial fines or monetary liabilities, Strayer University
would be materially and adversely affected.
If Strayer University lost its eligibility to participate in
Title IV programs, or if Congress reduced the amount of
available federal student financial aid, the University would
seek to arrange or provide alternative sources of revenue or
financial aid for students. Although the University believes
that one or more private organizations would be willing to
provide financial assistance to students attending Strayer
University, there is no assurance that this would be the case,
and the interest rate and other terms of such student financial
aid are unlikely to be as favorable as those for Title IV
program funds. Strayer University might 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
Strayer University to participate in Title IV programs, or
a reduction in the amount of available federal student financial
aid, would be expected to have a material adverse effect on
Strayer University even if it could arrange or provide
alternative sources of revenue or student financial aid.
In addition to the actions that may be brought against us as a
result of our participation in Title IV programs, we also
may be subject, from time to time, to complaints and lawsuits
relating to regulatory compliance brought not only by our
regulatory agencies, but also by other government agencies and
third parties.
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. In addition, Strayer
University’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 and approval of
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. Middle States will
undertake a site visit to an institution that has undergone a
change in ownership or control no later than six months after
the change.
The Higher Education Act provides that an institution that
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 Higher Education Act provides that the
Department of Education may temporarily, provisionally certify
an institution seeking approval of a change of ownership and
control based on preliminary review by the Department of
Education of a materially complete application received by the
Department of Education within 10 business days after the
transaction. The Department of Education may continue such
temporary, provisional certification on a
month-to-month
basis until it has rendered a final decision on the
institution’s application. If the Department of Education
determines to approve the application after a change in
ownership and control, it issues a provisional certification,
which extends for a period expiring not later than the end of
the third complete award year following the date of provisional
certification. The Higher Education Act 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
Strayer, the Department of Education regulations implementing
the Higher Education Act define a change in ownership resulting
in a change of control as occurring when a person acquires
ownership and control of a corporation such that the corporation
is required to file a
Form 8-K
with the Securities and Exchange Commission (SEC) notifying that
agency of the change of control. The regulations also provide
that a change in ownership and control of a publicly traded
corporation occurs if a person who is a controlling stockholder
of the corporation ceases to be a controlling stockholder. A
controlling stockholder is a stockholder who holds or controls
through agreement both 25% or more of the total outstanding
voting stock of the corporation and more shares of voting stock
than any other stockholder.
The U.S. Department of Homeland Security, working with the
U.S. Department of State, has implemented a mandatory
electronic reporting system for schools that enroll foreign
students and exchange visitors. Strayer University currently is
authorized by the U.S. Department of Homeland Security to
admit foreign students for study in the United States subject to
applicable requirements. In certain circumstances, the
Department of Homeland Security may require an institution to
obtain approval for a change in ownership and control.
Pursuant to federal law providing benefits for veterans and
reservists, some of the programs offered by Strayer University
are approved for the enrollment of persons eligible to receive
Veterans Administration educational benefits by the state
approving agencies in Alabama, Delaware, Florida, Georgia,
Kentucky, Maryland, New Jersey, North Carolina, Ohio,
Pennsylvania, South Carolina, Tennessee, Virginia, and
Washington, D.C. In certain circumstances, state approving
agencies may require an institution to obtain approval for a
change in ownership and control.
If Strayer University underwent a change of control that
required approval 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
Strayer University’s ability to offer certain educational
programs, award certain degrees, diplomas or certificates,
operate one or more of its locations, admit certain students or
participate in Title IV programs, which in turn would
materially and adversely affect Strayer University’s
operations. A change that required approval by a state
regulatory authority, Middle States or a federal agency could
also delay Strayer University’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 Strayer University’s flexibility in future financing
or acquisition transactions.
Recent
or Pending Legislative and Regulatory Activity
Congress is considering legislation that would make further
changes in the Higher Education Act and other education-related
federal laws. The Department of Education recently issued new
regulations related to program integrity and is considering
additional regulation to define the term “gainful
employment.” Some of the proposed changes are noted below.
These activities may result in legislation, further rulemaking
affecting participation in Title IV programs, and other
governmental action. In addition, Congressional activity may
adversely affect enrollment in for-profit educational
institutions. We cannot predict the impact, if any, of these
recent or pending legislative and regulatory changes on our
long-term business model, although the uncertainty associated
with the changes has had a negative impact on the industry as a
whole.
Congress
Congress historically has reauthorized the Higher Education
Act, which is the law governing Title IV programs,
approximately every five to six years, but undertook the most
recent reauthorization through multiple pieces of legislation.
On July 31, 2008, Congress completed the reauthorization
process by passing the HEOA, which then President Bush signed
into law on August 14, 2008. HEOA provisions became
effective upon enactment, unless otherwise specified in the law.
HEOA includes numerous new and revised requirements for higher
education institutions. In October 2009, the Department of
Education published final regulations to implement HEOA changes
to Title IV of the Higher Education Act. Those regulations
were effective July 1, 2010.
In addition to HEOA, three other laws to amend and reauthorize
aspects of the Higher Education Act have been enacted over the
last few years. In February 2006, then President Bush signed the
Deficit Reduction Act of 2005, which included the Higher
Education Reconciliation Act of 2005, or HERA. Among other
measures, HERA reauthorized the Higher Education Act with
respect to the federal guaranteed student loan programs. In
September 2007, then President Bush signed the College Cost
Reduction and Access Act, which increased benefits to students
under the Title IV programs and reduced payments to and
raised costs for lenders that participate in the federal student
loan programs. In May 2008, then President Bush signed the
Ensuring Continued Access to Student Loans Act of 2008, or
ECASLA, which was designed to facilitate student loan
availability and to increase student access to federal financial
aid in light of current market conditions. Congress extended
ECASLA for an additional year, to June 30, 2010. In March
2010, Congress passed the Student Aid and Fiscal Responsibility
Act of 2009, which eliminated the FFEL Program and required all
institutions participating in Title IV programs to convert
exclusively to the Direct Loan Program by July 1, 2010.
In addition, Congress reviews and determines appropriations for
Title IV programs on an annual basis. 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. This, in turn,
could lead to lower enrollments at Strayer University or require
Strayer University to increase its reliance upon alternative
sources of student financial aid. Given the significant
percentage of Strayer University’s revenues that are
derived indirectly from the Title IV programs, the loss of
or a
significant reduction in Title IV program funds available
to Strayer University’s students could have a material
adverse effect on Strayer.
Senate
Health, Education, Labor and Pensions Committee
In 2010, the U.S. Congress increased its focus on
proprietary education institutions, including regarding
participation in Title IV programs and U.S. Department
of Defense oversight of tuition assistance for military service
members. Since June 2010 the HELP Committee has held hearings to
examine the proprietary education sector. On August 5,
2010, Strayer University received a letter from Senator Tom
Harkin, Chairman of the HELP Committee, requesting documents as
part of a review of matters related to proprietary institutions
whose students receive Title IV aid, and the University
cooperated with and submitted documentation to the Committee.
Other Committees of the U.S. Congress have also held
hearings into, among other things, the standards and procedures
of accrediting agencies, credit hours and program length, the
portion of federal student financial aid going to proprietary
institutions, and the receipt of veteran’s and military
education benefits by students enrolled at proprietary
institutions. A number of legislators have variously requested
the Government Accountability Office (GAO) to review and make
recommendations regarding, among other things, recruitment
practices, educational quality, student outcomes, the
sufficiency of integrity safeguards against waste, fraud and
abuse in Title IV programs, and the percentage of
proprietary institutions’ revenue coming from Title IV
and other federal funding sources. GAO released two reports on
for-profit post-secondary education: first, a report in August
2010 (subsequently revised in November 2010) that
concluded, based on a three-month undercover investigation, that
employees at a non-random sample of 15 proprietary institutions
(not Strayer University) made deceptive statements to students
about accreditation, graduation rates, job placement, program
costs, and financial aid; and second, a report in October 2010
critical of the Department of Education’s efforts to
enforce the ban on incentive payments. This increased activity
is expected to continue and may result in legislation, further
rulemaking affecting participation in Title IV programs,
and other governmental actions.
U.S.
Department of Education
As noted above, the Title IV regulations applicable to
Strayer University have been subject to frequent revisions, many
of which have increased the level of scrutiny to which higher
education institutions are subjected and have raised applicable
standards. In October 2009, the Department of Education
published final regulations to implement the HEOA’s
numerous new and revised requirements for higher education
institutions. These regulations were effective July 1,
2010. On October 29, 2010, the Department of Education
published final regulations regarding program integrity at
higher education institutions (Program Integrity Regulations).
Most of the provisions in these rules are effective July 1,
2011. We filed public comments on July 30, 2010 and
September 9, 2010 that collectively address issues related
to incentive compensation, state authorization, substantial
misrepresentation, and the definition of gainful employment
under Title IV. These comments are available at
http://www.regulations.gov/#!documentDetail;D=ED-2010-OPE-0004-0494.1
and
http://www.regulations.gov/#!documentDetail;D=ED-2010-OPE-0012-12725.
Although litigation challenging some of the Program Integrity
Regulations has been filed and members of Congress have
expressed concerns about some of them, we assume for planning
purposes that the Program Integrity Regulations will take effect
as scheduled, and we are preparing to comply with them as of
July 1, 2011.
State
Licensure
Under the Program Integrity Regulations regarding state
licensure, a proprietary institution is considered legally
authorized by a state if the state has a process to review and
appropriately act on complaints concerning the institution,
including enforcing applicable state laws, and the institution
complies with any applicable state approval or licensure
requirements consistent with the Program Integrity Regulations.
The revised rules specify that an institution is legally
authorized in a state for Title IV purposes if it is
established or licensed as an educational institution by name.
If an institution offers post-secondary education through
distance or correspondence education to students in a state in
which it is not physically located or in which it is otherwise
subject to state jurisdiction as determined by the state, the
institution must meet any state requirements for it to be
legally offering post-secondary distance or correspondence
education in that state. The final rule also amends the general
provisions regarding student consumer information. Under this
revision, the institution must make available for review to any
enrolled or prospective student upon request, a copy of the
documents describing the institution’s accreditation and
its state, federal, or tribal approval or licensing. The
institution must also provide its students or prospective
students with contact information for filing complaints with its
accreditor and with its state approval or licensing entity and
any other relevant state official or agency that would
appropriately handle a student’s complaint.
While these requirements are effective July 1, 2011,
institutions may request a one-year extension of the effective
date to July 1, 2012, and if necessary, an additional
one-year extension to July 1, 2013. To receive an
extension, an institution must obtain from the state an
explanation of how a one-year extension will permit the state to
modify its procedures to comply with the new requirements.
Strayer University has implemented a process for reviewing and
obtaining as necessary the required state licensure and believes
that the states in which it is physically located will be in
compliance with the new rules by the effective date.
Institutions participating in the Title IV programs may not
pay any commission, bonus, or other incentive payment based
directly or indirectly on securing enrollments or financial aid
to personnel engaged in recruitment or admissions or making
decisions about awarding Title IV aid. Currently, there are
12 “safe harbors” relating to payment and compensation
plans that institutions may practice without fear of violating
the prohibition. The Program Integrity Regulations remove the
safe harbors effective July 1, 2011.
The new regulations prohibit incentive compensation to employees
engaged in any student recruitment or admission activity or in
making decisions regarding the award of Title IV funds that
is based in any part, directly or indirectly, upon success in
securing enrollments or the award of financial aid. Merit-based
adjustments to employee compensation may be made if they are not
based in any part, directly or indirectly, upon success in
securing enrollments or the award of financial aid.
Profit-sharing payments may be made as long as they are not
provided to any person who is engaged in student recruitment or
admission activity or in making decisions regarding the award of
funds under Title IV of the Higher Education Act of 1965,
as amended (the “Higher Education Act”). The
regulations also obligate a third-party servicer to refer to the
Office of Inspector General of the Department of Education any
information indicating payment of any commission, bonus, or
other incentive payment based in any part, directly or
indirectly, upon success in securing enrollments or the award of
financial aid to any person or entity engaged in any student
recruitment or admission activity or in making decisions
regarding the award of Title IV funds. The Department of
Education has also stated its intention to revise its internal
guidance concerning enforcement of the incentive payment rule.
Although there can be no assurance that the Department of
Education would not find deficiencies in Strayer
University’s compensation and third-party contractual
arrangements, Strayer University believes that its arrangements
will comply with the incentive compensation provisions of the
Program Integrity Regulations upon the effective date.
Misrepresentation
Under the Higher Education Act, the Department of Education may
fine, suspend or terminate the participation in Title IV
programs by an institution that engages in substantial
misrepresentation of the nature of its educational program, its
financial charges, or the employability of its graduates. The
Program Integrity Regulations set forth the types of activities
that constitute misrepresentation and describe the adverse
actions that the Department of Education may take if it finds
that an institution or a third party that provides educational
programs, marketing, advertising, recruiting or admissions
services to the institution engaged in substantial
misrepresentation. The new rule specifies the types of
statements that can subject the institution to liability for
misrepresentation, the nature and form of misleading statements,
and provides that an institution may not describe the eligible
institution’s participation in Title IV programs in a
manner that suggests approval or endorsement by the
U.S. Department of Education of the quality of its
educational programs.
Gainful
Employment Reporting and Disclosure
Under the Higher Education Act, a proprietary institution
offering programs of study other than a baccalaureate degree in
liberal arts (for which there is a limited statutory exception)
must prepare students for gainful employment in a recognized
occupation. While the Department of Education has yet to publish
final rules regarding the definition of gainful employment, the
Program Integrity Regulations establish new annual reporting
requirements that are applicable to these programs, with the
first reporting requirements due October 1, 2011 for the
2006-2007
(if available),
2007-2008
and
2009-2010
federal financial aid award years. For each such program, an
institution must report specific information regarding the
program, the students enrolled in the program, and students who
completed the program, including the amount the student received
from private educational loans and institutional financing
plans, as well as information on whether the student
matriculated to a higher credentialed program at the institution
or transferred to such a program at another institution.
