What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-01 compared with 2020-03-02 · 660 added, 376 removed, 678 unchanged (60% of the section changed)

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Consolidated Balance Sheets as of December 31, 201 9 and 20 20

Consolidated Statements of Income for each of the three years in the period ended December 31, 2019

Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2019

Consolidated Statements of Income (Loss) for each of the three years in the period ended December 31, 20 20

Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended December 31, 20 20

Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 20 20

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We have audited the accompanying consolidated balance sheets of Strategic Education, Inc.

and its subsidiaries (the “Company”) as of December 31, 2019 and 2018 , and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019 , including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income (loss), of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses in 2020 and the manner in which it accounts for leases in 2019.

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Torrens University and related assets in Australia and New Zealand (“ANZ”) from its assessment of internal control over financial reporting as of December 31, 2020 because it was acquired by the Company in a purchase business combination during 2020.

We have also excluded Torrens University and the related assets in ANZ from our audit of internal control over financial reporting.

Torrens University and the related assets in ANZ are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 10% and 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2020.

Definition and Limitations of Internal Control over Financial Reporting

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Strayer University Graduation Fund Liability

As described in Notes 4 and 14 to the consolidated financial statements, the Company’s Graduation Fund liability for Strayer University was $49.6 million as of December 31, 2019, of which $19.6 million is included as a current contract liability and the remainder is included as a long-term contract liability within other long-term liabilities.

Strayer University offers a program 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.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Strayer University Graduation Fund Liability - Undergraduate Degree Programs

As described in Note 4 to the consolidated financial statements, the Company’s Strayer University Graduation Fund liability was $53.3 million as of December 31, 2020, of which $52.6 million related to students enrolled in undergraduate degree programs.

Strayer University offers the Graduation Fund, a program which allows undergraduate and graduate 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.

The Company defers the value of the related performance obligation associated with the credits estimated to be redeemed in the future.

Management’s estimate of the benefits that will be redeemed in the future, or the estimated redemption rate, is based on the historical experience of student persistence toward completion of a course of study within this program and similar programs.

The principal considerations for our determination that performing procedures relating to the Strayer University Graduation Fund liability is a critical audit matter are there was significant judgment by management in estimating the liability.

This in turn led to significant auditor judgment and effort in performing procedures related to management’s estimate of the liability and the estimated redemption rate assumption.

Management’s estimate of the benefits that will be redeemed in the future, or the estimated redemption rate, is based on its historical experience of student persistence toward completion of a course of study within this program and similar programs.

The principal considerations for our determination that performing procedures relating to the Strayer University Graduation Fund liability for undergraduate degree programs is a critical audit matter are (i) the significant judgment by management in estimating the liability and (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s estimate of the liability and the estimated redemption rate assumption.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the estimation of the Graduation Fund liability, including controls over the estimated redemption rate assumption.

These procedures also included, among others, testing management’s process for estimating the Graduation Fund liability, testing the completeness, accuracy, and relevance of the data used, and evaluating the estimated redemption rate assumption.

Evaluating the reasonableness of the estimated redemption rate assumption involved evaluating whether the assumption was reasonable considering historical estimated redemption rates and whether the assumption was consistent with evidence obtained in other areas of the audit.

These procedures included testing the effectiveness of controls relating to the estimation of the Graduation Fund liability for undergraduate degree programs including controls over the estimated redemption rate assumption.

These procedures also included, among others, testing management’s process for estimating the Graduation Fund liability for undergraduate degree programs, including (i) evaluating the appropriateness of the methodology, (ii) testing the completeness, accuracy and relevance of the underlying data used in management’s estimate, and (iii) evaluating the reasonableness of the estimated redemption rate assumption for the undergraduate degree programs.

Evaluating management’s estimated redemption rate assumption involved evaluating whether the assumption was reasonable considering (i) historical estimated redemption rates and (ii) whether the assumption was consistent with evidence obtained in other areas of the audit.

Acquisition of Torrens University and the Related Assets in Australia and New Zealand ("ANZ") - Valuation of Certain Acquired Assets

As described in Note 3 to the consolidated financial statements, on November 3, 2020, management completed its acquisition of Torrens University and the related assets in ANZ for approximately $658.4 million in cash, including $68.8 million of trade names, $34.4 million of student relationships and $10.0 million of course content.

Management determined the fair value of the trade names and course content acquired using the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rates, and discount rate.

Management determined the fair value of the student relationships acquired using the excess earnings method, which involved

the use of estimates and assumptions with respect to the timing and amounts of future cash flows, earnings before interest and taxes (“EBIT”) margins, annual attrition rate, and discount rate.

The principal considerations for our determination that performing procedures relating to the valuation of certain acquired assets from Torrens University and the related assets in ANZ is a critical audit matter are (i) the significant judgment by management when determining the fair value estimates of the assets acquired;

(ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, royalty rates, and discount rate used in the valuation of the trade names and course content, and EBIT margins, annual attrition rate, and discount rate used in the valuation of the student relationships;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the assets acquired.

These procedures also included, among others (i) reading the purchase agreement;

(ii) testing management’s process for determining the fair value estimates of the assets acquired;

(iii) evaluating the appropriateness of the relief from royalty approach and the excess earnings method;

(iv) testing the completeness and accuracy of the underlying data used in the relief from royalty approach and the excess earnings method;

and (v) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, royalty rates, and discount rate used in the valuation of the trade names and course content, and EBIT margins, annual attrition rate, and discount rate used in the valuation of the student relationships.

Evaluating management’s assumptions related to revenue growth rates, EBIT margins, and annual attrition rate involved evaluating whether the assumptions were reasonable considering (i) the current and past performance of the acquired business;

(ii) the consistency with external market and industry data;

and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the relief from royalty approach and the excess earnings method and (ii) the reasonableness of the significant assumptions related to the royalty rates and the discount rate.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

Arlington, Virginia

March 1, 2021

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(in thousands, except share and per share data)

December 31, 2018

December 31, 2019

December 31, 2019 December 31, 2020

Current assets:

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Tuition receivable, net 51,523 50,169

Income taxes receivable — 1,429

Other current assets 18,004 39,458

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Intangible assets, net 273,011 326,420

Goodwill 732,075 1,318,526

Other assets 21,788 54,928

Total assets $ 1,789,408 $ 2,295,807

LIABILITIES & STOCKHOLDERS’ EQUITY

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Total current liabilities 156,748 200,052

Long-term debt — 141,823

Deferred income tax liabilities 47,942 53,407

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STRATEGIC EDUCATION, INC.

