10-Q 1 stra-20160630x10q.htm 10-Q stra_Current_Folio_10Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15 (d) of the

Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2016

 

Commission File No. 0-21039

 

 

 

Strayer Education, Inc.

(Exact name of registrant as specified in this charter)

 

 

 

 

 

 

Maryland

 

52-1975978

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2303 Dulles Station Boulevard

Herndon, VA

 

20171

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (703) 561-1600

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes        No   

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes        No   

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No  

 

As of July 18, 2016, there were outstanding 11,094,391 shares of Common Stock, par value $0.01 per share, of the Registrant.

 

 


 

STRAYER EDUCATION, INC.

INDEX

FORM 10-Q

 

 

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets at December 31, 2015 and June 30, 2016

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2016

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2016

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2015 and 2016

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2016

 

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30 

 

 

 

 

 

Item 4.

Controls and Procedures

30 

 

 

 

 

PART II — OTHER INFORMATION 

 

 

 

 

 

 

Item 1.

Legal Proceedings

31 

 

 

 

 

 

Item 1A.

Risk Factors

31 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

31 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

31 

 

 

 

 

 

Item 5.

Other Information

31 

 

 

 

 

 

Item 6.

Exhibits

31 

 

 

 

 

SIGNATURES 

32 

 

 

 

 

CERTIFICATIONS

 

 

 

2


 

STRAYER EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

June 30, 2016

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

106,889

 

$

117,422

 

Tuition receivable, net

 

 

18,519

 

 

19,053

 

Income taxes receivable

 

 

 —

 

 

897

 

Other current assets

 

 

6,944

 

 

8,409

 

Total current assets

 

 

132,352

 

 

145,781

 

Property and equipment, net

 

 

77,139

 

 

72,577

 

Deferred income taxes

 

 

26,449

 

 

24,509

 

Goodwill

 

 

6,800

 

 

20,793

 

Other assets

 

 

5,694

 

 

13,891

 

Total assets

 

$

248,434

 

$

277,551

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

42,253

 

$

42,127

 

Income taxes payable

 

 

2,684

 

 

 —

 

Deferred revenue

 

 

12,373

 

 

17,140

 

Other current liabilities

 

 

281

 

 

273

 

Total current liabilities

 

 

57,591

 

 

59,540

 

Other long-term liabilities

 

 

47,987

 

 

50,073

 

Total liabilities

 

 

105,578

 

 

109,613

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, par value $0.01; 20,000,000 shares authorized; 11,027,177 and 11,164,911 shares issued and outstanding at December 31, 2015 and June 30, 2016, respectively

 

 

110

 

 

112

 

Additional paid-in capital

 

 

24,738

 

 

29,612

 

Retained earnings

 

 

118,008

 

 

138,214

 

Total stockholders’ equity

 

 

142,856

 

 

167,938

 

Total liabilities and stockholders’ equity

 

$

248,434

 

$

277,551

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

STRAYER EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2015

    

2016

    

2015

    

2016

    

Revenues

    

$

109,750

 

$

108,487

 

$

221,635

 

$

219,653

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Instruction and educational support

 

 

59,245

 

 

61,782

 

 

118,942

 

 

119,880

 

Marketing

 

 

14,670

 

 

17,748

 

 

31,351

 

 

36,046

 

Admissions advisory

 

 

4,062

 

 

4,131

 

 

8,055

 

 

8,480

 

General and administration

 

 

10,844

 

 

11,930

 

 

22,499

 

 

22,259

 

Total costs and expenses

 

 

88,821

 

 

95,591

 

 

180,847

 

 

186,665

 

Income from operations

 

 

20,929

 

 

12,896

 

 

40,788

 

 

32,988

 

Investment income

 

 

100

 

 

112

 

 

178

 

 

212

 

Interest expense

 

 

1,272

 

 

160

 

 

2,545

 

 

320

 

Income before income taxes

 

 

19,757

 

 

12,848

 

 

38,421

 

 

32,880

 

Provision for income taxes

 

 

7,883

 

 

5,062

 

 

15,162

 

 

12,674

 

Net income

 

$

11,874

 

$

7,786

 

$

23,259

 

$

20,206

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.12

 

$

0.73

 

$

2.20

 

$

1.91

 

Diluted

 

$

1.11

 

$

0.72

 

$

2.17

 

$

1.87

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

10,587

 

 

10,610

 

 

10,583

 

 

10,603

 

Diluted

 

 

10,705

 

 

10,799

 

 

10,721

 

 

10,790

 

 

 

 

STRAYER EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30,

 

June 30,

 

 

    

2015

    

2016

    

2015

    

2016

    

Net income

 

$

11,874

 

$

7,786

 

$

23,259

 

$

20,206

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of derivative instrument, net of income tax

 

 

(28)

 

 

 —

 

 

(233)

 

 

 —

 

Comprehensive income

 

$

11,846

 