In addition, for each program subject to the new rule, the
institution must provide prospective students with several new
disclosures related to the occupations that the program prepares
students to enter; the on-time graduation rate; tuition, fees,
and costs; placement rates; and median loan debt. The
institution must include the disclosures listed above in
promotional materials it makes available to prospective
students, and post them on its website. The Department of
Education plans to develop a disclosure form that institutions
will be required to use.
New
Programs
The Program Integrity Rules establish requirements intended to
remain in place until the Department of Education implements
performance-based standards for approving additional programs
using gainful employment measures. These regulations require an
institution to notify the Department of Education of new
programs (defined in the regulations) that are subject to
gainful employment requirements. Notification must be made at
least 90 days before the first day of class. The
institution may proceed to offer the program, unless the
Department of Education advises the institution that the
additional educational program must be approved.
Administration
of Financial Aid
Several of the Program Integrity Regulations relate to the
administration of financial aid, including the areas of the
definition of online attendance, definition of credit hours,
measuring satisfactory academic progress, return of federal
funds when a student withdraws, verification and disbursement.
Strayer University has reviewed the regulations and its internal
processes in order to comply with these new requirements.
Definition
of Gainful Employment in a Recognized Occupation
The Department of Education expects to issue in 2011 final rules
related to the definition of gainful employment, which will take
effect on July 1, 2012. Under the proposed rule, in order
to remain eligible to participate in Title IV programs,
proprietary institutions of higher education would be required
to satisfy at least one of two tests for gainful employment: the
repayment rate test and the
debt-to-income
ratio. On September 9, 2010 Strayer University filed
comments expressing grave
concerns about the Department of Education’s proposed rule
on gainful employment, including the metrics used to calculate
repayment rates and
debt-to-income
measures. We have also expressed our concerns to the Department
of Education regarding preliminary institution-specific
repayment rate data released by the Department of Education in
connection with the proposed rule that varied significantly from
our internal analysis. We filed a Freedom of Information Act
request with the Department of Education and to date have not
received responsive information. We cannot predict the substance
of the final rules related to the definition of gainful
employment. Under the proposed regulations, if a particular
program does not meet the definition of “gainful
employment,” the program could be subject to increased
disclosure requirements, limits on enrollment growth,
termination of Title IV eligibility,
and/or other
consequences. On February 18, 2011, the U.S. House of
Representatives, by a vote of
289-136-1,
passed Amendment No. 214 to the Continuing Resolution, H.R.
1, which amendment would prohibit the Department of Education
from using any appropriated funds to implement, administer,
enforce or issue a final regulation defining gainful employment
in the Fiscal Year ending September 30, 2011.
Additional
Information
We maintain a website at www.strayereducation.com. The
information on our website is not incorporated by reference in
this Annual Report on
Form 10-K
and our web address is included as an inactive textual reference
only. We make available on our website our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.
The
Form 10-K
and other reports filed with the SEC can be read or copied at
the SEC’s Public Reference Room at 100 F Street,
NE, Washington, D.C. 20549. Information on the operation of
the Public Reference Room can be obtained by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC; the website address is
www.sec.gov.
Investing in our common stock involves a high degree of risk.
You should carefully consider the following risk factors and all
other information contained in this Annual Report on
Form 10-K
or in the documents incorporated by reference herein before
deciding to purchase our common stock. The occurrence of any of
the following risks could materially harm our business,
adversely affect the market price of our common stock and could
cause you to suffer a partial or complete loss of your
investment. See “Cautionary Notice Regarding
Forward-Looking Statements.”
Risks
Related to Extensive Regulation of Our Business
If we
fail to comply with the extensive regulatory requirements for
our business, we could face significant monetary liabilities,
fines and penalties, including loss of access to federal student
loans and grants for our students.
As a provider of higher education, we are subject to extensive
regulation on both the federal and state levels. In particular,
the Higher Education Act and related regulations subject Strayer
University and all other higher education institutions that
participate in the various federal student financial aid
programs under Title IV of the Higher Education Act
(Title IV programs) to significant regulatory scrutiny.
The Higher Education Act mandates specific regulatory
responsibilities for each of the following components of the
higher education regulatory triad: (1) the federal
government through the U.S. Department of Education (the
Department of Education); (2) the accrediting agencies
recognized by the U.S. Secretary of Education (Secretary of
Education) and (3) state education regulatory bodies.
The regulations, standards and policies of these regulatory
agencies frequently change, and changes in, or new
interpretations of, applicable laws, regulations, standards or
policies could have a material adverse effect on our
accreditation, authorization to operate in various states,
permissible activities, receipt of funds under Title IV
programs or costs of doing business.
If we are found to be in noncompliance with any of these laws,
regulations, standards or policies, we could lose our access to
Title IV program funds, which would have a material adverse
effect on our business. In the 2010 fall term, approximately 73%
of our students participated in one or more Title IV
programs. Findings of noncompliance also could result in our
being required to pay monetary damages, or being subjected to
fines, penalties, injunctions, restrictions on our access to
Title IV program funds or other censure that could have a
material adverse effect on our business.
Rulemaking
by the U.S. Department of Education could result in regulatory
changes that may have a material adverse effect on our
business.
The Department of Education issued on October 28, 2010
final rules that address program integrity issues for
post-secondary education institutions participating in
Title IV programs, most of which will take effect on
July 1, 2011. The Department of Education expects to issue
final rules in 2011 related to the definition of gainful
employment, which will take effect on July 1, 2012. We
cannot predict the substance of the final rules related to the
definition of gainful employment. We filed public comments on
July 30, 2010 and September 9, 2010 that collectively
address issues related to incentive compensation, state
authorization, substantial misrepresentation, and the definition
of gainful employment under Title IV. We also raised
concerns about metrics regarding gainful employment and
preliminary institution-specific repayment rate data released by
the Department of Education which varied from our internal
analysis. According to the Department of Education’s data
release on August 13, 2011, while the proposed rule
evaluates eligibility on a program by program basis, Strayer
University, as an institution, did not satisfy the repayment
rate test. We requested additional information from the
Department of Education, including through a Freedom of
Information Act request to understand better their data, but to
date have received no responsive information. Under the proposed
regulations, if a particular program does not meet the
definition of “gainful employment,” the program could
be subject to increased disclosure requirements, limits on
enrollment growth, termination of Title IV eligibility,
and/or other
consequences. On February 18, 2011, the U.S. House of
Representatives, by a vote of
289-136-1,
passed Amendment No. 214 to the Continuing Resolution, H.R.
1, which amendment would prohibit the Department of Education
from using any appropriated funds to implement, administer,
enforce or issue a final regulation defining gainful employment
in the Fiscal Year ending September 30, 2011.
We cannot predict how the recently released or any other
resulting regulations will be interpreted, and therefore whether
the Department of Education would determine we are in compliance
with these requirements. Compliance with the final rules could
affect how we conduct our business, and insufficient time or
lack of sufficient guidance for compliance could have a material
adverse effect on our business. Uncertainty surrounding the
final rules, interpretive regulations or guidance by the
Department of Education may continue for some period of time and
may adversely affect our business.
Congressional
examination of for-profit post-secondary education could lead to
legislation or other governmental action that may negatively
affect the industry.
In 2010, the U.S. Congress increased its focus on
for-profit education institutions, including regarding
participation in Title IV programs and U.S. Department
of Defense oversight of tuition assistance for military service
members attending for-profit colleges. Since June 2010 the HELP
Committee has held hearings to examine the proprietary education
sector. On August 5, 2010, the Company received a letter
from Senator Tom Harkin, Chairman of the HELP Committee,
requesting documents as part of a review of matters related to
proprietary institutions whose students receive Title IV
aid, and Strayer University is cooperating with the inquiry.
Other Committees of the U.S. Congress have also held
hearings into, among other things, the standards and procedures
of
accrediting agencies, credit hours and program length, and the
portion of federal student financial aid going to for-profit
institutions. A number of legislators have variously requested
the GAO to review and make recommendations regarding, among
other things, recruitment practices, educational quality,
student outcomes, the sufficiency of integrity safeguards
against waste, fraud and abuse in Title IV programs, and
the percentage of proprietary institutions’ revenue coming
from Title IV and other federal funding sources. GAO
released two reports critical of for-profit post-secondary
education, including that employees at a non-random sample of 15
proprietary institutions (not Strayer University) made deceptive
statements to students about accreditation, graduation rates,
job placement, program costs, and financial aid; and criticizing
of the Department of Education’s efforts to enforce the ban
on incentive payments. This increased activity is expected to
continue and may result in legislation, further rulemaking
affecting participation in Title IV programs, and other
governmental actions. In addition, concerns generated by
Congressional activity may adversely affect enrollment in and
revenues of for-profit educational institutions. Limitations on
the amount of federal student financial aid for which our
students are eligible under Title IV could materially and
adversely affect our business.
We are
dependent on the renewal and maintenance of Title IV
programs.
Congress historically has reauthorized the Higher Education Act,
which is the law governing Title IV programs, approximately
every five to six years. Congress completed the most recent
reauthorization through multiple pieces of legislation and may
reauthorize the Higher Education Act in a piecemeal manner in
the future. Additionally, Congress determines the funding level
for each Title IV program on an annual basis. Any action by
Congress that significantly reduces funding for Title IV
programs or the ability of our school or students to participate
in these programs could materially harm our business. A
reduction in government funding levels could lead to lower
enrollments at our school and require us to arrange for
alternative sources of financial aid for our students. Lower
student enrollments or our inability to arrange such alternative
sources of funding could adversely affect our business.
We are
subject to compliance reviews, which, if they resulted in a
material finding of non-compliance could affect our ability to
participate in Title IV programs.
Because we operate in a highly regulated industry, we are
subject to compliance reviews and claims of non-compliance and
related lawsuits by government agencies, accrediting agencies
and third parties, including claims brought by third parties on
behalf of the federal government. For example, the Department of
Education regularly conducts program reviews of educational
institutions that are participating in Title IV programs
and the Office of Inspector General of the Department of
Education regularly conducts audits and investigations of such
institutions. In August 2010, the Secretary of Education
announced plans to increase the number of program reviews by 50%
to 300 in 2011. On August 5, 2010, the Department of
Education notified the Company that it would conduct a program
review of Strayer University’s administration of
Title IV programs. The Department of Education has
conducted its
on-site
inspection, and the results of the program review are pending.
We cannot predict when the review will be completed or what the
results will be. If the program review finds that we are not
complying with Title IV and its implementing regulations,
the Department of Education could impose sanctions or conditions
that could have a material adverse effect on our operations and
financial condition.
If we
fail to maintain our institutional accreditation or if our
institutional accrediting body loses recognition by the
Department of Education, we would lose our ability to
participate in Title IV programs.
The loss of accreditation by the Middle States, one of the six
regional accrediting agencies recognized by the Secretary of
Education would, among other things, render Strayer University
ineligible to participate in Title IV programs and would
have a material adverse effect on our business.
In addition, an adverse action by Middle States other than loss
of accreditation, such as issuance of a warning, could have a
material adverse effect on our business. Increased scrutiny of
accreditors by the Secretary of Education in connection with the
Department of Education’s recognition process may result in
increased scrutiny of institutions by accreditors or have other
consequences. In June 2010, the Department of Education found
that, because the Middle States Association sought to increase
control over the Middle States Commission, the accrediting
agency was no longer “separate and independent,” as
required for recognition by the Department of Education for
federal student financial aid purposes. The Department of
Education required the Middle States Commission to come into
compliance with that standard by December 15, 2010. The
Middle States Commission informed accredited institutions in
January 2011 that it had resolved the controversy with the
Middle States Association. As far as we are aware, Middle States
maintains its recognition by the Department of Education and is
scheduled in Spring 2012 for its next review by NACIQI for
renewal of recognition, as required for recognition by the
Department of Education for federal student financial aid
purposes.
If we
fail to maintain any of our state authorizations, we would lose
our ability to operate in that state and to participate in
Title IV programs there.
With respect to each campus, Strayer University is authorized to
operate and to grant degrees, diplomas or certificates by the
applicable education agency of the state where the campus is
located. Such state authorization is required in order for
students at the campus to be eligible to participate in
Title IV programs. The loss of authorization in a state
would, among other things, render Strayer University ineligible
to participate in Title IV programs at least at those state
campus locations, limit Strayer University’s ability to
operate in that state and could have a material adverse effect
on our business.
As part of the program integrity regulations effective
July 1, 2011, the Department of Education has adopted new
regulations regarding state licensure. Under the new rules, a
proprietary institution is considered legally authorized by a
state if the state has a process to review and appropriately act
on complaints concerning the institution, including enforcing
applicable state laws, and the institution complies with any
applicable state approval or licensure requirements consistent
with the new rules. The revised rules also specify that if an
institution offers post-secondary education through distance
education to students in a state in which it is not physically
located or in which it is otherwise subject to state
jurisdiction as determined by the state, the institution must
meet any state requirements for it to be legally offering
post-secondary distance or correspondence education in that
state.
Strayer University has implemented a process for obtaining the
required state licensure and believes that it will be in
compliance with the new rules by the effective date. However, if
a state in which Strayer has a physical campus or in which
students taking online classes reside fails to comply with the
provisions of the new rule, fails to provide the University with
legal authorization, or fails to issue the requested information
to provide the University with an extension under the rule, it
could have a material adverse affect on our operations.
If we
fail to obtain recertification by the Department of Education
when required, we would lose our ability to participate in
Title IV programs.
An institution generally must seek recertification from the
Department of Education at least every six years and possibly
more frequently depending on various factors, such as whether it
is provisionally certified. The Department of Education may also
review an institution’s continued eligibility and
certification to participate in Title IV programs, or scope
of eligibility and certification, in the event the institution
undergoes a change in ownership resulting in a change of control
or expands its activities in certain ways, such as the addition
of certain types of new programs, or, in certain cases, changes
to the academic credentials that it offers. In certain
circumstances, the Department of Education must provisionally
certify an institution. The Department of Education may withdraw
our certification if it determines that we are not fulfilling
material requirements for continued participation in
Title IV programs. If the Department of Education does not
renew or withdraws our certification to participate
in Title IV programs, our students would no longer be able
to receive Title IV program funds, which would have a
material adverse effect on our business.