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands, except per share data)

For the Year Ended

For the Year Ended December 31,

2018 2019 2020

Revenues $ 634,185 $ 997,137 $ 1,027,653

Costs and expenses:

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Merger and integration costs 45,745 21,923 13,770

Fair value adjustments and impairment of intangible assets

Restructuring costs — — 12,382

Impairment of intangible assets 19,909 — —

Total costs and expenses 656,925 886,605 918,269

Income (loss) from operations ( 22,740 ) 110,532 109,384

Other income 3,601 13,192 4,573

Income (loss) before income taxes ( 19,139 ) 123,724 113,957

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Earnings (loss) per share:

Basic $ ( 1.03 ) $ 3.73 $ 3.81

Diluted $ ( 1.03 ) $ 3.67 $ 3.77

Weighted average shares outstanding:

Basic 15,190 21,725 22,633

Diluted 15,190 22,097 22,860

STRATEGIC EDUCATION, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

For the Year Ended

For the Year Ended December 31,

2018 2019 2020

Net income (loss) $ ( 15,671 ) $ 81,138 $ 86,268

Other comprehensive income:

Foreign currency translation adjustments — — 48,068

Unrealized gains on marketable securities, net of tax 32 201 579

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(in thousands, except share data)

Additional Paid-in Capital

Retained Earnings

Other Comprehensive Income

Common Stock Additional Paid-in Capital Retained Earnings Accumulated

Other Comprehensive Income Total

Shares Par Value

Balance at December 31, 2017 11,167,425 $ 112 $ 47,079 $ 162,006 $ — $ 209,197

Impact of adoption of new accounting standard — — — ( 171 ) — ( 171 )

Issuance of stock in connection with the acquisition of Capella Education Company 10,263,775 103 1,236,858 — — 1,236,961

Filing fee related to new stock issuance — — ( 148 ) — — ( 148 )

Stock-based compensation — — 14,994 — — 14,994

Exercise of stock options, net 156,424 1 8,647 — — 8,648

Issuance of restricted stock, net 155,874 1 ( 777 ) — — ( 776 )

Common stock dividends ($ 1.50 per share)

— — — ( 27,842 ) — ( 27,842 )

Unrealized gains on marketable securities, net of tax — — — — 32 32

Net loss — — — ( 15,671 ) — ( 15,671 )

Balance at December 31, 2018 21,743,498 $ 217 $ 1,306,653 $ 118,322 $ 32 $ 1,425,224

Impact of adoption of new accounting standard

Issuance of stock in connection with the acquisition of Capella Education Company

Filing fee related to new stock issuance

Stock-based compensation — — 12,033 83 — 12,116

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Common stock dividends ($ 2.10 per share)

— — — ( 46,724 ) — ( 46,724 )

Unrealized gains on marketable securities, net of tax — — — — 201 201

Net income — — — 81,138 — 81,138

Balance at December 31, 2019 21,964,809 $ 220 $ 1,309,438 $ 152,819 $ 233 $ 1,462,710

Impact of adoption of new accounting standard — — — ( 3,311 ) — ( 3,311 )

Issuance of common stock in public offering 2,185,000 22 220,226 — — 220,248

Stock-based compensation — — 14,593 17 — 14,610

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Issuance of restricted stock, net 250,377 2 ( 25,847 ) — — ( 25,845 )

Repurchase of common stock ( 1,769 ) — ( 105 ) ( 142 ) — ( 247 )

Common stock dividends ($ 2.40 per share)

— — — ( 56,005 ) — ( 56,005 )

Foreign currency translation adjustment — — — — 48,068 48,068

Unrealized gains on marketable securities, net of tax — — — — 579 579

Net income — — — 86,268 — 86,268

Balance at December 31, 2020 24,418,939 $ 244 $ 1,519,549 $ 179,646 $ 48,880 $ 1,748,319

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(in thousands)

2018 2019 2020

Cash flows from operating activities:

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Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Amortization of gain on sale of assets

Amortization of deferred financing costs 292 333 466

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Stock-based compensation 15,532 12,160 14,610

Fair value adjustments and impairment of intangible assets

Impairment of right-of-use lease assets — 6,046 848

Impairment of intangible assets 19,909 — —

Changes in assets and liabilities:

Tuition receivable, net 7,880 1,770 19,659

Other current assets

Other assets 3,633 ( 2,129 ) ( 32,326 )

Accounts payable and accrued expenses 1,140 245 ( 22,685 )

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Cash flows from investing activities:

Net cash acquired in acquisition

Cash paid for acquisition, net of cash acquired 167,859 — ( 628,759 )

Purchases of property and equipment ( 27,547 ) ( 38,689 ) ( 46,812 )

Purchases of marketable securities ( 25,304 ) ( 40,481 ) ( 1,863 )

Maturities of marketable securities

Proceeds from marketable securities 16,367 43,762 36,192

Other investments ( 1,238 ) ( 2,658 ) ( 950 )

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Cash flows from financing activities:

Net proceeds from issuance of common stock — — 220,248

Proceeds from long-term debt — — 145,630

Common dividends paid ( 27,842 ) ( 46,625 ) ( 55,956 )

Net payments for stock awards 7,789 ( 9,195 ) ( 24,741 )

Payments on long-term debt — — ( 3,807 )

Payment of deferred financing costs ( 1,162 ) — ( 1,940 )

Net cash used in financing activities

Net increase in cash, cash equivalents, and restricted cash

Repurchase of common stock — — ( 247 )

Net cash provided by (used in) financing activities ( 21,215 ) ( 55,820 ) 279,187

Effect of exchange rate changes on cash, cash equivalents, and restricted cash — — 1,623

Net increase (decrease) in cash, cash equivalents, and restricted cash 155,789 108,260 ( 218,477 )

Cash, cash equivalents, and restricted cash — beginning of period 156,448 312,237 420,497

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Noncash transactions:

Purchases of property and equipment included in accounts payable

Non-cash additions to property and equipment $ 1,029 $ 5,562 $ 4,079

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

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Strategic Education, Inc.

(“Strategic Education” or the “Company”), a Maryland corporation formerly known as Strayer Education, Inc., is a national leader in education innovation, dedicated to enabling economic mobility for working adults through education.

As further discussed in Note 2 and Note 3, the Company completed its merger with Capella Education Company (“CEC”) on August 1, 2018.

(“Strategic Education” or the “Company”), a Maryland corporation formerly known as Strayer Education, Inc., is a leader in education innovation, dedicated to enabling economic mobility for working adults through education.

As discussed in Note 2 and Note 3, the Company completed its merger with Capella Education Company (“CEC”) on August 1, 2018 and completed its acquisition of Torrens University and related assets in Australia and New Zealand ("ANZ”) on November 3, 2020.

During 2020, the Company revised its reportable segments, as discussed further in Note 20.

Prior period segment disclosures have been restated to conform to the current period presentation.

The accompanying consolidated financial statements and footnotes include the results of the Company’s three reportable segments:

Strayer University, Capella University, and Non-Degree Programs.

The Company’s reportable segments are discussed further in Note 20.

Strayer University, Capella University, and Australia/New Zealand.

Significant Accounting Policies

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All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

On August 1, 2018, the Company completed its merger with CEC, whereby the Company was deemed the acquirer in the business combination for accounting purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Therefore, Strayer Education, Inc.

is considered Strategic Education’s predecessor, and its historical financial statements prior to the merger date are reflected in this Annual Report on Form 10-K as the historical financial statements of the Company.

Accordingly, the financial results of the Company as of and for any periods ended prior to August 1, 2018 do not include the financial results of CEC and therefore are not directly comparable.