$

7,786

 

$

23,026

 

$

20,206

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

STRAYER EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

 

 

 

 

    

Shares

    

Par Value

    

Capital

    

Earnings

    

Income (Loss)

    

Total

 

Balance at December 31, 2014

 

10,903,341

 

$

109

 

$

14,550

 

$

77,985

 

$

88

 

$

92,732

 

Tax shortfall associated with stock-based compensation arrangements

 

 —

 

 

 —

 

 

(25)

 

 

 —

 

 

 —

 

 

(25)

 

Restricted stock grants, net of forfeitures and conversions

 

124,924

 

 

1

 

 

(1)

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

4,923

 

 

 —

 

 

 —

 

 

4,923

 

Change in fair value of derivative instrument, net of income tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(233)

 

 

(233)

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

23,259

 

 

 —

 

 

23,259

 

  Balance at June 30, 2015

 

11,028,265

 

$

110

 

$

19,447

 

$

101,244

 

$

(145)

 

$

120,656

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

 

 

 

 

 

Shares

    

Par Value

    

Capital

    

Earnings

    

Income (Loss)

    

Total

 

Balance at December 31, 2015

 

11,027,177

 

$

110

 

$

24,738

 

$

118,008

 

$

 —

 

$

142,856

 

Tax shortfall associated with stock-based compensation arrangements

 

 —

 

 

 —

 

 

(50)

 

 

 —

 

 

 —

 

 

(50)

 

Restricted stock grants, net of forfeitures

 

137,734

 

 

2

 

 

(2)

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation

 

 —

 

 

 —

 

 

4,926

 

 

 —

 

 

 —

 

 

4,926

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

20,206

 

 

 —

 

 

20,206

 

  Balance at June 30, 2016

 

11,164,911

 

$

112

 

$

29,612

 

$

138,214

 

$

 —

 

$

167,938

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

STRAYER EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

    

2015

    

2016

    

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

23,259

 

$

20,206

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Amortization of gain on sale of assets

 

 

(140)

 

 

(140)

 

Amortization of deferred rent

 

 

(424)

 

 

(446)

 

Amortization of deferred financing costs

 

 

390

 

 

131

 

Depreciation and amortization

 

 

9,292

 

 

8,873

 

Deferred income taxes

 

 

(1,621)

 

 

(2,158)

 

Stock-based compensation

 

 

4,923

 

 

4,926

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Tuition receivable, net

 

 

1,554

 

 

245

 

Other current assets

 

 

2,357

 

 

(1,466)

 

Other assets

 

 

2

 

 

(2,639)

 

Accounts payable and accrued expenses

 

 

(2,808)

 

 

(726)

 

Income taxes payable and income taxes receivable

 

 

3,387

 

 

(3,314)

 

Deferred revenue

 

 

5,544

 

 

3,313

 

Other long-term liabilities

 

 

(1,959)

 

 

(4,380)

 

Net cash provided by operating activities

 

 

43,756

 

 

22,425

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(7,057)

 

 

(3,852)

 

Cash used in acquisition, net of cash acquired

 

 

 —

 

 

(7,635)

 

Net cash used in investing activities

 

 

(7,057)

 

 

(11,487)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments on term loan

 

 

(3,125)

 

 

 —

 

Payments of contingent consideration

 

 

(300)

 

 

(405)

 

Net cash used in financing activities

 

 

(3,425)

 

 

(405)

 

Net increase in cash and cash equivalents

 

 

33,274

 

 

10,533

 

Cash and cash equivalents — beginning of period

 

 

162,283

 

 

106,889

 

Cash and cash equivalents — end of period

 

$

195,557

 

$

117,422

 

 

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable

 

$

546

 

$

274

 

Contingent consideration recorded in connection with an acquisition

 

$

 —

 

$

8,500

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

STRAYER EDUCATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.    Nature of Operations

 

Strayer Education, Inc. (the “Company”), a Maryland corporation, conducts its operations through its wholly-owned subsidiaries, Strayer University (the “University”) and New York Code and Design Academy (“NYCDA”). The University is an accredited institution of higher education that provides undergraduate and graduate degrees in various fields of study through physical campuses, predominantly located in the eastern United States, and online. NYCDA is a New York City-based provider of non-degree web and mobile app development courses. NYCDA courses are delivered primarily on-ground to students seeking to further their career in software application development. The Company has only one reporting segment.

 

2.    Significant Accounting Policies

 

Financial Statement Presentation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. On January 13, 2016, the Company acquired all of the outstanding stock of NYCDA, and the results of NYCDA are included with the Company from the acquisition date. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

 

All information as of December 31, 2015 and June 30, 2015 and 2016, and for the three and six months ended June 30, 2015 and 2016 is unaudited but, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position, results of operations, and cash flows of the Company. Certain amounts in the prior period financial statements have been reclassified to conform to the current period’s presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the full fiscal year.