Each institution participating in Title IV programs must
enter into a Program Participation Agreement with the Department
of Education. Under the agreement, the institution agrees to
follow the Department of Education’s rules and regulations
governing Title IV programs. On June 4, 2010, Strayer
University submitted to the Department of Education its fully
completed recertification application for renewal of its
participation in Title IV programs. Because the
recertification application was submitted more than 90 calendar
days before September 30, 2010 (the term of the current
agreement), the University’s eligibility to participate in
federal student financial aid programs continues on a
month-to-month
basis while the recertification is pending with the Department
of Education. We cannot predict when review of that application
will be completed or what the results will be.
A
failure to demonstrate administrative capability or financial
responsibility may result in the loss of eligibility to
participate in Title IV programs.
If we fail to maintain administrative capability as defined by
the Department of Education, we could lose our eligibility to
participate in Title IV programs or have that eligibility
adversely conditioned, which would have a material adverse
effect on our business. Furthermore, if we fail to demonstrate
financial responsibility under the Department of
Education’s regulations, we could lose our eligibility to
participate in Title IV programs or have that eligibility
adversely conditioned, which would have a material adverse
effect on our business.
Student
loan defaults could result in the loss of eligibility to
participate in Title IV programs.
In general, under the Higher Education Act, an educational
institution may lose its eligibility to participate in some or
all Title IV programs if, for three consecutive federal
fiscal years, 25% or more of its students who were required to
begin repaying their student loans in the relevant federal
fiscal year default on their payment by the end of the next
federal fiscal year. In addition, an institution may lose its
eligibility to participate in some or all Title IV programs
if its default rate for a federal fiscal year was greater than
40%.
Beginning with cohort default rate calculations for federal
fiscal year 2009, the cohort default rate will be calculated by
determining the rate at which borrowers who become subject to
their repayment obligation in the relevant federal fiscal year,
default by the end of the second (rather than next) federal
fiscal year that follows that fiscal year. The current method of
calculating rates will remain in effect and will be used to
determine institutional eligibility until three consecutive
years of official cohort default rates calculated under the new
formula are available. In addition, the cohort default rate
threshold of 25% will be increased to 30% for purposes of
certain sanctions and requirements related to cohort default
rates. If we lose eligibility to participate in Title IV
programs because of high student loan default rates, it would
have a material adverse effect on our business. Strayer
University’s cohort default rates for the 2006, 2007, and
2008 federal fiscal years, the three most recent years for which
this information is available, were 3.8%, 6.0%, and 6.7%,
respectively. The average cohort default rates for proprietary
institutions nationally were 9.7%, 11.0%, and 11.6% for federal
fiscal years 2006, 2007, and 2008, respectively.
Our
school could lose its eligibility to participate in federal
student financial aid programs or be provisionally certified
with respect to such participation if the percentage of our
revenues derived from those programs were too
high.
A proprietary institution may lose its eligibility to
participate in the federal student financial aid programs if it
derives more than 90% of its revenues, on a cash basis, from
these programs for two consecutive fiscal years. A proprietary
institution of higher education that violates the 90/10 Rule for
any fiscal year will be placed on provisional status for two
fiscal years. Using the formula specified in
the Higher Education Opportunity Act, we derived approximately
78% of our cash-basis revenues from these programs in 2009.
Certain members of Congress have proposed to revise the 90/10
Rule to count DOD tuition assistance and veterans education
benefits, along with Title IV revenue, toward the 90%
limit. If we were to violate the 90/10 Rule, the loss of
eligibility to participate in the federal student financial aid
programs would have a material adverse effect on our business.
Our
failure to comply with the Department of Education’s
incentive compensation rules could result in sanctions and other
liability.
If we pay a bonus, commission or other incentive payment in
violation of applicable Department of Education rules or if the
Department or other third parties interpret our compensation
practices as such, we could be subject to sanctions or other
liability, which could have a material adverse effect on our
business. The Department of Education has stated an intention to
revise its internal enforcement guidance, which may result in
stiffer administrative penalties for violations of the incentive
payment rule.
Our
failure to comply with the Department of Education’s new
misrepresentation rules could result in sanctions and other
liability.
The Higher Education Act prohibits an institution that
participate in Title IV programs from engaging in
“substantial misrepresentation” of the nature of its
educational program, its financial charges, or the employability
of its graduates. The Department of Education’s Program
Integrity Regulations, effective July 1, 2011, would
interpret this provision to prohibit any statement on those
topics, made by the institution or a third party that provides
educational programs, marketing, advertising, recruiting, or
admissions services to the institution, that has the likelihood
or tendency to confuse. In the event of substantial
misrepresentation, the Department of Education may revoke an
institution’s program participation agreement, limit the
institution’s participation in Title IV programs, deny
applications from the institution such as to add new programs or
locations, initiate proceedings to fine the institution or
limit, suspend, or terminate its eligibility to participate in
Title IV programs. If the Department of Education or other
third parties interpret statements made by us or on our behalf
to be in violation of the new regulations, we could be subject
to sanctions and other liability, which could have a material
adverse effect on our business.
We are
subject to sanctions if we fail to calculate accurately and make
timely payment of refunds of Title IV program funds for
students who withdraw before completing their educational
program.
The Higher Education Act and Department of Education regulations
require us to calculate refunds of unearned Title IV
program funds disbursed to students who withdraw from their
educational program before completing it. If refunds are not
properly calculated or timely paid, we may be required to post a
letter of credit with the Department of Education or be subject
to sanctions or other adverse actions by the Department of
Education, which could have a material adverse effect on our
business.
Investigations,
legislative and regulatory developments and general credit
market conditions related to the student loan industry may
result in fewer lenders and loan products and increased
regulatory burdens and costs.
The Higher Education Opportunity Act contains new requirements
pertinent to relationships between lenders and institutions. In
2009 the Department of Education promulgated regulations that
address these relationships, and state legislators have also
passed or may be considering legislation related to
relationships between lenders and institutions. These
developments as well as legislative and regulatory changes such
as those relating to gainful employment and repayment rates
creating uncertainty in the industry and general credit market
conditions may cause some lenders to decide not to provide
certain loan products and may impose increased administrative
and regulatory costs. Such
actions could reduce demand for
and/or
availability of private education loans, decrease Strayer
University’s non-Title IV revenue and thereby increase
Strayer University’s 90/10 ratio and have a material
adverse effect on our business.
We
rely on one or more third parties to administer our
participation in Title IV programs and failure to comply
with applicable regulations by a third-party or by us could
cause us to lose our eligibility to participate in Title IV
programs.
Global Financial Aid Services, Inc. (Global) assists us with
administration of our participation in Title IV programs,
and other third parties assist us with other aspects of our
participation in the Title IV programs. Because Strayer
University is jointly and severally liable to the Department of
Education for the actions of third-party servicers, failure of
such servicers to comply with applicable regulations could have
a material adverse effect on Strayer University, including loss
of eligibility to participate in Title IV programs. If any
of the third party servicers discontinue providing such services
to us, we may not be able to replace them in a timely,
cost-efficient, or effective manner, or at all, and we could
lose our ability to comply with the requirements of the
Title IV programs, which could adversely affect our
enrollment, revenues and results of operations.
Risks
Related to Our Business
Our
growth rate is uncertain, and we may not be able to assess our
future growth prospects effectively.
We have experienced a period of significant growth since the
beginning of 2001. Over this period, we opened 75 new campuses
and our revenue increased 23% between 2000 and 2010 on a
compound annual basis. We increased our faculty from 430 to over
2,700. We increased our average annual student enrollment from
10,600 to 56,000. We increased our annual graduates from 2,200
to 9,000, and since 2000 we have graduated a total of
approximately 51,000 students.
Our rate of growth depends on a number of factors, including
many of the regulatory risks discussed above. We recently
revised our 2011 business model in view of the impact of recent
activity by the Department of Education and the
U.S. Congress, acknowledging two quarters of lower growth
in enrollments including reductions in new enrollments. In view
of this, our rate of growth in 2011 is likely to be lower than
in 2010. Further, until regulatory and legislative matters have
been clarified, it may be difficult to assess whether there has
been an impact on our long term growth prospects. We have
confirmed our intention to continue to invest in new campuses
and to continue to pursue our strategic goals. However, there
can be no assurance as to what our growth rate will be or as to
the steps we may need to take if regulatory and legislative
matters are not clarified reasonably quickly or favorably.
Our
strategy of opening new campuses and adding new services is
dependent on our forecast of the demand for adult-focused
post-secondary education and on regulatory
approvals.
Establishing new locations and adding new services require us to
expend significant resources, including making human capital and
financial capital investments, incurring marketing expenses and
reallocating other resources. Since significant growth in
enrollment in new campuses is required for them to become
profitable, our willingness to add new campuses depends on our
ability to predict growth in enrollment. The recent activity by
the Department of Education and the U.S. Congress has
introduced uncertainties into our business model and has slowed
our pace of opening of new campuses. To open a new location, we
are required to obtain appropriate federal, state, and
accrediting agency approvals, which may be conditioned or
delayed in a manner that could significantly affect our growth
plans. We cannot assure investors that we will continue to open
new campus locations or add new services in the future.
Our
future success depends in part upon our ability to recruit and
retain key personnel.
Our success to date has been, and our continuing success will
be, substantially dependent upon our ability to attract and
retain highly qualified executive officers, faculty and
administrators and other key personnel. If we cease to employ
any of these integral personnel or fail to manage a smooth
transition to new personnel, our business could suffer.
Our
success depends in part on our ability to update and expand the
content of existing academic programs and develop new programs
in a cost-effective manner and on a timely basis.
Our success depends in part on our ability to update and expand
the content of our academic programs, develop new programs in a
cost-effective manner and meet students’ needs in a timely
manner. Prospective employers of our graduates increasingly
demand that their entry-level employees possess appropriate
technological and other skills. The update and expansion of our
existing programs and the development of new programs may not be
received favorably by students, prospective employers or the
online education market. If we cannot respond to changes in
industry requirements, our business may be adversely affected.
Even if we are able to develop acceptable new programs, we may
not be able to introduce these new programs as quickly as
students require due to regulatory constraints or as quickly as
our competitors introduce competing new programs.
Our
financial performance depends in part on our ability to continue
to develop awareness of the academic programs we offer among
working adult students.
The continued development of awareness of the academic programs
we offer among working adult students is critical to the
continued acceptance and growth of our programs. If we are
unable to continue to develop awareness of the programs we
offer, this could limit our enrollments and negatively impact
our business. The following are some of the factors that could
prevent us from successfully marketing our programs:
Congressional
and other governmental activities could damage the reputation of
Strayer University and limit our ability to attract and retain
students.
On August 5, 2010, the Company received a letter from
Senator Tom Harkin, Chairman of the HELP Committee, requesting
documents as part of a review of matters related to proprietary
institutions whose students receive Title IV aid, and
Strayer University is cooperating with the inquiry. On
August 13, 2011, the Department of Education released
preliminary data reflecting its calculation of a repayment rate
proposed to be used in its gainful employment notice of proposed
rulemaking. Although the data were preliminary in nature, the
repayment rate test was neither final nor binding, and the
proposed rule evaluates eligibility on a program by program
basis, the data released on August 13, 2011 suggested that
Strayer University, as an institution, did not satisfy the
repayment rate test. We requested additional information from
the Department of Education, including through a Freedom of
Information Act request to understand better their data, but to
date have received no responsive information. Under the proposed
regulations, if a particular program does not meet the
definition of “gainful employment,” the program could
be subject to increased disclosure requirements, limits on
enrollment growth, termination of Title IV eligibility,
and/or other
consequences. These and other governmental activities, even if
resulting in no adverse findings or actions against Strayer,
singly or cumulatively could affect public perception of
investor-funded higher education, damage the reputation of
Strayer University, and limit our ability to attract and retain
students.
We
face strong competition in the post-secondary education
market.
Post-secondary education in our market area is highly
competitive. We compete 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 Strayer University at a lower tuition level as a result
of government subsidies, government and foundation grants,
tax-deductible contributions and other financial sources not
available to proprietary institutions. Some of our competitors
in both the public and private sectors have substantially
greater financial and other resources than we do. Congress, the
Department of Education, and other agencies require increasing
disclosure of information to consumers. While we believe that
Strayer University provides valuable education to its students,
we cannot predict the bases on which individual students and
potential students will choose among the range of educational
and other options available to them. This strong competition
could adversely affect our business.
Strayer
University relies on exclusive proprietary rights and
intellectual property, and competitors may attempt to duplicate
Strayer programs and methods.
Third parties may attempt to develop competing programs or
duplicate or copy aspects of Strayer University’s
curriculum, online library, quality management and other
proprietary content. Any such attempt, if successful, could
adversely affect our business. In the ordinary course of its
business, Strayer develops intellectual property of many kinds
that is or will be the subject of copyright, trademark, service
mark, patent, trade secret or other protections. Such
intellectual property includes but is not limited to
Strayer’s courseware materials for classes taught online
and business know-how and internal processes and procedures
developed to respond to the requirements of its various
education regulatory agencies.
Seasonal
and other fluctuations in our operating results could adversely
affect the trading price of our common stock.
Our business is subject to seasonal fluctuations, which cause
our operating results to fluctuate from quarter to quarter. This
fluctuation may result in volatility or have an adverse effect
on the market price of our common stock. We experience, and
expect to continue to experience, seasonal fluctuations in our
revenue. Historically, our quarterly revenues and income have
been lowest in the third quarter (July through September)
because fewer students are enrolled during the summer months. We
also incur significant expenses in preparing for our peak
enrollment in the fourth quarter (October through December),
including investing in online and campus infrastructure
necessary to support increased usage. These investments result
in fluctuations in our operating results which could result in
volatility or have an adverse effect on the market price of our
common stock. In addition, the online education market is a
rapidly evolving market, and we may not be able to forecast
accurately future enrollment growth and revenues.
Regulatory
requirements may make it more difficult to acquire
us.