Certain amounts in the prior period financial statements have been reclassified to conform to the current period’s presentation.

Specifically, costs incurred in connection with the Company’s merger with CEC were reclassified from general and administration expense to merger and integration costs, and adjustments to the value of contingent consideration related to the Company’s acquisition of The New York Code and Design Academy, Inc.

(“NYCDA”) were reclassified from instruction and educational support expense to fair value adjustments and impairment of intangible assets within the consolidated statements of income for the year ended December 31, 2017 .

Effective during the first quarter of 2019, the Company made changes in its presentation of operating expenses and reclassified prior periods to conform to the current presentation.

The Company determined that these changes aligned with its organizational structure and will improve comparability with several of its peer companies.

There were no changes to total operating expenses or operating income as a result of these reclassifications.

On August 1, 2018, the Company completed its merger with CEC and on November 3, 2020, the Company completed its acquisition of ANZ.

In both business combinations, the Company was deemed the acquirer for accounting purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Strayer Education, Inc.

is considered Strategic Education’s predecessor, and its historical financial statements prior to the CEC merger date are reflected in this Annual Report on Form 10-K as the historical financial statements of the Company.

Accordingly, the financial results of the Company as of and for any periods ended prior to August 1, 2018 and November 3, 2020 do not include the financial results of CEC and ANZ, respectively, and therefore are not directly comparable.

Below is a description of the nature of the costs included in the Company’s operating expense categories.

Instructional and support costs ("I&SC") generally contain items of expense directly attributable to activities of the Company that support students and learners.

Instructional and support costs ("I&SC") generally contain items of expense directly attributable to activities that support students and learners.

This expense category includes salaries and benefits of faculty and academic administrators, as well as admissions and administrative personnel who support and serve student interests.

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General and administration expense also includes the facilities occupancy and other related costs attributable to such functions.

The following table presents the Company's operating expenses as previously reported and as reclassified on its consolidated statements of income for the years ended (in thousands):

New Classification

December 31, 2017

December 31, 2018

Prior Classification

Instruction and educational support

Admissions advisory

General and administration

Total reclassified costs and expenses (1)

_________________________________________

This amount excludes the amortization of intangible assets, merger and integration costs, and fair value adjustments and impairment of intangible assets expense line items on the consolidated statements of income as those expense line items were not impacted by the operating expense reclassification.

Amortization of intangibles assets consists of amortization and depreciation expense related to intangible assets and software assets acquired through the Company's merger with CEC and the Company's acquisition of ANZ.

Merger and integration costs include integration expenses associated with the Company's merger with CEC, and transaction expenses associated with the Company's acquisition of ANZ.

Restructuring costs include severance and other personnel-related expenses from voluntary and involuntary employee terminations as well as early lease termination costs and impairments of right-of-use lease assets associated with vacating leased space in connection with the Company's restructuring plan.

See Note 5 for additional information.

Impairment of intangible assets primarily relates to impairment charges related to the Company's acquisition of The New York Code and Design Academy ("NYCDA") .

See Note 10 for additional information.

New Accounting Standard for Credit Losses

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13" or "ASC 326").

ASU 2016-13 revises the accounting requirements related to the measurement of credit losses and requires organizations to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts about collectability.

Assets must be presented in the financial statements at

the net amount expected to be collected.

During 2019, the FASB issued additional ASUs amending certain aspects of ASU 2016-13.

On January 1, 2020, the Company adopted the new accounting standard and all of the related amendments using the modified retrospective method.

The Company recognized the cumulative effect of initially applying the new credit loss standard to its tuition receivables by recording a $ 3.3 million adjustment, net of tax, to the opening balance of retained earnings.

Results for reporting periods beginning after January 1, 2020 are presented under ASC 326.

The comparative information has not been restated and continues to be reported under the accounting standards in effect in those reporting periods.

The impact of adoption of ASC 326 on the Company's balance sheet was as follows (in thousands):

As of January 1, 2020

As Reported Under ASC 326 Pre-ASC 326 Adoption Impact of ASC 326 Adoption

Tuition receivable, net $ 46,952 $ 51,523 $ ( 4,571 )

Deferred income tax liabilities $ 46,681 $ 47,942 $ ( 1,261 )

Retained earnings $ 149,509 $ 152,819 $ ( 3,310 )

The Company does not expect ASC 326 to have a significant impact on its financial condition or results of operations on an ongoing basis.

Foreign Currency Translation and Transaction Gains and Losses

The United States Dollar ("USD") is the functional currency of the Company and its subsidiaries operating in the United States.

The financial statements of its subsidiaries are maintained in their functional currencies.

The functional currency of each of the foreign subsidiaries is the currency of the economic environment in which the subsidiary primarily does business.

Financial statements of foreign subsidiaries are translated into USD using the exchange rates applicable to the dates of the financial statements.

Assets and liabilities are translated into USD using the period-end spot foreign exchange rates.

Income and expenses are translated at the weighted-average exchange rates in effect during the period.

Equity accounts are translated at historical exchange rates.

The effects of these translation adjustments are reported as a component of accumulated other comprehensive income within shareholders’ equity.

For any transaction that is in a currency different from the entity’s functional currency, the Company records a gain or loss based on the difference between the exchange rate at the transaction date and the exchange rate at the transaction settlement date (or rate at period end, if unsettled) as Foreign currency exchange gain (loss), net in the consolidated statements of income (loss).

Cash and Cash Equivalents

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Restricted Cash

A significant portion of the Company’s revenues are funded by various federal and state government programs.

In the United States, 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 Universities during the academic term.

The Company had approximately $ 5,000 and $ 304,000 of these unpaid obligations as of December 31, 2018 and 2019 , respectively, which are recorded as restricted cash and included in other current assets in the consolidated balance sheets.

The Company may be required to return certain funds for students who withdraw from Strayer or Capella University during the academic term.

The Company had approximately $ 304,000 and $ 123,000 of these unpaid obligations as of December 31, 2019 and 2020, respectively.

In Australia and New Zealand, advance tuition payments from international students are required to be restricted until a student commences his or her course.

In addition, a portion of tuition prepayments from Australian students enrolled in a vocational education and training program are held in trust by a third party law firm to adhere to tuition protection requirements.

As of December 31, 2020, the Company had approximately $ 13.9 million of restricted cash related to these requirements in Australia and New Zealand.

These balances are recorded as restricted cash and included in other current assets in the consolidated balance sheets.

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 as long as the Company operates its campuses in the state.

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Available-for-sale marketable securities are carried at fair value as determined by quoted market prices or other inputs either directly or indirectly observable in the marketplace for identical or similar assets, with unrealized gains and losses, net of tax, recognized as a component of accumulated other comprehensive income within shareholders’ equity.

Management reviews the fair value of the portfolio at least quarterly, and evaluates individual securities with fair value below amortized cost at the balance

sheet date for impairment.

In order to determine whether impairment is other than temporary, management evaluates whether the Company intends to sell the impaired security and whether it is more likely than not that the Company will be required to sell the security before recovering its amortized cost basis.