 

Revenue Recognition

 

The Company’s educational programs typically are offered on a quarterly basis and such periods coincide with the Company’s quarterly financial reporting periods. Approximately 95% of the Company’s revenues during the six months ended June 30, 2016 consisted of tuition revenue, which is recognized in the quarter of instruction. Tuition revenue is assessed for collectibility on a student-by-student basis throughout the quarter of instruction, and is shown net of any refunds, withdrawals, corporate discounts, scholarships and employee tuition discounts. This collectibility assessment considers available sources of funds for the student including Federal Financial Student Aid programs. The Company reassesses the collectibility of tuition revenue that it may earn based on new information and changes in the facts and circumstances relevant to a student’s ability to pay, including the timing of a student’s withdrawal from a program of study.

 

At the start of each academic term or program, a liability (deferred revenue) is recorded for academic services to be provided and a tuition receivable is recorded for the portion of the tuition not paid in advance. Any cash received prior to the start of an academic term or program is recorded as deferred revenue. Some students may be eligible for scholarship awards, the estimated value of which will be realized in the future and is deducted from revenue when earned, based on historical student attendance and completion behavior. Deferred revenue is recorded as a current or long-term liability in the consolidated balance sheets based on when the benefit is expected to be realized. Revenues also include textbook-related income, certificate revenue, certain academic fees, licensing revenue, and other income, which are recognized when earned.

 

The Company’s refund policy typically permits students who complete less than half of a course to receive a partial refund of tuition for that course. Refunds reduce the tuition revenue that would have otherwise been recognized for that student. Since the University’s academic terms coincide with the Company’s financial reporting periods, nearly all refunds are processed and recorded within the same quarter as the corresponding revenue. The amount of tuition revenue refundable to students may vary based on the student’s state of residence. Unused books and related academic materials may be returned for a full refund within

7


 

21 days of the start of class; however, purchases of electronic content are not refundable if downloaded. Revenues derived from fees are not eligible for a refund.

 

Graduation Fund

 

In the third quarter of 2013, the Company introduced the Graduation Fund, which allows new undergraduate students to earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program. New students registering in credit-bearing courses in any undergraduate program for the summer 2013 term (fiscal third quarter) and subsequent terms qualify for the Graduation Fund. Students must meet all of the University’s admission requirements, and must be enrolled in an undergraduate degree program. The Company’s employees and their dependents are not eligible for the program. Students who have more than one consecutive term of non-attendance lose any Graduation Fund credits earned to date, but may earn and accumulate new credits if the student is reinstated or readmitted by the University in the future. In their final academic year, qualifying students will receive one free course for every three courses that were successfully completed.

 

Revenue from students participating in the Graduation Fund is recorded in accordance with the Revenue Recognition Topic, ASC 605-50. The Company defers the value of benefits estimated to be redeemed in the future based on the underlying revenue transactions that result in progress by the student toward earning the benefit. The Company’s estimate of the benefits that will be redeemed in the future is based on its historical experience of student persistence toward completion of a course of study within this program and similar programs. Each quarter, the Company assesses its methodologies and assumptions underlying these estimates and, to date, any adjustments to the estimates have not been material. The amount estimated to be redeemed in the next twelve months is $14.7 million and is included in deferred revenue as a current liability in the unaudited condensed consolidated balance sheets.

 

The table below presents activity in the Graduation Fund for the six months ended June 30, 2015 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

June 30,

 

    

June 30,

 

 

 

2015

 

    

2016

 

Balance at beginning of period

 

$

9,706

 

    

$

20,937

 

Revenue deferred

 

 

7,753

 

 

 

12,063

 

Benefit redeemed

 

 

(1,845)

 

 

 

(7,741)

 

Balance at end of period

 

$

15,614

 

 

$

25,259

 

 

Restricted Cash

 

A significant portion of the Company’s revenues are funded by various federal and state government programs. The Company generally does not receive funds from these programs prior to the start of the corresponding academic term. The Company may be required to return certain funds for students who withdraw from the University during the academic term. There were no amounts payable for these obligations at June 30, 2016 or December 31, 2015.

 

As part of commencing operations in Pennsylvania in 2003, the Company was required to maintain a “minimum protective endowment” of at least $0.5 million in an interest-bearing account. These funds are required as long as the Company operates its campuses in the state. The Company holds these funds in an interest-bearing account which is included in other assets.

 

Tuition Receivable and Allowance for Doubtful Accounts

 

The Company records tuition receivable and deferred revenue for its students upon the start of the academic term or program. Therefore, at the end of the quarter (and academic term), tuition receivable represents amounts due from students for educational services already provided and deferred revenue generally represents advance payments from students for academic services to be provided in the future. Tuition receivables are not collateralized; however, credit risk is minimized as a result of the diverse nature of the University’s student base. An allowance for doubtful accounts is established primarily based upon historical collection rates by age of receivable, net of estimated recoveries. These collection rates incorporate historical performance based on a student’s current enrollment status and likelihood of future enrollment. The Company periodically assesses its methodologies for estimating bad debts in consideration of actual experience.