A change in ownership resulting in a change of control of
Strayer would trigger a requirement for recertification of
Strayer University by the Department of Education for purposes
of participation in federal student financial aid programs, a
review of Strayer University’s accreditation by Middle
States and reauthorization of Strayer University by certain
state licensing and other regulatory agencies. If we underwent a
change of control that required approval 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 our ability to offer
certain educational programs, award certain degrees, diplomas or
certificates, operate one or more of our locations, admit
certain students or participate in Title IV programs, which
in turn could have a material adverse effect on our business.
These factors may discourage takeover attempts.
Capacity
constraints or system disruptions to Strayer University’s
computer networks could damage the reputation of Strayer
University and limit our ability to attract and retain
students.
The performance and reliability of Strayer University’s
computer networks, especially the online educational platform,
is critical to our reputation and ability to attract and retain
students. Any system error or failure, or a sudden and
significant increase in traffic, could result in the
unavailability of Strayer University’s computer networks.
We cannot assure you that Strayer University, including its
online educational platform, will be able to expand its program
infrastructure on a timely basis sufficient to meet demand for
its programs. Strayer University’s computer systems and
operations could be vulnerable to interruption or malfunction
due to events beyond its control, including natural disasters
and telecommunications failures. Any interruption to Strayer
University’s computer systems or operations could have a
material adverse effect on our ability to attract and retain
students.
Strayer
University’s computer networks may be vulnerable to
security risks that could disrupt operations and require it to
expend significant resources.
Strayer University’s computer networks may be vulnerable to
unauthorized access, computer hackers, computer viruses and
other security problems. A user who circumvents security
measures could misappropriate proprietary information or cause
interruptions or malfunctions in operations. As a result,
Strayer University may be required to expend significant
resources to protect against the threat of these security
breaches or to alleviate problems caused by these breaches.
The
personal information that we collect may be vulnerable to
breach, theft or loss that could adversely affect our reputation
and operations.
Possession and use of personal information in our operations
subjects us to risks and costs that could harm our business. We
collect, use and retain large amounts of personal information
regarding our students and their families, including social
security numbers, tax return information, personal and family
financial data and credit card numbers. We also collect and
maintain personal information of our employees in the ordinary
course of our business. Some of this personal information is
held and managed by certain of our vendors. Although we use
security and business controls to limit access and use of
personal information, a third party may be able to circumvent
those security and business controls, which could result in a
breach of student or employee privacy. In addition, errors in
the storage, use or transmission of personal information could
result in a breach of student or employee privacy. Possession
and use of personal information in our operations also subjects
us to legislative and regulatory burdens that could require
notification of data breaches and restrict our use of personal
information. We cannot assure you that a breach, loss or theft
of personal information will not occur. A breach, theft or loss
of personal information regarding our students and their
families or our employees that is held by us or our vendors
could have a material adverse effect on our reputation and
results of operations and result in liability under state and
federal privacy statutes and legal actions by state authorities
and private litigants, and any of which could have a material
adverse effect on our business.
Strayer
University, with its online programs, operates in a highly
competitive market with rapid technological changes and it may
not compete successfully.
Online education is a highly fragmented and competitive market
that is subject to rapid technological change. Competitors vary
in size and organization from traditional colleges and
universities, many of which have some form of online education
programs, to for-profit schools, corporate universities and
software companies providing online education and training
software. We expect the online education and training market to
be subject to rapid changes in technologies. Strayer
University’s success will depend on its ability to adapt to
these changing technologies.
We may
not be able successfully to complete or integrate any future
acquisitions.
As part of our growth strategy, we expect to consider selective
acquisitions. We cannot assure investors that we will be able to
complete successfully any acquisitions on favorable terms, or
that if we do, we will be able to integrate successfully the
personnel, operations and technologies of any such acquisitions.
Our failure to complete or integrate successfully future
acquisitions could disrupt our business and materially and
adversely affect our profitability and liquidity by distracting
our management and employees and increasing our expenses. In
addition, because an acquisition is considered a change in
ownership and control of the acquired institution under
applicable regulatory standards, we must seek approval from the
Department of Education, if the acquired institution
participates in Title IV programs, and most applicable
state agencies and accrediting agencies and possibly other
regulatory bodies when we acquire an institution. If we were
unable to obtain such approvals of an institution we acquired,
depending on the size of that acquisition, that failure could
have a material adverse effect on our business.
There are no SEC staff comments on our periodic SEC reports
which are unresolved.
We lease our campus and administrative facilities except for
five campus facilities which we own. Our campuses are located in
Alabama, Arkansas, Delaware, Florida, Georgia, Indiana,
Kentucky, Louisiana, Maryland, Mississippi, New Jersey, North
Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas,
Utah, Virginia, West Virginia, Wisconsin, and
Washington, D.C., and our corporate headquarters is located
in Virginia. Our leases generally range from five to
10 years with one to two renewal options for extended
terms. As of December 31, 2010, we leased 97 campus and
administrative facilities consisting of approximately
1.7 million square feet. The facilities that we own consist
of approximately 110,000 square feet.
We evaluate current utilization of our facilities and
anticipated enrollment to determine facility needs. We estimate
that an additional 100,000 square feet will be leased in
2011.
From time to time, the Company is involved in litigation and
other legal proceedings arising out of the ordinary course of
its business. On October 15, 2010, a putative securities
class action styled Kinnett v. Strayer Education, Inc.,
et al., was filed in the United States District Court for
the Middle District of Florida. On January 3, 2011, a
shareholder derivative complaint styled Vakharloskaya v.
Silberman et al., was filed in Florida state court in
Hillsborough County, Florida. The Company believes these
lawsuits to be without merit and will contest them vigorously.
While the outcome of any legal proceedings cannot be predicted
with certainty, the Company does not presently expect that this
matter will have a material effect on its financial condition or
results of operations.
Our common stock is traded on the NASDAQ Stock Market under the
symbol “STRA.” The following table sets forth, for the
periods indicated, the high, low, and closing sale prices of our
common stock, as reported on the NASDAQ Stock Market.
2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2009
As of February 1, 2011, there were 13,269,670 shares
of common stock outstanding, and approximately 67 holders of
record. In addition, there are approximately 13,000
institutional and other holders of common stock whose shares are
held in nominee accounts by brokers.
We have established a policy of declaring quarterly cash
dividends on our common stock. Consistent with this policy, we
have paid common stock dividends on a quarterly basis for over
nine years. We announced in October 2010 that, commencing with
our fourth quarter dividend paid on December 10, 2010, we
were increasing our annual dividend by 33% to $4.00 per share
from $3.00 per share. This increase in annual dividends resulted
in a quarterly dividend payment of $1.00 per share. We paid
$44.5 million in dividends in 2010. Whether to declare
dividends and the amount of dividends to be paid in the future
will be reviewed periodically by our Board of Directors in light
of our earnings, cash flow, financial condition, capital needs,
investment opportunities and regulatory considerations. There is
no requirement or assurance that common dividends will continue
to be paid.
Peer
Group Performance Graph
The following performance graph compares the cumulative
stockholder return on our common stock since December 31,
2005 with The NASDAQ Stock Market (U.S.) Index and a
self-determined peer group consisting of Apollo Group, Inc.
(APOL), Career Education Corporation (CECO), Corinthian
Colleges, Inc. (COCO), DeVry, Inc. (DV), and ITT Educational
Services, Inc. (ESI). At present, there is no comparative index
for the education industry. This graph is not deemed to be
“soliciting material” or to be filed with the SEC or
subject to the SEC’s proxy rules or to the liabilities of
Section 18 of the Securities Exchange Act, and the graph
shall not be deemed to be incorporated by reference into any of
our prior or subsequent filings under the Securities Act or the
Securities Exchange Act.
Comparison
of 60 Month Cumulative Total Return*
Among Strayer Education, Inc.
The NASDAQ Stock Market (U.S.) Index and a Peer Group
Among Strayer Education, Inc.
The NASDAQ Stock Market (U.S.) Index and a Peer Group
Strayer Education, Inc.
NASDAQ Stock Market (U.S.)
Peer Group
Note: Peer group consists of Apollo Group, Inc., Career
Education Corporation, Corinthian Colleges, Inc., DeVry, Inc.
and ITT Educational Services, Inc.
There were no sales by us of unregistered securities during the
year ended December 31, 2010.
In November 2003, our Board of Directors authorized us to
repurchase shares of common stock in open market purchases from
time to time at the discretion of our management, depending on
market conditions and other corporate considerations. Our Board
of Directors amended the program on various dates, increasing
the repurchase amount authorized and extending the expiration
date. At December 31, 2010, approximately
$107.7 million of our share repurchase authorization was
remaining for repurchases through the end of 2011. All of our
share repurchases were effected in compliance with
Rule 10b-18
under the Exchange Act. Many repurchases were made in accordance
with a share repurchase plan adopted by us under
Rule 10b5-1
under the Exchange Act, and we continue to have such a plan in
place. This share repurchase plan and our overall share
repurchase program may be modified, suspended or terminated at
any time by us without notice.
A summary of our share repurchases since the inception of the
plan is as follows:
2003
2004
2005
2006
2007
2008
2009
2010
Total
A summary of our share repurchases during the three months ended
December 31, 2010 is as follows:
October
November
December
(1) All shares repurchased were
part of a publicly announced plan.
The following table sets forth, for the periods and at the dates
indicated, selected consolidated financial and operating data.
The financial information has been derived from our consolidated
financial statements. The information set forth below is
qualified by reference to and should be read in conjunction with
our consolidated financial statements and notes thereto and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and other information
included elsewhere or incorporated by reference in this Annual
Report on
Form 10-K.
Income Statement Data:
Revenues
Costs and expenses:
Instruction and educational support
Marketing and admissions
General and administration
Income from operations
Investment and other income
Income before income taxes
Provision for income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Diluted(a)
Other Data:
Depreciation and amortization
Stock-based compensation expense
Capital expenditures
Cash dividends per common share (paid):
Regular
Special
Average
enrollment(b)
Campuses(c)
Full-time
employees(d)
Balance Sheet Data:
Cash, cash equivalents and marketable securities
Working
capital(e)
Total assets
Long-term liabilities
Total liabilities
Total stockholders’ equity
You should read the following discussion in conjunction with
“Selected Historical Financial and Other Information,”
our consolidated financial statements and the notes thereto, the
“Cautionary Notice Regarding Forward-Looking
Statements,” Item 1A entitled “Risk Factors”
and the other information appearing elsewhere, or incorporated
by reference, in this Annual Report on
Form 10-K.
Background
and Overview
We are an education services holding company that owns Strayer
University. Strayer University is an institution of higher
education which offers undergraduate and graduate degree
programs at 89 campuses (including three new campuses opened for
the 2011 winter term and two new campuses opened for the 2011
spring term) in Alabama, Arkansas, Delaware, Florida, Georgia,
Indiana, Kentucky, Louisiana, Maryland, Mississippi, New Jersey,
North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee,
Texas, Utah, Virginia, West Virginia, Wisconsin, and
Washington, D.C., and worldwide via the Internet. We plan
to open a total of eight new campuses in 2011, including the
five that have already been opened.
As set forth below, average enrollment, full-time tuition rates,
revenues, income from operations, net income, and diluted net
income per share have all increased in each of the last three
years.
Average enrollment
% Change from prior year
Full-time tuition (per course)
Revenues (in thousands)
Income from operations (in thousands)
Net income (in thousands)
Diluted net income per share
Strayer University derives approximately 97% of its revenue from
tuition collected from its students. The academic year of the
University is divided into four quarters, which approximately
coincide with the four quarters of the calendar year. Students
make payment arrangements for the tuition for each course prior
to the beginning of the quarter. When students register for
courses, tuition is recorded as unearned tuition, and is
recognized in the quarter of instruction. If a student withdraws
from a course prior to completion, the University refunds a
portion of the tuition depending on when the withdrawal occurs.
Tuition revenue is shown net of any refunds, withdrawals,
corporate discounts, employee tuition discounts and
scholarships. The University also derives revenue from other
sources such as textbook-related income, application fees,
commencement fees, placement test fees, withdrawal fees, loan
administration fees, and other income, which are all recognized
when earned.
At the time of registration, unearned tuition (a liability) is
recorded for academic services to be provided and a tuition
receivable is recorded for the portion of the tuition not paid
up front in cash. Because the University’s academic
quarters coincide with the calendar quarters, tuition receivable
at the end of any calendar quarter largely represents student
tuition due for the following academic quarter. Based upon past
experience and judgment, the University 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. Our bad
debt expense as a percentage of revenues for the years ended
December 31, 2008, 2009, and 2010 was 3.2%, 4.1% and 3.8%,
respectively.
Strayer University’s expenses consist of instruction and
educational support expenses, marketing and admissions expenses,
and general and administration expenses. Instruction and
educational support expenses generally contain items of expense
directly attributable to the educational activity of the
University. This expense category includes salaries and benefits
of faculty and academic administrators. Instruction and
educational support expenses also include costs of educational
supplies and facilities, including rent for campus facilities,
certain costs of establishing and maintaining computer
laboratories and all other physical plant and occupancy costs,
with the exception of costs attributable to the corporate
offices.
Marketing and admissions expenses include salaries and benefits
of personnel engaged in admissions, retention, marketing and
business development, as well as costs of advertising and
production of marketing materials.
General and administration expenses include salaries and
benefits of management and employees engaged in student
services, accounting, human resources, compliance and other
corporate functions, along with the occupancy costs attributable
to such functions. Bad debt expense is also included as a
general and administration expense.
Investment and other income consists primarily of earnings and
realized gains or losses on investments.
Critical
Accounting Policies and Estimates
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” discusses our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated
financial statements requires management to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and the related disclosures
of contingent assets and liabilities. On an ongoing basis,
management evaluates its estimates and judgments related to its
allowance for uncollectible accounts, income tax provisions,
valuation of deferred tax assets, forfeiture rates for
stock-based compensation plans and accrued expenses. Management
bases its estimates and judgments on historical experience and
various other factors and assumptions that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments regarding the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
Management believes that the following critical accounting
policies are its more significant judgments and estimates used
in the preparation of its consolidated financial statements.