If management intends to sell an impaired debt security, or it is more likely than not the Company will be required to sell the security prior to recovering its amortized cost basis, an other-than-temporary impairment is deemed to have occurred.

The amount of an other-than-temporary impairment related to a credit loss, or securities that management intends to sell before recovery, is recognized in earnings.

The amount of an other-than-temporary impairment on debt securities related to other factors is recorded consistent with changes in the fair value of all other available-for-sale securities as a component of accumulated other comprehensive income within shareholders’ equity.

Management reviews the fair value of the portfolio at least quarterly, and evaluates individual securities with fair value below amortized cost at the balance sheet date for impairment.

In order to determine whether there is an impairment, management evaluates whether the Company intends to sell the impaired security and whether it is more likely than not that the Company will be required to sell the security before recovering its amortized cost basis.

The amount of an impairment related to a credit loss, or securities that management intends to sell before recovery, is recognized in earnings.

The amount of an impairment on debt securities related to other factors is recorded consistent with changes in the fair value of all other available-for-sale securities as a component of accumulated other comprehensive income within shareholders’ equity.

The cost of securities sold is based on the specific identification method.

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If management intends to hold the securities for longer than one year as of the balance sheet date, they are classified as non-current.

Tuition Receivable and Allowance for Doubtful Accounts

Tuition Receivable and Allowance for Credit Losses

The Company records tuition receivable and contract liabilities for its students upon the start of the academic term or program.

Tuition receivables are not collateralized;

however, credit risk is minimized as a result of the diverse nature of the Universities' student bases and through the participation of the majority of the students in federally funded financial aid programs.

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.

The Company’s tuition receivable and allowance for doubtful accounts were as follows as of December 31, 2018 and 2019 (in thousands):

December 31, 2018

December 31, 2019

however, credit risk is minimized as a result of the diverse nature of the Company's student bases and through the participation of the majority of the students in federally funded financial aid programs.

An allowance for credit losses is established based upon historical collection rates by age of receivable and adjusted for reasonable expectations of future collection performance, net of estimated recoveries.

These collection rates incorporate historical performance based on a student’s current enrollment status, likelihood of future enrollment, degree mix trends and changes in the overall economic environment.

The Company periodically assesses its methodologies for estimating credit losses in consideration of actual experience.

The Company’s tuition receivable and allowance for credit losses were as follows as of December 31, 2019 and 2020 (in thousands):

December 31, 2019 December 31, 2020

Tuition receivable $ 82,454 $ 99,942

Allowance for doubtful accounts

Allowance for credit losses ( 30,931 ) ( 49,773 )

Tuition receivable, net $ 51,523 $ 50,169

Approximately $ 1.0 million and $ 3.6 million of tuition receivable is included in other assets as of December 31, 2019 and 2020, respectively, 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 each of the three years ended December 31, 2019 (in thousands):

Allowance for doubtful accounts, beginning of period

The following table illustrates changes in the Company’s allowance for credit losses for each of the three years ended December 31, 2020 (in thousands):

2018 2019 2020

Allowance for credit losses, beginning of period $ 12,687 $ 28,457 $ 30,931

Impact of adopting ASC 326 — — 4,571

Additions charged to expense 37,704 49,072 49,130

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Write-offs, net of recoveries ( 28,535 ) ( 48,805 ) ( 38,362 )

Allowance for doubtful accounts, end of period

Allowance for credit losses, end of period $ 28,457 $ 30,931 $ 49,773

Property and Equipment

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Depreciation and amortization expense was $ 31.4 million, $ 49.5 million and $ 51.8 million for the years ended December 31, 2018, 2019, and 2020, respectively.

Included in the 2018 and 2019 depreciation and amortization expense amount is $ 2.6 million and $ 6.3 million of depreciation

expense, respectively, related to computer software acquired in the CEC merger, which is included in the amortization of intangible assets line on the consolidated statements of income.

Included in the 2018, 2019, and 2020 depreciation and amortization expense amount is $ 2.6 million, $ 6.3 million and $ 6.9 million of depreciation expense, respectively, related to computer software acquired in the CEC merger in 2018 and content acquired in the ANZ acquisition in 2020, which is included in the amortization of intangible assets line on the consolidated statements of income (loss).

Repairs and maintenance costs are expensed as incurred.

Construction in progress includes costs of computer software developed for internal use, which is accounted for in accordance with the Internal-Use Software Topic, ASC 350-40.

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Purchases of property and equipment and changes in accounts payable for each of the three years in the period ended December 31, 2020 in the consolidated statements of cash flows have been adjusted to exclude noncash purchases of property and equipment transactions during that period.

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2016-02, Leases (Topic 842) ("ASU 2016-02").

ASU 2016-02 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases with a term longer than 12 months.

ASU 2016-02 also requires additional quantitative and qualitative disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leases.

During 2018 and 2019, the FASB issued additional ASUs amending certain aspects of ASU 2016-02.

On January 1, 2019, the Company adopted the new accounting standard and all of the related amendments ("ASC 842") using the modified retrospective method.

Deferred Costs

The Company defers certain commissions earned by third party international agents that are considered incremental and recoverable costs of obtaining a contract with customers of ANZ.

These costs are amortized over the period of benefit which ranges from one to two years .

In accordance with ASU 2018-15, which the Company adopted on January 1, 2020, the Company defers implementation costs incurred in cloud computing arrangements and amortizes these costs over the term of the arrangement.

On January 1, 2019, the Company adopted ASU No.

2016-02, Leases ("ASU 2016-02") and all of the related amendments using the modified retrospective method.

The Company applied ASU 2016-02 to all leases that had commenced as of January 1, 2019.

In addition, as permitted by ASU 2016-02, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The Company elected the package of practical expedients permitted under ASU 2016-02, which allowed the Company to not reassess prior conclusions regarding lease identification, lease classification, and initial direct costs under the new standard.

In addition, as permitted by ASU 2016-02, comparative information was not restated and continues to be reported under the accounting standards in effect for those periods.

As a result of adopting the new standard, the Company recognized a lease liability of $ 123 million and a right-of-use ("ROU") lease asset of $ 107 million on January 1, 2019.

The standard did not materially impact the Company's consolidated statements of income and cash flows.

The standard did not materially impact the Company's consolidated statements of income (loss) and cash flows.

The Company determines if an arrangement is a lease at inception.

The Company analyzes each lease agreement to determine whether it should be classified as a finance lease or operating lease.

Leases with an initial term longer than 12 months are included in right-of-use lease assets, lease liabilities, and lease liabilities, non-current on the Company's consolidated balance sheets.

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The Company has authorized 32,000,000 shares of common stock, par value $ .01 , of which 21,964,809 and 24,418,939 shares were issued and outstanding as of December 31, 2019 and 2020, respectively.

On August 10, 2020, the Company completed a public offering of 2,185,000 shares of its common stock for total cash proceeds of $ 220.2 million, net of underwriting discounts and offering costs of $ 9.2 million.

The Company also has authorized 8,000,000 shares of preferred stock, none of which is issued or outstanding.