 

8


 

The Company’s tuition receivable and allowance for doubtful accounts were as follows as of December 31, 2015 and June 30, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

    

December 31, 2015

    

June 30, 2016

 

Tuition receivable

 

$

28,543

 

$

29,034

 

Allowance for doubtful accounts

 

 

(10,024)

 

 

(9,981)

 

Tuition receivable, net

 

$

18,519

 

$

19,053

 

 

Approximately $2.0 million of tuition receivable is included in other assets as of both December 31, 2015 and June 30, 2016, because these amounts are expected to be collected after 12 months.

 

The following table illustrates changes in the Company’s allowance for doubtful accounts for the three and six months ended June 30, 2015 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

For the three months ended

    

For the six months ended

    

 

 

June 30,

 

June 30,

 

 

 

2015

 

2016

 

2015

 

2016

 

Allowance for doubtful accounts, beginning of period

 

$

8,688

 

$

10,226

 

$

8,835

 

$

10,024

 

Additions charged to expense

 

 

3,553

 

 

4,136

 

 

7,022

 

 

7,204

 

Write-offs, net of recoveries

 

 

(3,508)

 

 

(4,381)

 

 

(7,124)

 

 

(7,247)

 

   Allowance for doubtful accounts, end of period

 

$

8,733

 

$

9,981

 

$

8,733

 

$

9,981

 

 

Fair Value

 

The Fair Value Measurement Topic, ASC 820-10 (“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. Assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. 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 to an entity in an orderly transaction between market participants at the measurement date. The hierarchy gives the highest priority to assets and liabilities with readily available quoted prices in an active market and lowest priority to unobservable inputs which require a higher degree of judgment when measuring fair value, as follows:

 

·

Level 1 assets or liabilities use quoted prices in active markets for identical assets or liabilities as of the measurement date;

 

·

Level 2 assets or liabilities use observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace for identical or similar assets and liabilities; and

 

·

Level 3 assets or liabilities use unobservable inputs that are supported by little or no market activity.

 

The Company’s assets and liabilities that are subject to fair value measurement are categorized in one of the three levels above. Fair values are based on the inputs available at the measurement dates, and may rely on certain assumptions that may affect the valuation of fair value for certain assets or liabilities.

 

Goodwill and Indefinite-Lived Intangible Assets

 

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. Indefinite-lived intangible assets, which include trade names, are recorded at fair market value on their acquisition date. An indefinite life was assigned to the trade names because they have the continued ability to generate cash flows indefinitely.

 

Goodwill and the indefinite-lived intangible assets are assessed at least annually for impairment during the three-month period ending September 30, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit below its carrying amount. Under Accounting Standards Update No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment, the Company is permitted, but not required, to first assess qualitative factors to determine whether it is necessary to perform the more thorough quantitative goodwill impairment test.

9


 

 

Accounting for Derivative Instruments and Hedging Activities

 

On the date that the Company enters into a derivative contract, it designates the derivative as a hedge of (a) a forecasted transaction or (b) the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a cash flow hedge). All derivatives are recognized in the balance sheet at their fair value.

 

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are recorded, net of income tax, in other comprehensive income, until earnings are affected by the variability of cash flows of the hedged transaction (e.g., until periodic settlements of a variable-rate asset or liability are recorded in earnings). Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current-period earnings.

 

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. The Company also formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company discontinues hedge accounting prospectively.

 

Authorized Stock

 

The Company has authorized 20,000,000 shares of common stock, par value $.01, of which 11,027,177 and 11,164,911 shares were issued and outstanding as of December 31, 2015 and June 30, 2016, 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, restricted stock, restricted stock units, 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 unaudited consolidated statements of income for each of the three and six months ended June 30, 2015 and 2016 is based on awards ultimately expected to vest and, therefore, has been adjusted for estimated forfeitures. The Company estimates forfeitures at the time of grant and revises the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rate used is based on historical experience. The Company also assesses the likelihood that performance criteria associated with performance-based awards will be met. If it is determined that it is more likely than not that performance criteria will not be achieved, the Company revises its estimate of the number of shares it believes will ultimately vest.

 

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, restricted stock and restricted stock units. 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.

10


 

Set forth below is a reconciliation of shares used to calculate basic and diluted earnings per share for the three and six months ended June 30, 2015 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

    

For the three months ended

    

For the six months ended

    

 

 

June 30,

 

June 30,

 

 

 

2015

    

2016

    

2015

    

2016

    

Weighted average shares outstanding used to compute basic earnings per share

 

10,587

 

10,610

 

10,583

 

10,603

 

Incremental shares issuable upon the assumed exercise of stock options

 

 —

 

 —

 

 —

 

 —

 

Unvested restricted stock

 

118

 

189

 

138

 

187

 

    Shares used to compute diluted earnings per share

 

10,705

 

10,799

 

10,721

 

10,790

 

 

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 Income Taxes Topic, ASC 740, requires the company to determine whether uncertain tax positions should be recognized within the Company’s financial statements. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. Uncertain tax positions are recognized when a tax position, based solely on its technical merits, is determined to be more likely than not to be sustained upon examination. Upon determination, uncertain tax positions are measured to determine the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. A tax position is derecognized if it no longer meets the more likely than not threshold of being sustained.