Tuition revenue is deferred at the time of registration and is
recognized as income, net of any refunds or withdrawals, in the
respective quarter of instruction. Advance registrations for the
next quarter are recorded as unearned tuition. We record
estimates for our allowance for uncollectible accounts for
tuition receivable from students. If the financial condition of
our students were to deteriorate, resulting in impairment of
their ability to make required payments for tuition payable to
us, additional allowances may be required. We record estimates
for our accrued expenses and income tax liabilities. We
periodically review our assumed forfeiture rates for stock-based
awards and adjust them as necessary. Should actual results
differ from our estimates, revisions to our accrued expenses,
stock-based compensation expense, and income tax liabilities may
be required.
New
Campuses
Our goal is to serve the demand for post-secondary adult
education nationwide by opening new campuses every year. A new
campus typically requires up to $1 million in upfront
capital costs for leasehold improvements, furniture and
fixtures, and computer equipment. In the first year of
operation, assuming a mid-year opening, we expect to incur
operating losses of approximately $1 million including
depreciation related to the upfront capital costs. A new campus
is typically expected to begin
generating operating income on a quarterly basis in four to six
quarters of operation, which is generally upon reaching an
enrollment level of about 300 students. Our new campus notional
model assumes an increase of average enrollment by
100-150
students per year until reaching a level of about 1,000
students. Given the potential internal rate of return achieved
with each new campus opening new campuses is an important part
of our strategy. We believe we have sufficient capital resources
from cash, cash equivalents, marketable securities, cash
generated from operating activities and availability on our
credit facility (discussed below) to continue to open new
campuses for at least the next 12 months.
We plan to open eight new campuses in 2011 including five
already opened. We opened 13 new campuses in 2010 and 11 in
2009. See “New Campuses Opened” table in Item 1
for information regarding the locations of these new campuses.
Global
Online Operations Centers
We have two Global Online Operations Centers to accommodate the
demand among students who neither live nor work near a physical
campus location. One operations center is located in Chantilly,
Virginia and the other is located in Salt Lake City, Utah.
Results
of Operations
In 2010, we generated $636.7 million in revenue, a 24%
increase compared to 2009, primarily as a result of average
enrollment growth of 19% and a 5% tuition increase which
commenced in January 2010. Income from operations was
$215.8 million in 2010, an increase of 25% compared to
2009. Net income in 2010 was $131.3 million, an increase of
25% compared to 2009. Earnings per diluted share was $9.70 in
2010 compared to $7.60 in 2009, an increase of 28%.
The following table sets forth certain income statement data as
a percentage of revenues for the periods indicated:
Effective tax rate
Year
Ended December 31, 2010 Compared To Year Ended
December 31, 2009
Enrollment. Average enrollment increased 19%
to 56,002 students for the year ended December 31, 2010
from 47,142 students for the same period in 2009. This growth is
principally due to new campus openings, growth in our mature
markets and an increase in the number of students in markets
outside of commuting distance to a Strayer University physical
campus through the University’s online programs.
Revenues. Revenues increased 24% to
$636.7 million in 2010 from $512.0 million in 2009
principally due to a 19% increase in the average enrollment and
a 5% tuition increase which commenced in January 2010.
Instruction and educational support
expenses. Instruction and educational support
expenses increased $38.6 million, or 23%, to
$205.2 million in 2010 from $166.6 million in 2009.
This increase was principally due to direct costs necessary to
support the increase in student enrollments including faculty
compensation, related academic staff salaries, and campus
facility costs which increased $13.6 million,
$8.3 million, and $6.7 million, respectively. These
costs as a percentage of revenues decreased to 32.2% in 2010
from 32.5% in 2009, largely attributable to campus facility
costs growing at a lower rate than tuition revenue.
Marketing and admissions expenses. Marketing
and admissions expenses increased $20.9 million, or 22%, to
$114.2 million in 2010 from $93.3 million in 2009.
This increase was principally due to the increased cost of
advertising in new markets and the addition of admissions
personnel, particularly at new campuses and for online programs,
which increased $14.0 million and $5.1 million,
respectively. These expenses as a percentage of revenues
decreased to 17.9% in 2010 from 18.2% in 2009, largely due to
personnel costs growing at a lower rate than tuition revenue.
General and administration expenses. General
and administration expenses increased $21.9 million, or
27%, to $101.6 million in 2010 from $79.7 million in
2009. The increase is largely attributable to increased employee
compensation and related expenses, higher bad debt expense, and
other administrative expenses (e.g., professional services,
travel, etc.) which increased by $7.0 million,
$3.4 million and $6.6 million, respectively. These
expenses as a percentage of revenues increased to 16.0% in 2010
from 15.6% in 2009, largely attributable to employee
compensation and other administrative expenses growing faster
than tuition revenues.
Income from operations. Income from operations
increased $43.4 million, or 25%, to $215.8 million in
2010 from $172.4 million in 2009, because of the factors
discussed above.
Investment and other income. Investment and
other income decreased $0.2 million to $1.2 million in
2010 from $1.4 million in 2009. This decrease was
principally due to lower yields from our investments partly
offset by a higher average cash balance and a $0.4 million
gain on the sale of marketable securities in 2010.
Provision for income taxes. Income tax expense
increased $17.0 million, or 25%, to $85.7 million in
2010 from $68.7 million in 2009, primarily due to the
increase in income before taxes attributable to the factors
discussed above. Our effective tax rate was 39.5% for 2010 and
2009.
Net income. Net income increased
$26.2 million, or 25%, to $131.3 million in 2010 from
$105.1 million in 2009 because of the factors discussed
above.
Year
Ended December 31, 2009 Compared To Year Ended
December 31, 2008
Enrollment. Average enrollment increased 23%
to 47,142 students for the year ended December 31, 2009
from 38,449 students for the same period in 2008. This growth is
principally due to new campus openings, stable growth in our
mature markets and the rapid growth in markets outside of
commuting distance to a Strayer University physical campus
through the University’s online programs.
Revenues. Revenues increased 29% to
$512.0 million in 2009 from $396.3 million in 2008
principally due to a 23% increase in the average enrollment and
a 5% tuition increase which commenced in January 2009.
Instruction and educational support
expenses. Instruction and educational support
expenses increased $35.8 million, or 27%, to
$166.6 million in 2009 from $130.8 million in 2008.
This increase was principally due to direct costs necessary to
support the increase in student enrollments including faculty
compensation, related academic staff salaries, and campus
facility costs which increased $10.7 million,
$9.4 million, and $8.5 million, respectively. These
costs as a percentage of revenues decreased to 32.5% in 2009
from 33.0% in 2008 largely attributable to faculty costs growing
at a lower rate than tuition revenue.
Marketing and admissions expenses. Marketing
and admissions expenses increased $17.1 million, or 23%, to
$93.3 million in 2009 from $76.2 million in 2008. This
increase was principally due to the increased cost of
advertising in new markets and the addition of admissions
personnel, particularly at new campuses and for online programs,
which increased $12.8 million and $3.2 million,
respectively. These expenses as a percentage of revenues
decreased from 19.2% in 2008 to 18.2% in 2009 largely
attributable to personnel costs growing at a lower rate than
tuition revenue.
General and administration expenses. General
and administration expenses increased $17.3 million, or
28%, to $79.7 million in 2009 from $62.4 million in
2008. The increase is largely attributable to higher bad debt
expense and increased employee compensation and related expenses
at both corporate and campus locations, which increased by
$8.1 million and $4.2 million, respectively. General
and administration expenses as a percentage of revenues
decreased slightly to 15.6% in 2009 from 15.8% in 2008.
Income from operations. Income from operations
increased $45.5 million, or 36%, to $172.4 million in
2009 from $126.9 million in 2008, because of the factors
discussed above.
Investment and other income. Investment and
other income decreased $3.1 million to $1.4 million in
2009 from $4.5 million in 2008. This decrease was
principally due to lower yields from our investments in a
short-term tax-exempt bond fund and money market funds, and a
lower average cash balance, as well as the recording of a gain
on the sale of marketable securities of $0.8 million
recognized in 2008.
Provision for income taxes. Income tax expense
increased $18.1 million, or 36%, to $68.7 million from
$50.6 million in 2008 in 2009 primarily due to the increase
in income before taxes attributable to the factors discussed
above. In addition, the effective tax rate increased to 39.5% in
2009, compared to 38.5% in 2008, resulting primarily from lower
income from tax-exempt securities in 2009.
Net income. Net income increased
$24.3 million, or 30%, to $105.1 million in 2009 from
$80.8 million in 2008 because of the factors discussed
above.
Seasonality
Our quarterly results of operations tend to vary significantly
within a year because of student enrollment patterns. Enrollment
generally is highest in the fourth quarter, or fall term, and
lowest in the third quarter, or summer term. In 2010, enrollment
by term was as follows:
2010
Enrollment by Term
Winter
Spring
Summer
Fall
Average
The following table sets forth our revenues on a quarterly basis
for the years ended December 31, 2008, 2009 and 2010:
Quarterly
Revenues
(dollars in thousands)
March 31
June 30
September 30
December 31
Total for Year
Costs generally are not affected by the seasonal factors as much
as enrollment and revenue, and do not vary significantly on a
quarterly basis.
Liquidity
and Capital Resources
At December 31, 2010, we had cash, cash equivalents and
marketable securities of $76.5 million compared to
$116.5 million at December 31, 2009. Cash, cash
equivalents, and marketable securities at December 31, 2010
included $12.4 million invested in a short-term investment
grade, tax-exempt bond fund which we have subsequently sold.
Most of our excess cash is invested in money market funds.
We had no debt at December 31, 2010 or at December 31,
2009. On January 3, 2011, we entered into a new
$100 million unsecured revolving credit facility, which
replaces our $15 million revolving credit facility. The
maximum amount of borrowings available under the new revolving
credit facility is $100 million, including a letter of
credit subfacility of $50 million. The new revolving credit
facility matures in three years.
Borrowings under the new revolving credit facility bear interest
at LIBOR or a base rate plus 1.75%, although higher margins up
to 2.25% may apply based on our then ratio of consolidated total
debt to EBITDA (earnings before interest, taxes, depreciation
and amortization, and other non-cash charges). Unused portions
of the new revolving credit facility carry an annual
availability fee of 0.30%, which may increase to 0.40% based on
our then ratio of consolidated total debt to EBITDA. The new
revolving credit facility contains customary affirmative,
negative and financial maintenance covenants, representations,
warranties, events of default and remedies upon default
including acceleration, and borrowing conditions.
For the year ended December 31, 2010, we generated
$162.8 million net cash from operating activities compared
to $141.8 million for the same period in 2009. Capital
expenditures were $46.0 million for the year ended
December 31, 2010 compared to $30.4 million for the
same period in 2009. Capital expenditures for the year ending
December 31, 2011 are expected to be in the range of 5-6%
of 2011 revenues inclusive of the expected openings of eight new
campuses. For the year ended December 31, 2010, we paid
$44.5 million in regular cash dividends and invested
$115.5 million to repurchase common shares in the open
market.
Commencing in the fourth quarter of 2010, we increased our
annual cash dividend to $4.00 per share from $3.00 per share, or
to $1.00 per share quarterly from $0.75 per share.
In 2010, bad debt expense as a percentage of revenue was 3.8%
compared to 4.1% for the same period in 2009. Days sales
outstanding, adjusted to exclude tuition receivable related to
future quarters, was 13 days at the end of the fourth
quarter 2010 compared to 14 days at the end of the fourth
quarter 2009.
Currently, we invest our cash in bank overnight deposits, money
market funds and a short-term tax-exempt bond fund. We believe
that existing cash, cash equivalents, and marketable securities,
cash generated from operating activities, and if necessary, cash
borrowed under the credit facility, will be sufficient to meet
our requirements for at least the next 12 months.
The table below sets forth our cash and cash equivalents and
marketable securities as of December 31, 2008, 2009 and
2010:
Cash and
Marketable Securities
(in millions)
(in millions)
Cash and cash equivalents
Marketable securities (short-term bond fund)
Contractual
Obligations
The table below sets forth our contractual commitments
associated with operating leases as of December 31, 2010:
Operating leases
Impact of
Inflation
Inflation has not had a significant impact on our historical
operations.
Off-Balance
Sheet Arrangements
As of December 31, 2010, we do not have any off-balance
sheet arrangements as defined by Item 303(a)(4) of the
Securities Exchange Commission
Regulation S-K.
We are subject to the impact of interest rate changes and may be
subject to changes in the market values of our current and
future investments. We invest our excess cash in bank overnight
deposits, money market funds and marketable securities. We have
not used derivative financial instruments in its investment
portfolio.
Earnings from investments in bank overnight deposits, money
market mutual funds and marketable securities may be adversely
affected in the future should interest rates change. Our future
investment income may fall short of expectations due to changes
in interest rates or we may suffer losses in principal if forced
to sell securities that have declined in market value due to
changes in interest rates. As of December 31, 2010, a 10%
increase or decrease in interest rates will not have a material
impact on our future earnings, fair values or cash flows related
to investments in cash equivalents or interest earning
marketable securities.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Strayer Education, Inc.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2009 and 2010
Consolidated Statements of Income for each of the three years in
the period ended December 31, 2010
Consolidated Statements of Comprehensive Income for each of the
three years in the period ended December 31, 2010
Consolidated Statements of Stockholders’ Equity for each of
the three years in the period ended December 31, 2010
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2010
Notes to Consolidated Financial Statements
Schedule II-Valuation
and Qualifying Accounts
All other schedules are omitted because they are not applicable
or the required information is included in the consolidated
financial statements or notes thereto.
To Board of Directors and Stockholders
Strayer Education, Inc.
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Strayer Education, Inc. and its
subsidiaries (the “Company”) at December 31, 2010
and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2010 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2010, based on criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible
for these financial statements and financial statement schedule,
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in
Management’s Report on Internal Control Over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial
statement schedule, and on the Company’s internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
McLean, Virginia
February 22, 2011
STRAYER
EDUCATION, INC.