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.

The Board of Directors declared a quarterly cash dividend of $ 0.50 per common share in the first, second, and third quarters of 2019 and a quarterly cash dividend of $ 0.60 per common share in the fourth quarter of 2019 .

The Board of Directors declared a quarterly cash dividend of $ 0.60 per common share for each quarter of 2020.

The Company paid these quarterly cash dividends in each of March, June, September and December of 2020.

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The Company expenses advertising costs in the quarter incurred.

Advertising costs were $ 66.8 million , $ 102.6 million and $ 149.8 million for the years ended December 31, 2017 , 2018 , and 2019 , respectively, following the merger with CEC in August 2018, and are included within General and administration expense in our consolidated statements of income.

Advertising costs were $ 102.6 million, $ 149.8 million and $ 161.5 million for the years ended December 31, 2018, 2019, and 2020, respectively, following the merger with CEC in August 2018 and the acquisition of ANZ in November 2020, and are included within General and administration expense in our consolidated statements of income (loss).

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, performance stock units, and employee stock purchases related to the Company’s Employee Stock Purchase Plan, based on estimated fair values.

The fair value of restricted stock awards granted is measured using the fair value of the Company's common stock on the date of grant or the most recent modification date, whichever is later.

The Company records compensation expense for all share-based payment awards ratably over the vesting period.

For awards with graded vesting, the Company measures fair value and records compensation expense separately for each vesting tranche.

Stock-based compensation expense recognized in the consolidated statements of income for each of the

three years in the period ended December 31, 2019 is based on awards ultimately expected to vest and, therefore, has been adjusted for estimated forfeitures.

Stock-based compensation expense recognized in the consolidated statements of income (loss) for each of the three years in the period ended December 31, 2020 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.

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Net Income (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the periods.

Diluted earnings (loss) 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.

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.

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(1) the proceeds received from the exercise of stock options, and (2) the amount of compensation cost associated with the stock awards for future service not yet recognized by the Company.

Stock options are not included in the computation of diluted earnings (loss) per share when the stock option exercise price of an individual grant exceeds the average market price for the period.

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.

Set forth below is a reconciliation of shares used to calculate basic and diluted earnings (loss) per share for each of the three years ended December 31, 2020 (in thousands):

2018 2019 2020

Weighted average shares outstanding used to compute basic earnings per share 15,190 21,725 22,633

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Shares used to compute diluted earnings (loss) per share 15,190 22,097 22,860

During the years ended December 31, 2018 and 2019 , the Company had approximately 611,000 and 16,000 shares, respectively excluded from the diluted earnings (loss) per share calculation because the effect would have been antidilutive.

During the year ended December 31, 2017 , the Company had no issued and outstanding awards that were excluded from the calculation.

Anti-dilutive shares excluded from the diluted earnings per share calculation 611 16 63

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) and all changes in the Company’s equity during a period from non-owner sources, which for the Company consists of unrealized gains and losses on available-for-sale marketable securities, net of tax.

As of December 31, 2018 and 2019 , the balance of accumulated other comprehensive income was $ 32,000 , net of tax of $ 10,000 and $ 233,000 , net of tax of $ 90,000 , respectively.

As of December 31, 2018, 2019, and 2020, the balance of accumulated other comprehensive income was $ 32,000 , net of tax of $ 10,000 , $ 233,000 , net of tax of $ 90,000 , and $ 48.9 million, net of tax of $ 0.3 million, respectively.

During the year ended December 31, 2020, approximately $ 25,000 , net of tax of $ 10,000 , of unrealized gains on available-for-sale marketable securities was reclassified out of accumulated other comprehensive income to Other income on the consolidated statements of income (loss).

There were no reclassifications out of accumulated other comprehensive income to net income (loss) for the years ended December 31, 2018 and 2019.

There were no changes in equity from non-owner sources for the year ended December 31, 2017 .

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.

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Other Investments

The Company holds investments in limited partnerships that invest in innovative companies in the health care and education-related technology fields.

The Company holds investments in certain limited partnerships that invest in innovative companies in the health care and education-related technology fields.

The Company accounts for the investments in limited partnerships under the equity method.

The Company's pro-rata share in the net income of the limited partnerships is included in Other income in our consolidated statements of income.

The Company's pro-rata share in the net income of the limited partnerships is included in Other income in our consolidated statements of income (loss).

The Company accounts for the investments made through its venture fund, SEI Ventures, at cost less impairment as these investments do not have readily determinable fair value.

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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 include allowances for doubtful accounts, useful lives of property and equipment and intangible assets, incremental borrowing rates, 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 and intangible assets, and the provision for income taxes.

The most significant management estimates include allowances for credit losses, useful lives of property and equipment and intangible assets, incremental borrowing rates, 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 and intangible assets, and the provision for income taxes.

During the year ended December 31, 2020, management estimates also include potential impacts the COVID-19 pandemic will have on student

enrollment, tuition pricing, and collections of tuition receivables in future periods.

The duration and severity of the COVID-19 pandemic and its impact on the Company’s consolidated financial statements is subject to uncertainty.

Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU No.

2018-07, Compensation – Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which simplifies the accounting for share-based payments granted to nonemployees for goods and services.

ASU 2018-07 aligns guidance on share-based payments to nonemployees with the requirements for share-based payments granted to employees, including determination of the measurement date and accounting for performance conditions and for share-based payments after vesting.

The Company adopted this guidance as of January 1, 2019 with no material impact on its consolidated financial statements

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13").

The new guidance revises the accounting requirements related to the measurement of credit losses and will require organizations to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts about collectibility.

Assets must be presented in the financial statements at the net amount expected to be collected.

During 2019, the FASB issued additional ASUs amending certain aspects of ASU 2016-13.

The guidance will be effective for the Company's annual and interim reporting periods beginning January 1, 2020, with early adoption permitted.

The Company is evaluating this standard and believes that adoption will not significantly impact its financial condition or results of operations.

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.

ASUs recently issued by the FASB but not yet effective are not expected to have a material effect on the Company’s consolidated financial statements.

Business Combinations

Acquisition of Torrens University and related assets in Australia and New Zealand

On November 3, 2020, the Company completed its acquisition of Torrens University and related assets in Australia and New Zealand ("ANZ") pursuant to the sale and purchase agreement dated July 29, 2020.

The acquired operations include Torrens University Australia, Think Education, and Media Design School, which together provide diversified student curricula to over 19,000 students across five industry verticals, including business, hospitality, health, education, creative technology and design.

Pursuant to the Purchase Agreement, the aggregate consideration paid was approximately $ 658.4 million in cash, which reflected the original agreed upon purchase price of $ 642.7 million, plus a $ 15.7 million adjustment reflecting an estimated $ 11.0 million of net cash at close, and an estimated $ 4.7 million related to higher net working capital.

These estimated adjustments are subject to a final true-up of net cash and net working capital, based on the actual closing accounts to be finalized by both parties.

The Company applied the acquisition method of accounting to ANZ, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable net assets was allocated to goodwill.

Goodwill reflects workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result from the acquisition.