 

The tax years 2013-2015 remain open for Federal tax examination and the tax years 2012-2015 remain open to examination by state and local taxing jurisdictions in which the Company is subject.

 

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 doubtful accounts, the useful lives of property and equipment, fair value of future contractual operating lease obligations, potential sublease income and vacancy periods, accrued expenses, forfeiture rates and the likelihood of achieving performance criteria for stock-based awards, value of free courses earned by students that will be redeemed in the future, valuation of goodwill, intangible assets and the interest rate swap arrangement, and the provision for income taxes. Actual results could differ from those estimates.

 

Recent Accounting Pronouncements

 

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). The new guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company adopted ASU 2015-17 effective January 1, 2016 and reclassified approximately $6.4 million of its deferred tax asset from current to non-current assets in the condensed consolidated balance sheet as of December 31, 2015, to conform to the current period presentation.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The new guidance requires the recognition of right-of-use assets and lease liabilities on the balance sheet for most leases. Under current guidance, operating leases are off-balance sheet. ASU 2016-02 also requires more extensive quantitative and qualitative disclosures about leasing arrangements. ASU 2016-02 applies to fiscal periods beginning after December 15, 2018, using the modified retrospective method, with early adoption permitted. The Company anticipates that the impact of ASU 2016-02 on its consolidated balance sheet will be material as the Company will record significant asset and liability balances in connection with its leased properties.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 impacts several aspects of the accounting for share-based payment transactions, including classification of certain items on the consolidated statement of cash flows and accounting for income taxes. Specifically, ASU 2016-09 requires excess tax benefits and tax deficiencies to be recognized as

11


 

income tax expense or benefit in earnings, which could introduce significant volatility to the Company’s provision for income taxes. In addition, ASU 2016-09 allows companies to recognize the impact of stock award forfeitures at the time of forfeiture, rather than as an estimate ratably over the life of awards. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The transition method varies for each of the areas in ASU 2016-09. The Company is currently evaluating the impact of ASU 2016-09 on its Consolidated Financial Statements and has not yet selected a transition date.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard establishes a new recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2016.  Accordingly, the new revenue recognition standard is effective for the Company on January 1, 2018 using either a full retrospective or a modified retrospective approach. The Company is currently evaluating which transition approach to use and the impact that the new revenue recognition standard will have on our Consolidated Financial Statements.

 

There have been three new ASUs issued amending certain aspects of ASU 2014-09. ASU No. 2016-08 Principal versus Agent Considerations (Reporting Revenue Gross Versus Net), was issued in March, 2016 to clarify certain aspects of the principal versus agent guidance in ASU 2014-09. In addition, ASU No. 2016-10, Identifying Performance Obligations and Licensing, issued in April 2016, amends other sections of ASU 2014-09 including clarifying guidance related to identifying performance obligations and licensing implementation. ASU No. 2016-12, Revenue from Contracts with Customers – Narrow Scope Improvements and Practical Expedients, was issued in May 2016 and provides amendments and practical expedients to the guidance in ASU 2014-09 in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of using the full retrospective approach to adopt ASU 2014-09. With its evaluation of the impact of ASU 2014-09, the Company will also consider the impact related to the updated guidance provided by these three new ASUs.

 

Other ASUs issued by the FASB but not yet effective are not expected to have a material effect on the Company’s Consolidated Financial Statements.

 

3.  Acquisition of New York Code and Design Academy

 

On January 13, 2016, the Company acquired all of the outstanding stock of New York Code and Design Academy, Inc. (“NYCDA”), a provider of non-degree information technology curriculum primarily based in the New York City area (the “Acquisition”). The Acquisition supports the Company’s strategy to complement its traditional degree offerings with a broader platform of educational services. The Company incurred transaction costs of approximately $0.2 million, and these costs are included in general and administrative costs in the unaudited consolidated statements of income. The acquisition is accounted for as a business combination.

 

The purchase price includes $2.4 million paid up front in cash, plus contingent cash payments of (a) up to $12.5 million payable based on NYCDA’s results of operations over a five-year period (the “Earnout”), (b) $5.0 million payable based on NYCDA’s receipt of a state regulatory permit, and (c) $0.5 million payable based on NYCDA’s receipt of another state regulatory permit. Pursuant to the Acquisition, $1.0 million of the Earnout may be accelerated upon receipt of one of the state regulatory permits. In April 2016, NYCDA received one of the state regulatory permits and the Company paid $6.0 million of contingent consideration to the sellers.