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities available for sale, at fair value
Tuition receivable, net of allowances for doubtful accounts of
$6,175 and $7,935 in 2009 and 2010, respectively
Other current assets
Total current assets
Property and equipment, net
Deferred income taxes
Restricted cash
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Unearned tuition
Other current liabilities
Total current liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $.01; 20,000,000 shares authorized;
13,957,596 and 13,316,822 shares issued and outstanding as
of December 31, 2009 and 2010, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these
consolidated financial statements.
Income from operations
Income before income taxes
Net income
Net income per share:
Weighted average shares outstanding:
Other comprehensive income:
Unrealized (losses) gains on investments, net of taxes
Comprehensive income
Balance, December 31, 2007
Exercise of stock options
Tax benefit from exercise of stock options and vesting of
restricted shares
Repurchase of common stock
Restricted stock grants, net of forfeitures
Stock-based compensation
Common stock dividends
Change in net unrealized losses on marketable securities, net of
income tax
Net income
Balance, December 31, 2008
Change in net unrealized gains on marketable securities, net of
income tax
Balance, December 31, 2009
Balance, December 31, 2010
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by
operating activities:
Loss on disposal of assets
Amortization of gain on sale of assets
Amortization of deferred rent
Gain on sale of marketable securities
Depreciation and amortization
Deferred income taxes
Stock-based compensation
Changes in assets and liabilities:
Tuition receivable, net
Other current assets
Other assets
Accounts payable
Accrued expenses
Income taxes payable
Excess tax benefits from stock-based payment arrangements
Unearned tuition
Deferred lease incentives
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of marketable securities
Proceeds from the sale of marketable securities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Regular common dividends paid
Special common dividends paid
Proceeds from exercise of stock options
Excess tax benefits from stock-based payment arrangements
Repurchase of common stock
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents — beginning of year
Cash and cash equivalents — end of year
Non-cash transactions:
Purchases of property and equipment included in accounts payable
Strayer Education, Inc. (the “Company”), a Maryland
corporation, conducts its operations through its wholly owned
subsidiary, Strayer University (the “University”). The
University is an accredited institution of higher education that
provides undergraduate and graduate degrees in various fields of
study through 89 campuses (including three campuses opened for
the 2011 winter term and two opened for the 2011 spring term) in
Alabama, Arkansas, Delaware, Florida, Georgia, Indiana,
Kentucky, Louisiana, Maryland, Mississippi, New Jersey, North
Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas,
Utah, Virginia, West Virginia, Wisconsin, and
Washington, D.C., and worldwide via the Internet. With the
Company’s focus on the student, regardless of whether he or
she chooses to take classes at a physical campus or online, it
has only one reporting segment.
In June 2009, the Financial Accounting Standards Board (the
“FASB”) issued Statement of Financial Accounting
Standards No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles, which was primarily codified into Accounting
Standards Codification (“ASC”) Topic 105, Generally
Accepted Accounting Standards. This standard is the single
source of authoritative non-governmental U.S. generally
accepted accounting principles, superseding existing FASB,
American Institute of Certified Public Accountants, Emerging
Issues Task Force, and related accounting literature. Also
included is relevant Securities and Exchange Commission guidance
organized using the same topical structure in separate sections.
This guidance is effective for financial statements issued for
reporting periods that ended after September 15, 2009. This
guidance impacts the Company’s consolidated financial
statements and related disclosures as all references to
authoritative literature reflect the newly adopted codification.
Principles
of Consolidation
The consolidated financial statements include the accounts of
the Company and its subsidiaries, the University and Education
Loan Processing, Inc. The University is the only subsidiary that
is currently active. All inter-company accounts and transactions
have been eliminated in the consolidated financial statements.
Cash and
Cash Equivalents
Cash and cash equivalents consist of cash invested in bank
overnight deposits and money market mutual funds. The Company
places its cash and temporary cash investments with various
financial institutions. The Company considers all highly liquid
instruments purchased with a maturity of three months or less at
the date of purchase to be cash equivalents.
Marketable
Securities
The Company invested some of its excess cash in a diversified,
short-term, investment grade, tax-exempt bond fund. As of
December 31, 2010, the Company had $12.4 million, as
determined by the quoted market price, invested in this fund,
which has since been liquidated. The investment is considered
“available-for-sale”
as it is not held for trading and will not be held to maturity,
in accordance with the Investments — Debt and Equity
Securities Topic, ASC 320. The Company records the net
unrealized gains and losses for changes in fair value as a
component of accumulated other comprehensive income in
stockholders’ equity. Realized gains and losses from the
sale of marketable securities are based on the specific
identification method. Accounting Standards Codification
820-10
“Fair Value Measurement” (ASC
820-10)
establishes a framework for measuring fair value, establishes a
fair value hierarchy based upon the observability of inputs used
to measure fair value, and expands disclosures about fair value
measurements.
STRAYER
EDUCATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under
ASC 820-10,
fair value of an investment is the price that would be received
to sell an asset or to transfer a liability in an orderly
transaction between market participants at the measurement date.
The hierarchy gives the highest priority to investments with
readily available quoted prices in an active market and the
lowest priority to unobservable inputs which require a higher
degree of judgment when measuring fair value, with Level 1
investments using quoted prices in active markets for identical
assets or liabilities as of the measurement date.
At December 31, 2010, all of the Company’s investments
were classified as Level 1. Items not subject to fair value
reporting include cash and cash equivalents and restricted cash
totaling $64.6 million.
Revenues
The Company’s educational programs are offered on a
quarterly basis. Approximately 97% of the Company’s
revenues during the year ended December 31, 2010 consisted
of tuition revenue. Tuition revenue is recognized in the quarter
of instruction. Tuition revenue is shown net of any refunds,
withdrawals, corporate discounts, scholarships and employee
tuition discounts. At the time of registration, a liability
(unearned tuition) is recorded for academic services to be
provided and a tuition receivable is recorded for the portion of
the tuition not paid upfront in cash. Revenues also include
textbook-related income, application fees, placement test fees,
withdrawal fees, loan administration fees and other income,
which are all recognized when incurred.
Concentration
of Credit Risk
The Company places its cash and temporary cash investments in
money market mutual funds and bank overnight deposits with
various financial institutions. Cash and cash equivalent
balances are in excess of the FDIC insurance limit. The Company
has not experienced any losses on its cash and cash equivalents.
The Company has also invested its excess cash in a diversified,
short-term, investment grade, tax-exempt bond fund that is
classified under “Marketable Securities.”
Tuition receivables are not collateralized; however, credit risk
is minimized as a result of the diverse nature of the
University’s student base. The University establishes an
allowance for doubtful tuition accounts based upon historical
trends and other information.
Property
and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. In accordance with the Property,
Plant and Equipment Topic, ASC 360, the carrying values of
the Company’s assets are re-evaluated when events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If it is determined that an
impairment loss has occurred based on expected undiscounted
future cash flows, then a loss is recognized using a fair-value
based model. Through 2010, no such impairment loss had occurred.
Depreciation and amortization of property and equipment is
calculated using the straight-line method over the estimated
useful lives ranging from 3 to 40 years. Depreciation and
amortization amounted to $10.8 million, $13.9 million
and $17.3 million for the years ended December 31,
2008, 2009, and 2010 respectively.
Construction in progress includes costs of computer software
developed for internal use, and is accounted for in accordance
with the Internal-Use Software Topic,
ASC 350-40.
Computer software development costs that are incurred in the
preliminary project stage are expensed as incurred. During the
development stage direct consulting costs, payroll and
payroll-related costs for employees that are directly associated
with the project are capitalized and will be amortized over the
estimated useful life of the software once placed into operation.
Purchases of property and equipment and changes in accounts
payable for each of the three years in the period ended
December 31, 2010 in the Consolidated Statements of Cash
Flows have been adjusted to exclude non-cash purchases of
property and equipment transactions during that period.
Income
Taxes
The Company provides for deferred income taxes based on
temporary differences between financial statement and income tax
bases of assets and liabilities using enacted tax rates in
effect in the year in which the differences are expected to
reverse.
The Fair Value Measurements and Disclosures Topic, ASC 740,
requires the company to determine whether uncertain tax
positions should be recognized within the Company’s
financial statements. As a result of the implementation of
ASC 740, no material adjustment in the liability for
unrecognized income tax benefits was recognized. The amount of
unrecognized tax benefits at the adoption date of
January 1, 2007 and at December 31, 2010 was
immaterial. The Company recognizes interest and penalties
related to uncertain tax positions in income tax expense. As of
December 31, 2010, the amount of accrued interest and
penalties related to uncertain tax positions was immaterial. The
tax years
2008-2010
remain open to examination by the major taxing jurisdictions in
which the Company is subject.
Advertising
Costs
The Company expenses advertising costs in the quarter incurred,
except for costs associated with the production of television
commercials which are expensed when the commercial is first
aired.
Long-Term
Liabilities
At December 31, 2010, the Company has no borrowings under
its credit facility. Most of the Company’s long-term
liabilities are for lease incentives related to the opening of
new campuses, the straight-lining of rent expense and a deferred
gain related to the sale and lease back of a campus facility. In
conjunction with the opening of some new campuses and other
facilities, the Company was reimbursed by the lessors for
improvements made to those leased properties. In accordance with
the Operating Leases Subtopic,
ASC 840-20,
these reimbursements were capitalized as leasehold improvements
and a long-term liability established. The leasehold
improvements and the long-term liability are amortized on a
straight-line basis over the corresponding lease terms, which
range from five to ten years. In accordance with
ASC 840-20,
the Company records rent expense on a straight-line basis over
the initial term of a lease. The difference between the rent
payment and the straight-line rent expense is recorded as a
long-term liability. The Company also records the non-current
portion of the gain related to the sale and lease back of a
campus facility as a long-term liability. (See Note 7 below
for more information.)
Authorized
Stock
The Company has authorized 20,000,000 shares of common
stock, par value $.01, of which 13,957,596 and
13,316,822 shares were issued and outstanding as of
December 31, 2009 and 2010, respectively. The Company also
has authorized 8,000,000 shares of preferred stock, none of
which has been issued or outstanding since 2004. Before any
preferred stock may be issued in the future, the Board of
Directors would need to establish the preferences, conversion or
other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and the terms or conditions of the
redemption of the preferred stock.
Stock-Based
Compensation
As required by the Stock Compensation Topic, ASC 718, the
Company measures and recognizes compensation expense for all
share-based payment awards made to employees and directors,
including
employee stock options and employee stock purchases related to
the Company’s Employee Stock Purchase Plan, based on
estimated fair values. Stock-based compensation expense
recognized in the Consolidated Statements of Income for each of
the three years in the period ended December 31 2010, is based
on awards ultimately expected to vest and, therefore, has been
adjusted for estimated forfeitures. The Company is required to
estimate forfeitures at the time of grant and revise, if
necessary, the estimate in subsequent periods if actual
forfeitures differ from those estimates. The forfeiture rate
used is based on historical experience.
Net
Income Per Share
Basic earnings per share is computed by dividing net income by
the weighted average number of shares of common stock
outstanding during the periods. Diluted earnings per share
reflects the potential dilution that could occur assuming
conversion or exercise of all dilutive unexercised stock options
and restricted stock. The dilutive effect of stock awards was
determined using the treasury stock method. Under the treasury
stock method, all of the following are assumed to be used to
repurchase shares of the Company’s common stock:
(1) the proceeds received from the exercise of stock
options, (2) the amount of compensation cost associated
with the stock awards for future service not yet recognized by
the Company, and (3) the amount of tax benefits that would
be recorded in additional paid-in capital when the stock awards
become deductible for income tax purposes. Stock options are not
included in the computation of diluted earnings per share when
the stock option exercise price of an individual grant exceeds
the average market price for the period. At December 31,
2010, the Company had no issued and outstanding stock options
that were excluded from the calculation.
Set forth below is a reconciliation of shares used to calculate
basic and diluted earnings per share (in thousands).
Weighted average shares outstanding used to compute basic
earnings per share
Incremental shares issuable upon the assumed exercise of stock
options
Unvested restricted stock
Shares used to compute diluted earnings per share
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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. The most significant
management estimates included allowances for uncollectible
accounts, accrued expenses, forfeiture rates for stock-based
awards, and the provision for income taxes. Actual results could
differ from those estimates.
Comprehensive
Income
Comprehensive income consists of net income and unrealized gains
(losses) on investments in marketable securities, net of income
taxes.
Recent
Accounting Pronouncements
In June 2008, the FASB issued paragraph ASC
260-45-61A
of the Earnings Per Share Topic. This paragraph requires certain
share-based payment awards that entitle holders to receive
non-forfeitable dividends before they vest to be treated as
participating securities in basic and diluted EPS calculations.
ASC 260-45-61A
is effective for the first fiscal year beginning after
December 15, 2008. The adoption of
ASC 260-45-61A,
effective January 1, 2009, did not have a material effect
on the Company’s consolidated financial statements.
In May 2009, the FASB issued ASC 855, the Subsequent Events
Topic, which establishes general accounting and disclosure
guidelines for events that occur after the balance sheet date
but before financial statements are issued or available to be
issued. The Company adopted the provisions of ASC 855 effective
June 15, 2009.
In June 2009, the FASB issued The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles — a replacement of FASB Statement
No. 162 (SFAS 168). Under the new FASB ASC,
SFAS 168 is now the Generally Accepted Accounting
Principles Topic (ASC 105). The ASC becomes the single,
authoritative source for US accounting and reporting standards
and supersedes all previously issued FASB statements and related
accounting literature references for reporting purposes. The
Company adopted the provisions of ASC 105 for reporting
periods ending after September 15, 2009.
In October 2009, the FASB issue Accounting Standards Update
No. 2009-13,
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements — a consensus of the FASB Emerging Issues
Task Force (ASU
2009-13),
which provides guidance on the recognition of multiple elements
within a revenue transaction. ASU
2009-13 is
effective for the first annual reporting period beginning on or
after June 15, 2010. The Company believes the adoption of
ASU 2009-13
will not have a material impact on its financial condition,
results of operations and disclosures.