The goodwill recorded as part of the acquisition was allocated to the Australia/New Zealand reportable segment in the amount of $ 546.1 million, and is not deductible for tax purposes.

Through December 31, 2020, the Company has incurred $ 8.0 million of acquisition-related costs related to this acquisition.

These costs were primarily attributable to legal, financial, and accounting support services incurred by the Company in connection with the acquisition, and are included in Merger and integration costs in the accompanying unaudited condensed consolidated statement of income.

The preliminary opening balance sheet is subject to adjustment based on final assessment of the fair values of certain acquired assets and liabilities, primarily intangible assets and income taxes.

As the Company finalizes its assessment of the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period.

The Company reflects measurement period adjustments, if any, in the period in which the adjustments occur.

The preliminary fair value of assets acquired and liabilities assumed as well as a reconciliation to considered transferred is presented in the table below (in thousands):

Cash and cash equivalents $ 16,082

Tuition receivable 24,447

Other current assets 17,713

Property and equipment, net 41,770

Right-of-use lease assets 44,229

Intangible assets 103,161

Goodwill 546,053

Other assets 2,799

Total assets acquired 796,254

Accounts payable and accrued expenses ( 33,876 )

Income taxes payable ( 229 )

Contract liabilities ( 33,309 )

Lease liabilities ( 9,685 )

Deferred income taxes ( 18,712 )

Lease liabilities, non-current ( 34,544 )

Other long-term liabilities ( 7,520 )

Total liabilities assumed ( 137,875 )

Total consideration $ 658,379

The table below presents a summary of intangible assets acquired (in thousands) and the weighted average useful lives of these assets:

Fair Value Weighted Average

Useful Life in Years

Trade names $ 68,774 Indefinite

Student relationships 34,387 3

The Company determined the fair value of assets acquired and liabilities assumed based on assumptions that reasonable market participants would use while employing the concept of highest and best use of the assets and liabilities.

The Company utilized the following assumptions, some of which include significant unobservable inputs which would qualify the valuations as Level 3 measurements, and valuation methodologies to determine fair value:

• Intangible assets

▪ Trade names - to determine the fair value of the trade names, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate.

Key assumptions used in the valuation included revenue growth rates ranging from 2.5 % to 6.3 % per year, a royalty rate of 2.5 % and a discount rate of 11 %.

▪ Student relationships - to determine the fair value of the student relationships, the Company used the excess earnings method, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, earnings before interest and taxes margins, annual attrition rate, and discount rate.

Key assumptions used in the valuation included an annual attrition rate of 60 % and a discount rate of 11 %.

• Property and equipment - Included in property and equipment is course content of $ 10.0 million.

To determine the fair value of course content, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate.

Key assumptions used in the valuation included revenue growth rates ranging from 5.6 % to 6.2 %, a royalty rate of 3 % and a discount rate of 11 %.

The course content will be amortized over 3 years.

All other property and equipment was valued at estimated cost.

• Contract liabilities - The Company estimated the fair value of contract liabilities using the cost build-up method, which represents the cost to deliver the services plus a normal profit margin.

Based on this method, fair value of contract liabilities were estimated to be 70 % of carrying value as of the acquisition date.

• Other current and noncurrent assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.

The operations of ANZ were included in the consolidated financial statements as of the acquisition date.

The revenue and net loss for ANZ reported within the consolidated statements of income (loss) for the year ended December 31, 2020 were $ 23.4 million and $ 10.5 million, respectively.

Pro Forma Financial information

The following unaudited pro forma information has been presented as if the ANZ acquisition occurred on January 1, 2019.

The information is based on the historical results of operations of the acquired business, adjusted for:

• The allocation of purchase price and related adjustments, including the adjustments to amortization expense related to the fair value of intangible assets acquired;

• The exclusion of acquisition-related costs incurred during the years ended December 31, 2019 and 2020;

• Associated tax-related impacts of adjustments;

• Changes to align accounting policies.

The pro forma results do not necessarily represent what would have occurred if the acquisition had actually taken place on January 1, 2019, nor do they represent the results that may occur in the future.

The pro forma adjustments are based on available information and upon assumptions the Company believes are reasonable to reflect the impact of this acquisition on the Company’s historical financial information on a supplemental pro forma basis.

The following table presents the Company's pro forma combined revenues and net income (in thousands).

Pro Forma Combined

Year Ended December 31, 2019 Year Ended December 31, 2020

Revenue $ 1,188,269 $ 1,244,440

Net Income 69,446 105,431

Merger with Capella Education Company

On August 1, 2018, the Company completed its merger with CEC and its wholly-owned subsidiaries, pursuant to a merger agreement dated October 29, 2017.

The merger enabled the Company to become a national leader in education innovation that improves affordability and enhances career outcomes by offering complementary programs and sharing academic and technological best practices, through a best-in-class corporate platform supporting two independent universities.

Pursuant to the merger agreement, the Company issued 0.875 shares of the Company’s common stock for each issued and outstanding share of CEC common stock.

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The Company applied the acquisition method of accounting to CEC’s business, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable net assets was allocated to goodwill.

Goodwill reflects workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result from the acquisition.

Goodwill reflects workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are

expected to result from the acquisition.

The goodwill recorded as part of the merger was allocated to the Strayer University and Capella University reportable segments in the amount of $ 330.6 million and $ 394.7 million, respectively, and is not deductible for tax purposes.

The Company incurred $ 20.1 million of acquisition-related costs which were recognized in Merger and integration costs in the consolidated statements of income.

The Company incurred $ 20.1 million of acquisition-related costs which were recognized in Merger and integration costs in the consolidated statements of income (loss).

Issuance costs of $ 0.1 million were recognized in additional paid-in capital in the consolidated balance sheets.

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Measurement period adjustments were reflected in the periods in which the adjustments occurred.

During the three months ended December 31, 2018, the Company recorded measurement period adjustments that reduced cash and cash equivalents, other assets, and deferred income taxes by $ 0.5 million , $ 1.4 million , and $ 0.1 million , respectively.

These adjustments resulted in a $ 1.8 million increase to goodwill recognized in connection with the CEC merger during the three months ended December 31, 2018.

During the year ended December 31, 2019, the Company recorded measurement period adjustments that reduced deferred income taxes and current assets by $ 3.8 million and $ 1.9 million, respectively, and increased current liabilities and long-term liabilities by $ 1.3 million and $ 0.1 million, respectively.

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Property and equipment, net 53,182

Other assets 14,556

Intangible assets 349,800

Goodwill 725,275

Total assets acquired 1,422,711

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The table below presents a summary of intangible assets acquired (in thousands) and the weighted average useful lives of these assets:

Weighted Average

Fair Value Weighted Average

Useful Life in Years

Trade names $ 183,800 Indefinite

Student relationships 166,000 3

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Intangible assets - To determine the fair value of the trade name, the Company used the relief from royalty approach.

The excess earnings method was used to estimate the fair value of student relationships.

Property and equipment - Included in property and equipment is course content of $ 14.0 million , valued using the relief from royalty approach, and internally developed software of $ 5.0 million , valued using the cost approach.