 

In addition, the Company paid a total of $4.6 million to two of NYCDA’s founders who are required to remain employed for at least three years from the acquisition date. If either of them terminates employment voluntarily, or is terminated for cause (as defined), he is required to reimburse the Company his respective portion of the retention amount. This amount is classified as prepaid compensation and is amortized to compensation expense over three years.

 

Total potential cash payments for the acquisition and the Earnout could aggregate to $25.0 million.

 

The Company determined the preliminary fair values of the assets acquired and liabilities assumed at the date of the Acquisition. The allocation of the purchase price is based on preliminary estimates and assumptions, and is subject to revision based on final analyses that support the underlying estimates, which will be completed within the measurement period of up to 12 months from

12


 

the date of the Acquisition. Accordingly, the allocation is subject to change and the impact of such changes could be material. During the second quarter of 2016, there was a measurement period adjustment to goodwill and deferred tax liabilities of $0.2 million.

 

The allocation of the purchase price, including the measurement period adjustment record in the second quarter of 2016, is as follows:

 

 

 

 

 

 

 

 

Purchase

 

 

 

 

Price

 

 

 

 

Allocation

 

Useful Life

Cash

$

790

 

 

Other assets

 

1,265

 

 

Intangibles:

 

 

 

 

  Trade name

 

5,660

 

Indefinite

  Goodwill

 

13,993

 

 

Liabilities assumed

 

(4,783)

 

 

     Total assets acquired and liabilities assumed, net

 

16,925

 

 

Less: contingent consideration

 

(14,500)

 

 

Less: cash acquired

 

(790)

 

 

     Cash paid for acquisition, net of cash acquired

$

1,635

 

 

 

The fair value of the contingent consideration was measured by applying a probability weighted discounted cash flow model based on significant inputs not observable in the market (Level 3 inputs). Key assumptions include a discount rate of 4.5% and expected future value of payments of $12.5 million, based on management’s assessment that NYCDA will achieve its performance targets after the five-year measurement period. The fair value of assets acquired and liabilities assumed was determined based on assumptions that reasonable market participants would use while employing the concept of highest and best use of the respective items. The following assumptions were used, the majority of which include significant unobservable inputs (Level 3), and valuation methodologies to determine fair value:

 

·

Intangibles – Income approaches were used to value the substantial majority of the acquired intangibles. The trade name was valued using the relief from-royalty method, which represents the benefit of owning these intangible assets rather than paying royalties for their use.

 

·

Other assets and liabilities – The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.

 

 

4.    Restructuring and Related Charges

 

In October 2013, the Company implemented a restructuring to better align the Company’s resources with student enrollments at the time. This restructuring included the closing of 20 physical locations and reductions in the number of campus-based and corporate employees. A liability for lease obligations, some of which continue through 2022, was recorded and is measured at fair value using a discounted cash flow approach encompassing significant unobservable inputs (Level 3). The estimation of future cash flows includes non-cancelable contractual lease costs over the remaining terms of the leases discounted at the Company’s marginal borrowing rate of 4.5%, partially offset by estimated future sublease rental income discounted at credit-adjusted rates. The Company’s estimates, which involve significant judgment, also consider the amount and timing of sublease rental income based on subleases that have been executed and subleases expected to be executed based on current commercial real estate market data and conditions, and other qualitative factors specific to the facilities. The estimates are subject to adjustment as market conditions change or as new information becomes available, including the execution of additional sublease agreements.

13


 

The following details the changes in the Company’s restructuring liability for lease and related costs during the six months ended June 30, 2015 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

June 30,

 

June 30,

 

 

2015

 

2016

 

Balance at beginning of period(1)

$

27,283

 

$

20,055

 

Adjustments(2)

 

435

 

 

(1,558)

 

Payments

 

(3,451)

 

 

(3,212)

 

  Balance at end of period(1)

$

24,267

 

$

15,285

 


(1)

The current portion of restructuring liabilities was $4.8 million and $5.3 million as of December 31, 2015 and June 30, 2016, respectively, which are included in accounts payable and accrued expenses. The long-term portion is included in other long-term liabilities.

(2)

Adjustments include accretion of interest on lease costs, partially offset by changes in the timing and expected income from sublease agreements. 