The cost and fair value for investments in marketable securities
as of December 31, 2009 and 2010 are as follows (in
thousands):
Cost
Gross unrealized gain
Fair value
The Company has invested some of its excess cash in a
diversified, no load, short-term, investment grade, tax-exempt
bond fund. At December 31, 2010, the 1,192 issues in this
fund had an average credit rating of AA, an average maturity of
1.3 years, an average duration of 1.2 years, and an
average yield to maturity of 1.0%.
The composition of property and equipment as of
December 31, 2009 and 2010 is as follows (in thousands):
Land
Buildings and improvements
Furniture and equipment
Leasehold improvements
Construction in progress
Accumulated depreciation and amortization
Construction in progress included costs associated with the
construction of new campuses and corporate headquarters and the
development of information technology applications. In 2009 and
2010, the Company recorded leasehold improvements of
$0.4 million and $0.7 million, respectively, which
were reimbursed by lessors as lease incentives. In 2009, the
Company wrote-off $1.7 million in fixed assets that were
fully depreciated and no longer in service. No assets were
written off in 2010.
In 2003, as part of commencing operations in Pennsylvania, the
Company was required to maintain a “minimum protective
endowment” of at least $500,000 in an interest-bearing
account. These funds are required as long as the Company
operates its campuses in the state. The Company accounts for
these funds as a long-term asset.
A total of 3,000,000 shares have been approved by the
Company’s stockholders for grants under the Company’s
1996 equity compensation plan (the “Plan”). The Plan
provides for the grant of options intended to qualify as
incentive stock options, and also provides for the grant of
non-qualifying options and restricted stock to employees,
officers and directors of the Company at the discretion of the
Board of Directors. Vesting provisions are also at the
discretion of the Board of Directors. Options may be granted at
option prices based at or above the fair market value of the
shares at the date of grant. The maximum term of the options
granted under the Plan is 10 years.
In October 2010, the Company’s Board of Directors approved
grants of 23,502 shares of restricted stock. These shares,
which vest over a four year period, were awarded to certain
employees pursuant to the Plan. The Company’s stock price
closed at $127.65 on the date of these restricted stock grants.
In April 2010, the Company’s Board of Directors approved
grants of 3,018 shares of restricted stock. These shares,
which vest over a
three-year
period, were awarded to various non-employee members of the
Company’s Board of Directors, as part of the Company’s
annual director compensation program. The Company’s stock
price closed at $248.75 on the date of these restricted stock
grants.
In February 2010, the Company’s Board of Directors approved
grants of 25,219 shares of restricted stock to certain
employees. These shares, which vest over a
three-year
period, were granted to certain employees pursuant to the
Company’s annual equity compensation program. The
Company’s stock price closed at $206.39 on the date of
these restricted stock grants.
In February 2006, the Company’s Board of Directors approved
cash payments to the holders of vested stock options in an
amount equivalent to the Company’s common stock dividends.
These cash payments were remitted on the same dates as the
Company’s dividends and amounted to $0.6 million in
2008. The Company discontinued this form of compensation in
2009. Dividends paid on unvested restricted stock are reimbursed
to the Company if the recipient terminates his or her employment
prior to vesting in the award.
Restricted
Stock
The table below sets forth the restricted stock activity for the
years ended December 31, 2008, 2009 and 2010:
Balance, December 31, 2007
Grants
Vested shares
Forfeitures
Balance, December 31, 2008
Balance, December 31, 2009
Balance, December 31, 2010
Stock
Options
The table below sets forth the stock option activity for the
years ended December 31, 2008, 2009 and 2010 and other
stock option information at December 31, 2010:
Exercises
Vested, December 31, 2010
Exercisable, December 31, 2010
The number of shares exercisable as of December 31, 2008,
2009 and 2010 are as follows:
Exercisable, December 31, 2008
Exercisable, December 31, 2009
Exercisable, December 31, 2010
The following table summarizes information regarding share-based
payment arrangements for the years ended December 31, 2008,
2009 and 2010 (in thousands):
Proceeds from stock options exercised
Excess tax benefits related to share-based payment arrangements
Intrinsic value of stock options
exercised(1)
Valuation
and Expense Information Under Stock Compensation Topic
ASC 718
At December 31, 2010, total stock-based compensation cost
which has not yet been recognized was $49.0 million, all
for unvested restricted stock. This cost is expected to be
recognized over the next 75 months on a weighted-average
basis.
The following table sets forth the amount of stock-based
compensation expense recorded in each of the expense line items
(in thousands):
Instruction and educational support
Marketing and admissions
General and administration
Stock-based compensation expense included in operating expense
Tax benefit
Stock-based compensation expense, net of tax
Lease
Incentives
In conjunction with the opening of new campuses during 2009 and
2010, the Company recorded reimbursements by the lessors for
improvements made to the leased properties in the amount of
$0.4 million and $0.7 million, respectively. In
accordance with the Operating Leases Topic,
ASC 840-20,
these reimbursements were capitalized as leasehold improvements
and a long-term liability established.
The leasehold improvements and the long-term liability will be
amortized on a straight-line basis over the corresponding lease
terms, which range from five to 10 years. As of
December 31, 2009 and 2010, the Company had deferred lease
incentives of $3.7 million and $3.2 million,
respectively.
Deferred
Rent
In accordance with
ASC 840-20,
the Company records rent expense on a straight-line basis over
the initial term of a lease. The difference between the rent
payment and the straight-line rent expense is recorded as a
long-term liability. As of December 31, 2009 and 2010, the
Company had deferred rent associated with its lease obligations
of $6.2 million and $7.9 million, respectively.
Sale of
Campus Building and Deferred Gain
In June 2007, the Company sold its Loudoun, Virginia campus
building for $5.8 million. The Company is leasing back most
of the campus building over a
10-year
period. In conjunction with this sale and lease back
transaction, the Company realized a gain of $2.8 million
before tax, which is deferred and recognized over the
10-year
lease term. The non-current portion of this gain, which is
recorded as a long-term liability, was $1.8 million and
$1.5 million, at December 31, 2009 and 2010,
respectively.
The Company has a 401(k) plan covering all eligible employees of
the Company. Effective January 1, 2011, participants may
contribute up to $16,500 of their base compensation annually.
Employee contributions are voluntary. Discretionary
contributions were made by the Company matching 100% of employee
deferrals up to 3% of the employee’s annual salary and
matching an additional 50% of employee deferrals between 3% and
5% of annual salary. The Company’s contributions, which
vest immediately, totaled $1.4 million, $1.8 million
and $2.3 million for the years ended December 31,
2008, 2009, and 2010, respectively.
In May 1998, the Company adopted the Strayer Education, Inc.
Employee Stock Purchase Plan (“ESPP”). Under the ESPP,
eligible employees may purchase shares of the Company’s
common stock, subject to certain limitations, at 90% of its
market value at the date of purchase. Purchases are limited to
10% of an employee’s eligible compensation. The aggregate
number of shares of common stock that may be made available for
purchase by participating employees under the ESPP is
2,500,000 shares. Shares purchased in the open market for
employees for the years ended December 31, 2008, 2009, and
2010 were as follows:
As announced on November 3, 2003, the Company’s Board
of Directors initially authorized the Company to repurchase up
to an aggregate of $15 million in value of common stock
through December 31, 2004 in open market purchases from
time to time at the discretion of the Company’s management
depending on market conditions and other corporate
considerations. The Company’s Board of Directors amended
the program on various dates, increasing the repurchase amount
authorized and extending the expiration date. At
December 31, 2010, approximately $107.7 million of the
Company’s share repurchase authorization was remaining for
repurchases through December 31,
2011. All of the Company’s share repurchases were effected
in compliance with
Rule 10b-18
under the Securities Exchange Act of 1934, as amended. This
stock repurchase plan may be modified, suspended or terminated
at any time by the Company without notice.
A summary of the Company’s stock repurchase activity for
the years ended December 31, 2008, 2009, and 2010, all of
which was part of a publicly announced plan, is set forth in the
table below:
Repurchases of common stock are recorded as a reduction to
additional paid-in capital. To the extent additional paid-in
capital has been reduced to zero through stock repurchases,
retained earnings is then reduced.
The University 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 Company’s consolidated
financial position, results of operations or cash flows.
As of December 31, 2010, the Company had 97 long-term,
non-cancelable operating leases for campuses and other
administrative locations. Rent expense was $19.7 million,
$26.2 million, and $32.6 million for the years ended
December 31, 2008, 2009, and 2010, respectively.
The rents on the Company’s leases are subject to annual
increases. The minimum rental commitments for the Company as of
December 31, 2010 are as follows (in thousands):
2011
2012
2013
2014
2015
Thereafter
At December 31, 2010, the Company had available a
$15 million revolving credit facility. There have been no
borrowings by the Company under this facility. On
January 3, 2011, this facility was replaced with a new
$100 million revolving credit facility. See Note 13
below for more information.
From time to time, the Company is involved in litigation and
other legal proceedings arising out of the ordinary course of
its business. On October 15, 2010, a putative securities
class action was filed in the United States District Court for
the Middle District of Florida. The Company believes the lawsuit
is without merit and will contest the lawsuit vigorously. While
the outcome of any legal proceedings
cannot be predicted with certainty, the Company does not expect
any matter will have a material effect on its financial
condition or results of operations.
The income tax provision for the years ended December 31,
2008, 2009 and 2010 is summarized below (in thousands):
Current:
Federal
State
Total current
Deferred:
Total deferred
Total provision for income taxes
The tax effects of the principal temporary differences that give
rise to the Company’s deferred tax assets are as follows as
of December 31, 2009 and 2010 (in thousands):
Tuition receivable and student loans
Accrued vacation payable
Deferred gain on sale of property
Unrealized gains on marketable securities
Current net deferred tax asset
Student loans
Property and equipment
Deferred leasing costs
Stock-based compensation
Other
Long-term net deferred tax asset
Net deferred tax asset
A reconciliation between the Company’s statutory tax rate
and the effective tax rate for the years ended December 31,
2008, 2009, and 2010 is as follows:
Statutory federal rate
State income taxes, net of federal benefits
Non-taxable interest income
Effective tax rate
Cash payments for income taxes were $40.6 million in 2008,
$59.0 million in 2009, and $81.6 million in 2010.
Quarterly financial information for 2009 and 2010 is as follows
(in thousands except per share data):
On January 3, 2011, the Company entered into an unsecured
New Revolving Credit Facility (the “New Credit
Facility”). The maximum amount of borrowings available
under the New Credit Facility is $100 million, including a
letter of credit subfacility of $50 million. The New Credit
Facility matures in three years. Borrowings under the New Credit
Facility bear interest at LIBOR or a base rate plus 1.75%,
although higher margins up to 2.25% may apply based on the
Company’s then ratio of consolidated total debt to EBITDA
(earnings before interest, taxes, depreciation and amortization,
and other non-cash charges). Unused portions of the New Credit
Facility carry an annual availability fee of 0.30%, which may
increase to 0.40% based on the Company’s then ratio of
consolidated total debt to EBITDA. The New Credit Facility
contains customary affirmative, negative and financial
maintenance covenants, representations, warranties, events of
default and remedies upon default including acceleration, and
borrowing conditions. The New Credit Facility replaces the
Company’s existing $15 million revolving credit
facility.
Deduction from asset account:
Allowance for doubtful accounts:
Year ended December 31, 2010
Year ended December 31, 2009
Year ended December 31, 2008
None.
The Company’s Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of the Company’s
disclosure controls and procedures as of December 31, 2010.
Based upon such review, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company had in place,
as of December 31, 2010, effective controls and procedures
designed to ensure that information required to be disclosed by
the Company (including consolidated subsidiaries) in the reports
it files or submits under the Securities Exchange Act of 1934,
as amended, and the rules thereunder, is recorded, processed,
summarized and reported within the time periods specified in the
Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by
an issuer in reports it files or submits under the Securities
Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive
officer or officers and principal financial officer or officers,
or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
Management’s
Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act
Rule 13a-15(f).
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are
being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of the
Company’s principal executive officer and principal
financial officer, the Company’s management assessed the
effectiveness of the registrant’s internal control over
financial reporting, as of December 31, 2010 based on the
framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
assessment under the framework in Internal
Control — Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2010.
The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2010 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report which appears
herein.
Changes
in Internal Controls over Financial Reporting
The Company’s Chief Executive Officer and Chief Financial
Officer have evaluated any changes in the Company’s
internal control over financial reporting that occurred during
the quarter ended December 31, 2010, and have concluded
that there was no change during such quarter that has materially
affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.
None
The following table sets forth certain information with respect
to the Company’s directors, executive officers, and
significant employees.
Directors:
Robert S. Silberman
David A. Coulter
Dr. Charlotte F. Beason
William E. Brock
Robert R. Grusky
Robert L. Johnson
Todd A. Milano
G. Thomas Waite, III
J. David Wargo
Executive Officers and Significant Employees:
Karl McDonnell
Mark C. Brown
Dr. Sondra F. Stallard
Dr. Michael Plater
Randi Reich Cosentino
Catherine R. Guttman-McCabe
Sonya G. Udler
Directors
Mr. Robert S. Silberman has been Chairman of the
Board since February 2003 and Chief Executive Officer since
March 2001. From 1995 to 2000, Mr. Silberman served in a
variety of senior management positions at CalEnergy Company,
Inc., including as President and Chief Operating Officer. From
1993 to 1995, Mr. Silberman was Assistant to the Chairman
and Chief Executive Officer of International Paper Company. From
1989 to 1993, Mr. Silberman served in several senior
positions in the U.S. Department of Defense, including as
Assistant Secretary of the Army. Mr. Silberman has been a
Director of Strayer since March 2001. He serves on the Board of
Directors of Covanta Holding Company. He also serves on the
Board of Trustees of the Phillips Exeter Academy and on the
Board of Visitors of The Johns Hopkins University School of
Advanced International Studies. Mr. Silberman is a member
of the Council on Foreign Relations. Mr. Silberman holds a
bachelor’s degree in history from Dartmouth College and a
master’s degree in international policy from The Johns
Hopkins University.