• Intangible assets

Key assumptions used in the valuation included a revenue growth rate of 2.5 %, a royalty rate of 5 % and a discount rate of 13 %.

▪ Student relationships - to determine the fair value of the student relationships, the Company used the excess earnings method, which involved the use of estimates and assumptions with respect to timing and amounts of future cash flows, earnings before interest and taxes margin, annual attrition rate, and discount rate.

Key assumptions used in the valuation included an annual attrition rate of 45 % and a discount rate of 10 %.

• Property and equipment - Included in property and equipment is course content of $ 14.0 million and internally developed software of $ 5.0 million.

Each will be amortized over three years .

All other property and equipment was valued at estimated cost.

▪ Course content - to determine the fair value of the course content, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate.

Key assumptions used in the valuation included a revenue growth rate of 2.5 %, a royalty rate of 3 % and a discount rate of 10 %.

▪ Internally developed software - to determine the fair value of internally developed software, the Company used the cost approach, which involved estimating the direct and indirect costs required to reproduce the software.

• Contract liabilities - The Company estimated the fair value of contract liabilities using the cost build-up method, which represents the cost to deliver the services plus a normal profit margin.

Based on this method, fair value of contract liabilities were estimated to be approximately 58 % of carrying value as of the acquisition date.

• Other current and noncurrent assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.

The operations of CEC were included in the consolidated financial statements as of the acquisition date.

The revenue and net loss for CEC reported within the consolidated statements of income for the year ended December 31, 2018 were $ 160.4 million and $ 39.6 million , respectively.

The revenue and net loss for CEC reported within the consolidated statements of income (loss) for the year ended December 31, 2018 were $ 160.4 million and $ 39.6 million, respectively.

Pro Forma Financial information

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• The allocation of purchase price and related adjustments, including the adjustments to amortization expense related to the fair value of intangible assets acquired;

The exclusion of acquisition-related costs incurred during the years ended December 31, 2017 and 2018;

• The exclusion of acquisition-related costs incurred during the year ended December 31, 2018;

• Associated tax-related impacts of adjustments;

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The following table presents the Company's pro forma combined revenues and net income (in thousands).

Pro forma results for the year ended December 31, 2019 are not presented below because the results of CEC are included in the Company's December 31, 2019 consolidated statement of income.

Pro forma results for the years ended December 31, 2019 and 2020 are not presented below because the results of CEC are included in the Company's December 31, 2019 and 2020 consolidated statements of income (loss).

Pro Forma Combined

Year Ended December 31, 2018

Acquisition of New York Code and Design Academy

On January 13, 2016, the Company acquired all of the outstanding stock of the New York Code and Design Academy, Inc., a provider of web and application software development courses based in New York City.

The purchase price included contingent cash payments of up to $ 12.5 million payable based on NYCDA’s results of operations over 5 years (the “Earnout”).

In 2017, the Company recorded a $ 7.8 million fair value adjustment to reduce the Earnout liability to zero as the Company estimated that no amounts under the Earnout would be paid.

The Earnout fair value adjustment is included in the Fair value adjustments and impairment of intangible assets line on the consolidated statements of income.

No fair value adjustments were recorded to the Earnout liability in the years ended December 31, 2018 and 2019 .

The maximum possible amount that could still be paid under the Earnout is $ 11.5 million .

Revenue $ 923,945

Net Income 41,058

Revenue Recognition

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Strayer University’s educational programs and Capella University’s GuidedPath classes typically are offered on a quarterly basis, and such periods coincide with the Company’s quarterly financial reporting periods, while Capella University’s FlexPath courses are delivered over a twelve-week subscription period.

Torrens University offers the majority of its education programs on a trimester system having three primary academic terms, the majority of which occur within one calendar year.

The following table presents the Company’s revenues from contracts with customers disaggregated by material revenue category for the years ended December 31, 2018, 2019, and 2020 (in thousands):

2018 2019 2020

Strayer University Segment

Tuition, net of discounts, grants and scholarships $ 455,609 $ 517,586 $ 519,964

22,230 19,383 17,669

Total Strayer University Segment 477,839 536,969 537,633

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Tuition, net of discounts, grants and scholarships 148,168 438,676 445,300

8,178 21,492 21,339

Total Capella University Segment 156,346 460,168 466,639

Non-Degree Programs Segment (2)

Australia/New Zealand Segment

Tuition, net of discounts, grants and scholarships — — 22,431

Total Australia/New Zealand Segment — — 23,381

Consolidated revenue $ 634,185 $ 997,137 $ 1,027,653

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(1) Other revenue is primarily comprised of academic fees, sales of textbooks, other course materials, and other revenue streams.

Non-Degree Programs revenue is primarily comprised of tuition revenue and placement fee revenue.

Revenues are recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods and services.

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Revenue derived from course materials is recognized ratably over the duration of the course as the Company provides the student with continuous access to these materials during the term.

For sales of certain

other course materials, the Company is considered the agent in the transaction, and as such, the Company recognizes revenue net of amounts owed to the vendor at the time of sale.

For sales of certain other course materials, the Company is considered the agent in the transaction, and as such, the Company recognizes revenue net of amounts owed to the vendor at the time of sale.

Revenues also include certain academic fees recognized within the quarter of instruction, and certificate revenue and licensing revenue, which are recognized as the services are provided.

Graduation Fund

In 2013, Strayer University 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 receive one free course for every three courses that are successfully completed.

Students must meet all of Strayer University’s admission requirements, and must be enrolled in a bachelor’s degree program.

Contract Liabilities - Graduation Fund

Strayer University offers the Graduation Fund, which allows undergraduate and graduate 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.

registering in credit-bearing courses in any undergraduate or graduate degree program receive one free course for every three courses that the student successfully completes.

To be eligible, students must meet all of Strayer University’s admission requirements, and must be enrolled in a bachelor’s or master's 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 Strayer University in the future.

In response to the COVID-19 pandemic, Strayer University is temporarily allowing students to miss two consecutive terms without losing their Graduation Fund credits.

Revenue from students participating in the Graduation Fund is recorded in accordance with ASC 606.

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The table below presents activity in the Graduation Fund for the years ended December 31, 2019 and 2020 (in thousands):

December 31, 2018

December 31, 2019

December 31, 2019 December 31, 2020

Balance at beginning of period $ 43,329 $ 49,641

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Balance at end of period $ 49,641 $ 53,314

The portion of the Graduation Fund balance related to students enrolled in undergraduate degree programs was $ 49.6 million and $ 52.6 million as of December 31, 2019 and 2020, respectively.

Unbilled Receivables – Student Tuition

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Under ASC 606, the materials represent a performance obligation to which the Company allocates revenue based on the fair value of the materials relative to the total fair value of all the performance obligations in the arrangement with the student.

When control of the materials passes to the student in advance of the term of enrollment, an unbilled receivable and related revenue is recorded.

Following adoption of ASC 606 on January 1, 2018, the balance of unbilled receivables related to such materials was $ 1.3 million as of December 31, 2019 , and is included in tuition receivable.