 

5.    Fair Value Measurement

 

Assets and liabilities measured at fair value on a recurring basis consist of the following as of June 30, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

    

 

 

    

Quoted Prices in

    

Significant

    

 

 

 

 

 

 

 

 

Active Markets

 

Other

 

Significant

 

 

 

 

 

 

for Identical

 

Observable

 

Unobservable

 

 

 

June 30,

 

Assets/Liabilities

 

Inputs

 

Inputs

 

 

 

2016

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

100

 

$

100

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred payments

 

$

12,590

 

$

 —

 

$

 —

 

$

12,590

 

 

Assets and liabilities measured at fair value on a recurring basis consist of the following as of December 31, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

 

 

 

Quoted Prices in

    

Significant

    

 

 

 

 

 

 

 

 

Active Markets

 

Other

 

Significant

 

 

 

 

 

 

for Identical

 

Observable

 

Unobservable

 

 

 

December 31,

 

Assets/Liabilities

 

Inputs

 

Inputs

 

 

    

2015

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

100

 

$

100

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred payments

 

$

3,278

 

$

 —

 

$

 —

 

$

3,278

 

 

The Company measures the above items on a recurring basis at fair value as follows:

 

·

Money market funds – Classified in Level 1 is excess cash the Company holds in both taxable and tax-exempt money market funds and are included in cash and cash equivalents in the accompanying unaudited condensed consolidated balance sheets. The Company records any net unrealized gains and losses for changes in fair value as a component of Accumulated other comprehensive income in stockholders' equity. The Company's cash and cash equivalents held at December 31, 2015 and June 30, 2016, approximate fair value and are not disclosed in the above tables because of the short-term nature of the financial instruments.    

 

·

Deferred payments – The Company acquired certain assets and entered into deferred payment arrangements with the sellers in transactions in 2011 and January 2016, which are classified within Level 3 as there is no liquid market for similarly priced instruments. The deferred payments are valued using a discounted cash flow model that encompasses significant unobservable inputs to estimate the operating results of the acquired assets. The assumptions used to

14


 

prepare the discounted cash flows include estimates for interest rates, enrollment growth, retention rates, obtaining regulatory approvals for expansion into new markets, and pricing strategies. These assumptions are subject to change as the underlying data sources evolve and the programs mature. The short-term portion of deferred payments was $1.4 million as of June 30, 2016 and is included in accounts payable and accrued expense.

 

The Company’s lease loss liability incorporates an assessment of current sublease market conditions and uses Level 3 inputs, but is not deemed a fair value liability as the future lease payments are required to be discounted using the Company’s incremental borrowing rate at the date of lease abandonment without subsequent adjustment. See Note 4 for further discussion of the Company’s lease loss liability.

 

The Company did not change its valuation techniques associated with recurring fair value measurements from prior periods, and no assets or liabilities were transferred between levels of the fair value hierarchy during the six months ended June 30, 2015 or 2016.

 

Changes in the fair value of the Company’s Level 3 liabilities during the six months ended June 30, 2016 are as follows (in thousands):

 

 

 

 

 

 

 

    

Deferred

 

 

 

Payments

 

Balance at December 31, 2015

 

$

3,278

 

Amounts earned

 

 

(468)

 

Contingent consideration in connection with NYCDA acquisition

 

 

8,500

 

Adjustments to fair value

 

 

1,280

 

Balance at June 30, 2016

 

$

12,590

 

 

 

6.    Long Term Debt

 

On July 2, 2015, the Company entered into an amended credit facility (the “Amended Credit Facility”) which provides for a revolving line of credit (the “Revolver”) up to $150 million and provides the Company with an option, under certain conditions, to increase the commitments under the Revolver or establish one or more incremental term loans in an amount up to $50 million in the aggregate in the future. The maturity date of the Amended Credit Facility is July 2, 2020. The Amended Credit Facility replaced the Company’s prior credit agreement (the “Prior Credit Agreement”), dated November 8, 2012, which had provided for both a term loan and revolving line of credit and an original maturity date of December 31, 2016. All amounts outstanding under the Prior Credit Agreement were repaid upon execution of the Amended Credit Facility. The Company paid approximately $0.9 million in debt financing costs associated with the Amended Credit Facility.

 

Borrowings under the Revolver will bear interest at a per annum rate equal to, at the Company’s election, LIBOR or a base rate, plus a margin ranging from 1.75% to 2.25% depending on the Company’s leverage ratio. The Company also is subject to a quarterly unused commitment fee ranging from 0.25% to 0.35% per annum, depending on the Company’s leverage ratio, times the daily unused amount under the Revolver.

 

All other remaining terms of the Prior Credit Agreement remain in full force and effect. The Amended Credit Facility is guaranteed by the University and is secured by substantially all of the personal property and assets of the Company and its subsidiaries. The Amended Credit Facility contains customary affirmative and negative covenants, representations, warranties, events of default and remedies upon default, including acceleration and rights to foreclose on the collateral securing the Amended Credit Facility. In addition, as with the Prior Credit Agreement, the Amended Credit Facility requires that the Company satisfy certain financial maintenance covenants, including:

 

·

A leverage ratio of not greater than 2 to 1. Leverage ratio is defined as the ratio of total debt to trailing four-quarter EBITDA (earnings before interest, taxes, depreciation, amortization and non-cash charges such as stock-based compensation).