Mr. David A. Coulter is serving as the Presiding
Independent Director of the Strayer Education, Inc. Board of
Directors, on which he has served since 2002. He is currently
Managing Director and Senior Advisor at Warburg Pincus, LLC. He
was Vice Chairman of J.P. Morgan Chase & Co. from
December 2000 to December 2005. Prior to joining
J.P. Morgan Chase, Mr. Coulter led the West Coast
operations of the Beacon Group, a private investment and
strategic advisory firm, and prior to that, Mr. Coulter
served as the Chairman and Chief Executive Officer of the
BankAmerica Corporation.
Mr. Coulter is a member of the Board of Directors of
Sterling Financial Corporation, Webster Bank, Aeolus Re, and
MBIA, Inc. In the past five years, Mr. Coulter has also
served on the Board of Directors of The Irvine Company,
PG&E Corporation and First Data Corporation.
Mr. Coulter also serves on the Board of Trustees of
Carnegie Mellon University. In addition to serving as the
Presiding Independent Director, he is also Chair of the
Company’s Nominating Committee and is a member of the
Compensation Committee of the Board. Mr. Coulter holds a
bachelor’s degree in mathematics and economics and a
master’s degree in industrial administration, both from
Carnegie Mellon University.
Dr. Charlotte F. Beason has been Executive Director
of the Kentucky Board of Nursing since 2005. From 2004 to 2005,
she was a consultant in education and health care
administration. From 2000 to 2003, Dr. Beason was Chair and
Vice Chair of the Commission on Collegiate Nursing Education (an
autonomous agency accrediting baccalaureate and graduate
programs in nursing); she is an evaluator for the Commission on
Collegiate Nursing Education. From 1988 to 2004, Dr. Beason
was with the Department of Veterans Affairs, first as Director
of Health Professions Education Service and the Health
Professional Scholarship Program, and then as Program Director,
Office of Nursing Services. Dr. Beason has served on the
Board since 1996 and is a member of the Nominating Committee of
the Board. She is also Chairwoman of the Strayer University
Board of Trustees. Dr. Beason holds a bachelor’s
degree in nursing from Berea College, a master’s degree in
psychiatric nursing from Boston University and a doctorate in
clinical psychology and public practice from Harvard University.
Mr. William E. Brock is the Founder and Chairman of
the Brock Offices, a firm specializing in international trade,
investment and human resources. From 1985 to 1987,
Mr. Brock served in the President’s Cabinet as the
U.S. Secretary of Labor, and from 1981 to 1985, as the
U.S. Trade Representative. Elected Chairman of the
Republican National Committee from 1977 to 1981, Mr. Brock
previously served as a Member of Congress and, subsequently, as
U.S. Senator for the State of Tennessee. Mr. Brock
serves as a Counselor and Trustee of the Center for Strategic
and International Studies, and as a member of the Board of
Directors of On Assignment, Inc., Health Extras, Inc., and
ResCare, Inc. Mr. Brock has been a member of the Board
since 2001 and is a member of the Compensation Committee of the
Board. He holds a bachelor’s degree in commerce from
Washington and Lee University.
Mr. Robert R. Grusky is the Founder and Managing
Member of Hope Capital Management, LLC, an investment manager,
since 2000. He co-founded New Mountain Capital, LLC, a private
equity firm, in 2000 and was a Principal and Member from 2000 to
2005, and has been a Senior Advisor since then. From 1998 to
2000, Mr. Grusky served as President of RSL Investments
Corporation. From 1985 to 1997, with the exception of 1990 to
1991 when he was on a leave of absence to serve as a White House
Fellow and Assistant for Special Projects to the Secretary of
Defense, Mr. Grusky served in a variety of capacities at
Goldman, Sachs & Co., first in its Mergers &
Acquisitions Department and then in its Principal Investment
Area. He serves on the Board of Directors of AutoNation, Inc.
and AutoZone, Inc. In the past five years, he has also served on
the Board of Directors of National Medical Health Card Systems,
Inc. Mr. Grusky has served on the Board since 2001, and is
Chair of the Audit Committee of the Board. He holds a
bachelor’s degree in history from Union College and a
master’s degree in business administration from Harvard
University.
Mr. Robert L. Johnson is the Founder and Chairman of
The RLJ Companies, which owns or holds interests in businesses
operating in hotel real estate investment, private equity,
consumer financial services, asset management, insurance
services, automobile dealerships, sports and entertainment, and
video lottery terminal gaming. Mr. Johnson is the founder
of Black Entertainment Television (BET), a subsidiary of Viacom
and the leading
African-American
operated media and entertainment company in the United States,
and served as its Chief Executive Officer until January 2006. In
2002, Mr. Johnson became the first
African-American
majority owner of a major sports franchise, the Charlotte
Bobcats of the NBA. From 1976 to 1979, he served as Vice
President of Governmental Relations for the National
Cable & Telecommunications Association (NCTA).
Mr. Johnson also served as Press Secretary for the
Honorable Walter E. Fauntroy, Congressional Delegate from the
District of Columbia. He also serves on the following boards: KB
Home, Lowe’s Companies, Inc., International
Management Group, NBA Board of Governors, Deutsche Bank Advisory
Committee, The Business Council, and the Smithsonian
Institution’s National Museum of African American History
and Culture. Mr. Johnson has served on the Board since
2003, and is a member of the Nominating Committee of the Board.
He holds a bachelor’s degree in social studies from the
University of Illinois and a master’s degree in
international affairs from the Woodrow Wilson School of Public
and International Affairs at Princeton University.
Mr. Todd A. Milano has been President and Chief
Executive Officer of Central Pennsylvania College since 1989.
Mr. Milano has served on the Board since 1996 and is Chair
of the Compensation Committee of the Board and is also a member
of the Strayer University Board of Trustees. Mr. Milano
holds a bachelor’s degree in industrial management from
Purdue University.
Mr. G. Thomas Waite, III has been Treasurer and
Chief Financial Officer of the Humane Society of the United
States since 1997 and Controller since 1993. In 1992,
Mr. Waite was the Director of Commercial Management of The
National Housing Partnership. Mr. Waite has served on the
Board since 1996, is a member of the Audit Committee of the
Board and is a former member of the Strayer University Board of
Trustees. Mr. Waite holds a bachelor’s degree in
commerce from the University of Virginia and is a Certified
Public Accountant.
Mr. J. David Wargo has been President of Wargo and
Company, Inc., an investment management company, since 1993.
Mr. Wargo is a co-founder and was a Member of New Mountain
Capital, LLC, from January 2000 to 2008, and has been a Senior
Advisor since then. From 1989 to 1992, Mr. Wargo was a
Managing Director and Senior Analyst of The Putnam Companies, a
Boston-based investment management company. From 1985 to 1989,
Mr. Wargo was a partner and held other positions at Marble
Arch Partners. Mr. Wargo is a Director of Liberty Global,
Inc. and Discovery Communications, Inc. In the past five years,
he also served on the board of OpenTV Corporation and Fun
Technologies, Inc. Mr. Wargo has served on the Board since
2001 and is a member of the Audit Committee of the Board.
Mr. Wargo holds a bachelor’s degree in physics and a
master’s degree in nuclear engineering, both from the
Massachusetts Institute of Technology. He also holds a
master’s degree in management science from the Sloan School
of Management, Massachusetts Institute of Technology.
Executive
Officers and Significant Employees
Mr. Karl McDonnell joined Strayer Education in July
2006 as President and Chief Operating Officer. Previously, he
served as Chief Operating Officer of InteliStaf Healthcare,
Inc., one of the nation’s largest privately-held healthcare
staffing firms, from 2003 to 2005. Prior to his tenure at
InteliStaf, he served as Vice President of the Investment
Banking Division at Goldman, Sachs & Co.
Mr. McDonnell has held senior management positions with
several Fortune 100 companies, including The Walt Disney
Company. Mr. McDonnell holds a bachelor’s degree in
political science and American history from Virginia Wesleyan
College and a master’s degree in business administration
from Duke University.
Mr. Mark C. Brown is Executive Vice President and
Chief Financial Officer, having joined Strayer in 2001.
Mr. Brown was previously the Chief Financial Officer of the
Kantar Group, the information and consultancy division of WPP
Group, a multi-national communications services company. Prior
to that, for nearly 12 years, Mr. Brown held a variety
of management positions at PepsiCo, Inc., including Director of
Corporate Planning for Pepsi Bottling Group and Business Unit
Chief Financial Officer for Pepsi-Cola International.
Mr. Brown is a Certified Public Accountant who started his
career with PricewaterhouseCoopers, LLP. Mr. Brown holds a
bachelor’s degree in accounting from Duke University and a
master’s degree in business administration from Harvard
University.
Dr. Sondra F. Stallard is the University President
and joined Strayer University in September 2007. For the
previous 11 years, she was Dean of the School of Continuing
and Professional Studies at the University of Virginia (UVA).
Prior to that, she served in a series of leadership positions at
UVA, including Director of Corporate and Foundation Relations at
the business school, Director of Development for the school of
engineering, and Director of the Office of Equal Opportunity
Programs. Concurrently, she held faculty appointments throughout
her 32-year
career at UVA. Dr. Stallard holds a bachelor’s degree
in history and government from West Virginia University
Institute of Technology, a master’s degree in history from
Morehead State University, and a Ph.D. in education from the
University of Virginia.
Dr. Michael A. Plater is the Provost and Chief
Academic Officer and joined Strayer University in March 2010.
Prior to joining Strayer, Dr. Plater was the Dean of the
College of Arts and Sciences at North Carolina A&T State
University, where he managed a faculty and staff of
approximately 400 people in 13 academic departments, and
five affiliated academic programs. Previous to joining North
Carolina A&T, Dr. Plater was at Brown University as
the Associate Dean of the Graduate School. Before joining Brown,
Dr. Plater taught “capstone” Business
Policy/Strategic Management classes in the M.B.A. program and
the introductory undergraduate management course at the
University of Florida. He received a bachelor’s degree in
economics from Harvard University, a master’s degree in
business administration from the University of Pennsylvania, and
a Ph.D. from the College of William and Mary.
Ms. Randi Reich Cosentino is Senior Vice
President — Academic Administration.
Ms. Cosentino has been with the University since 2001 and
has served as Director of Online Operations, Director of
Business Processes, Director of New Campus Openings, and as an
Adjunct Faculty Member. Prior to joining Strayer,
Ms. Cosentino co-founded and managed business and strategic
development for Mascot Network, an application service provider
serving the higher education market. Ms. Cosentino also
served several years in city government with the City of New
York as the Assistant Director in the Mayor’s Office of
Transportation. Ms. Cosentino holds a bachelor’s
degree in psychology and political science from the University
of Pennsylvania and a master’s degree in business
administration from Harvard University.
Ms. Catherine R. Guttman-McCabe is Senior Vice
President and Deputy General Counsel of the Company and General
Counsel of Strayer University. Ms. Guttman-McCabe joined
Strayer in 2007 and has fifteen years of experience in higher
education law. Prior to joining Strayer, Ms. Guttman-McCabe
served as Associate General Counsel of Georgetown University,
Counsel of Cortiva Institute, and was an Associate at
Hogan & Hartson in the firm’s education and
employment practice groups. Ms. Guttman-McCabe holds a
bachelor’s degree in political science from Swarthmore
College and a juris doctorate from Harvard Law School.
Ms. Sonya G. Udler is Senior Vice President,
Corporate Communications. Ms. Udler joined Strayer in 2002,
and brings more than 20 years of public relations and
marketing communications experience to Strayer. For the two
years prior to joining Strayer, she served as a public relations
and media strategies consultant. She previously served as Senior
Vice President at Young & Associates, Inc., a public
relations agency, where she developed communications strategies
and media programs for Bell Atlantic, Siemens, Verizon and other
leading technology companies. Ms. Udler holds a
bachelor’s degree in journalism from the University of
Maryland.
Additional information responsive to this item is hereby
incorporated by reference from the sections titled
“Election of Directors,” “Board Structure,”
“Code of Ethics” and “Section 16(a)
Beneficial Ownership Reporting Compliance” contained in the
Company’s Proxy Statement, which will be filed no later
than 120 days following December 31, 2010.
The information required by this Item is hereby incorporated by
reference from the sections entitled “Compensation
Discussion and Analysis” and the related tables and
narrative thereto, “Director Compensation” and the
related tables thereto, “Compensation Committee Interlocks
and Insider Participation” and “Compensation Committee
Report” to be contained in the Company’s Proxy
Statement, which will be filed no later than 120 days
following December 31, 2010.
The information required by this Item is hereby incorporated by
reference from the i section entitled “Beneficial Ownership
of Common Stock” to be contained in the Company’s
Proxy Statement, which will be filed no later than 120 days
following December 31, 2010.
The information required by this Item is hereby incorporated by
reference from the sections entitled “Board Structure”
and “Certain Transactions with Related Parties” to be
contained in the Company’s Proxy Statement, which will be
filed no later than 120 days following December 31,
2010.
The information required by this Item is hereby incorporated by
reference from the section entitled
“Proposal 2 — Ratification of Appointment of
Independent Registered Public Accounting Firm” to be
contained in the Company’s Proxy Statement, which will be
filed no later than 120 days following December 31,
2010.
(A)(1)
Financial Statements
All required financial statements of the registrant are set
forth under Item 8 of this report on
Form 10-K.
(A)(2)
Financial Statement Schedule
The required financial statement schedule of the registrant is
set forth under Item 8 of this report on
Form 10-K.
(A)(3)
Exhibits
The exhibits required to be filed as a part of this Annual
Report on
Form 10-K
are listed in the Exhibit Index attached hereto and are
incorporated herein by reference.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STRAYER EDUCATION, INC.
/s/ Robert
S. Silberman
Robert S. Silberman
Chairman of the Board and
Chief Executive Officer
Date: February 22, 2011
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert S. Silberman and
Mark C. Brown, 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
attorneys-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 requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the registrant in the capacities and on the date
indicated.
/s/ Robert
S. Silberman
/s/ Mark
C. Brown
/s/ Charlotte
F. Beason
/s/ William
E. Brock
/s/ David
A. Coulter
/s/ Robert
R. Grusky
/s/ Robert
L. Johnson
/s/ Todd
A. Milano
/s/ G.
Thomas Waite, III
/s/ J.
David Wargo
Exhibit Index