 

·

A coverage ratio of not less than 1.75 to 1. Coverage ratio is defined as the ratio of trailing four-quarter EBITDA and rent expense to trailing four-quarter interest and rent expense.

 

·

A Department of Education Financial Responsibility Composite Score of not less than 1.5.

 

15


 

The Company was in compliance with all the terms of the Amended Credit Facility as of June 30, 2016.

 

During both the three and six months ended June 30, 2016, the Company paid cash interest of $0.1 million, compared to $1.1 million during both the three and six months ended June 30, 2015. The Company had no balance outstanding under the Revolver as of June 30, 2016.

 

7.    Stock Options, Restricted Stock and Restricted Stock Units

 

On May 5, 2015, the Company’s shareholders approved the Strayer Education, Inc. 2015 Equity Compensation Plan (the “2015 Plan”), which provides for the granting of restricted stock, restricted stock units, stock options intended to qualify as incentive stock options, options that do not qualify as incentive stock options, and other forms of equity compensation and performance-based awards to employees, officers and directors of the Company, or to a consultant or advisor to the Company, at the discretion of the Board of Directors. Vesting provisions are at the discretion of the Board of Directors. Options may be granted at option prices based at or above the fair market value of the shares at the date of grant. The maximum term of the awards granted under the 2015 Plan is ten years. The number of shares of common stock reserved for issuance under the 2015 Plan is 500,000 authorized but unissued shares, plus the number of shares available for grant under the Company’s previously existing equity compensation plans at the time of stockholder approval of the 2015 Plan, and plus the number of shares which may in the future become available under any previously existing equity compensation plan due to forfeitures of outstanding awards.

 

In February 2016, the Company’s Board of Directors approved grants of 176,802 shares of restricted stock and restricted stock units to certain employees. These shares, which vest over a two to four year period, were granted pursuant to the 2015 Plan. The Company’s stock price closed at $50.67 on the date of these restricted stock grants.

 

In May 2016, the Company’s Board of Directors approved grants of 11,365 shares of restricted stock. These shares, which vest annually over a three-year period, were awarded to non-employee members of the Company’s Board of Directors, as part of the Company’s annual director compensation program and the 2015 Plan. The Company’s stock price closed at $49.27 on the date of these restricted stock grants.

 

Dividends paid on unvested restricted stock are reimbursed to the Company if the recipient forfeits his or her shares as a result of termination of employment prior to vesting in the award, unless waived by the Board of Directors.

 

Restricted Stock and Restricted Stock Units

 

The table below sets forth the restricted stock and restricted stock units activity for the six months ended June 30, 2016:

 

 

 

 

 

 

 

 

 

    

Number of

shares or units

    

Weighted-

average

Grant price

 

Balance, December 31, 2015

 

634,327

 

$

104.66

 

Grants

 

188,167

 

 

50.59

 

Vested shares

 

(23,539)

 

 

50.43

 

Forfeitures

 

(433)

 

 

115.55

 

Balance, June 30, 2016

 

798,522

 

$

94.36

 

 

16


 

Stock Options

 

The table below sets forth the stock option activity and other stock option information as of and for the six months ended June 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Weighted-

    

 

 

 

 

 

 

 

 

average

 

 

 

 

 

 

 

Weighted-

 

remaining

 

Aggregate

 

 

 

Number of

 

average

 

contractual

 

intrinsic value(1)

 

 

    

shares

    

exercise price

    

life (years)

    

(in thousands)

 

Balance, December 31, 2015

 

100,000

 

$

51.95

 

5.1

 

$

817

 

Grants

 

 

 

 

 

 

 

 

 

Exercises

 

 

 

 

 

 

 

 

 

Forfeitures/Expirations

 

 

 

 

 

 

 

 

 

Balance, June 30, 2016

 

100,000

 

$

51.95

 

4.6

 

$

 —

 

Exercisable, June 30, 2016

 

100,000

 

$

51.95

 

4.6

 

$

 —

 


(1)

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

 

Valuation and Expense Information under Stock Compensation Topic ASC 718

 

At June 30, 2016, total stock-based compensation cost which has not yet been recognized was $27.1 million for unvested restricted stock, restricted stock units, and stock option awards. This cost is expected to be recognized over the next 31 months on a weighted-average basis. Awards of approximately 606,000 shares of restricted stock and restricted stock units are subject to performance conditions. The accrual for stock-based compensation for performance awards is based on the Company’s estimates that such performance criteria are probable of being achieved over the respective vesting periods. Such a determination involves significant judgment surrounding the Company’s ability to maintain regulatory compliance. If the performance targets are not reached during the respective vesting period, or it is determined it is more likely than not that the performance criteria will not be achieved, related compensation expense is adjusted.

 

The following table sets forth the amount of stock-based compensation expense recorded in each of the expense line items for the three and six months ended June 30, 2015 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

For the three months ended

 

For the six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2015

    

2016

    

2015

    

2016

    

Instruction and educational support