When control of the materials passes to the student in advance of the term of enrollment, an unbilled receivable and related revenue are recorded.

The balance of unbilled receivables related to such materials was $ 0.9 million as of December 31, 2020, and is included in tuition receivable.

Costs to Obtain a Contract

Certain commissions earned by third party international agents are considered incremental and recoverable costs of obtaining a contract with customers of ANZ.

These costs are deferred and then amortized over the period of benefit which ranges from one to two years .

Restructuring and Related Charges

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The estimation of future cash flows included 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.

In addition, the Company incurred personnel-related restructuring charges due to cost reduction efforts and management changes.

These changes are primarily intended to integrate CEC successfully and establish an efficient ongoing cost structure for the Company.

In 2018 and 2019, the Company incurred personnel-related restructuring charges due to cost reduction efforts and management changes.

These changes related to the integration of CEC in order to establish an efficient ongoing cost structure for the Company.

The severance and other employee separation costs incurred in connection with the integration of CEC are included in Merger and integration costs on the consolidated statements of income (loss).

In the third quarter of 2020, the Company began implementing a restructuring plan in an effort to reduce the ongoing operating costs of the Company to align with changes in enrollment following the COVID-19 pandemic.

Under this plan, the Company has incurred, and will continue to incur through March 31, 2021, severance and other employee separation costs related to voluntary and involuntary employee terminations.

In addition, the restructuring includes the closure of certain campus and corporate offices.

During the year ended December 31, 2020, the Company recorded approximately $ 0.4 million in right-of-use lease asset impairment charges and early lease termination costs related to campus and corporate locations closed as a result of the restructuring plan.

All severance and other employee separation charges, right-of-use lease asset impairment charges, and early lease termination costs related to this plan are included in Restructuring costs on the consolidated statements of income (loss).

The following details the changes in the Company’s restructuring liability for the years ended December 31, 2018, 2019, and 2020 (in thousands):

Lease and Related Costs, Net

Severance and Other Employee Separation Costs

Lease and Related Costs, Net CEC Integration Plan 2020

Restructuring Plan Total

Balance at December 31, 2017 $ 8,781 $ — $ — $ 8,781

Restructuring and other charges — 16,319 — 16,319

Payments ( 2,684 ) ( 1,972 ) — ( 4,656 )

Adjustments (1)

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Restructuring and other charges — 3,920 — 3,920

Payments — ( 9,984 ) — ( 9,984 )

Adjustments (1)

( 6,540 ) — — ( 6,540 )

Balance at December 31, 2019 (2)

— 8,283 — 8,283

Restructuring and other charges — — 11,967 11,967

Payments — ( 6,448 ) ( 10,680 ) ( 17,128 )

Adjustments — — — —

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$ — $ 1,835 $ 1,287 $ 3,122

Restructuring and other charges were $ 3.4 million , $ 16.3 million , and $ 3.9 million for the years ended December 31, 2017 , 2018 , and 2019 , respectively.

Restructuring and other charges are included in Merger and integration costs on the consolidated statements of income.

For the years ended December 31, 2017 and 2018 , adjustments include accretion of interest on lease costs, partially offset by changes in the timing and expected income from subleases.

___________________________________________________________

(1) For the year ended December 31, 2018, adjustments include accretion of interest on lease costs, partially offset by changes in the timing and expected income from subleases.

For the year ended December 31, 2019, adjustments represent the impact of adopting ASC 842 on January 1, 2019.

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The following is a summary of available-for-sale securities as of December 31, 2020 (in thousands):

Amortized Cost

Gross Unrealized Gain

Gross Unrealized (Losses)

Estimated Fair Value

Amortized Cost Gross Unrealized Gain Gross Unrealized (Losses) Estimated Fair Value

Corporate debt securities $ 17,086 $ 452 $ — $ 17,538

Tax-exempt municipal securities 19,924 365 — 20,289

Variable rate demand notes

Total $ 37,010 $ 817 $ — $ 37,827

The following is a summary of available-for-sale securities as of December 31, 2019 (in thousands):

Amortized Cost

Gross Unrealized Gain

Gross Unrealized (Losses)

Estimated Fair Value

Amortized Cost Gross Unrealized Gain Gross Unrealized (Losses) Estimated Fair Value

Corporate debt securities $ 42,584 $ 165 $ ( 40 ) $ 42,709

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Variable rate demand notes 5,600 — — 5,600

The unrealized gains and losses on the Company’s investments in municipal and corporate debt securities as of December 31, 2018 and 2019 were caused by changes in market values primarily due to interest rate changes.

As of December 31, 2019 , the Company had no securities which were in an unrealized loss position for a period longer than twelve months.

Total $ 71,485 $ 277 $ ( 255 ) $ 71,507

The unrealized gains and losses on the Company’s investments in corporate debt and municipal securities as of December 31, 2019 and 2020 were caused by changes in market values primarily due to interest rate changes.

As of December 31, 2020, there were no securities in an unrealized loss position for a period longer than twelve months.

The Company has no allowance for credit losses related to its available-for-sale securities as all investments are in investment grade securities.

The Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell these securities prior to the recovery of their amortized cost basis, which may be at maturity.

No other-than-temporary impairment charges were recorded during the years ended December 31, 2018 and 2019 .

No impairment charges were recorded during the years ended December 31, 2018, 2019, and 2020.

The following table summarizes the maturities of the Company’s marketable securities as of December 31, 2019 and 2020 (in thousands):

December 31, 2018

December 31, 2019

December 31, 2019 December 31, 2020

Due within one year $ 34,874 $ 7,557

Due after one year through five years 36,633 30,270

Amounts due within one year in the table above included $ 5.6 million of variable rate demand notes, with contractual maturities ranging from 18 years to 26 years as of December 31, 2019 .

The variable rate demand notes are floating rate municipal bonds with embedded put options that allow the Company to sell the security at par plus accrued interest on a settlement basis ranging from one day to seven days .

The Company has classified these securities based on their effective maturity date, which ranges from one day to seven days from the balance sheet date.

The Company received $ 16.4 million and $ 43.8 million of proceeds from the maturities of available-for-sale securities during the years ended December 31, 2018 and 2019 , respectively.

The Company did not record any gross realized gains or gross realized losses in net income during the years ended December 31, 2018 and 2019 .

Additionally, there were no proceeds from sales of marketable securities prior to maturity during the years ended December 31, 2018 and 2019 .

Total $ 71,507 $ 37,827

The following table summarizes the proceeds from the maturities and sales of available-for-sale securities for the years ended December 31, 2018, 2019, and 2020 (in thousands):

December 31, 2018 December 31, 2019 December 31, 2020

Maturities of marketable securities $ 16,367 $ 43,762 $ 34,728

Sales of marketable securities — — 1,464

Total $ 16,367 $ 43,762 $ 36,192

The Company recorded approximately $ 35,000 in gross realized gains in net income during the year ended December 31, 2020.

The Company did no t record any gross realized gains or losses in net income during the years ended December 31, 2019 and 2018.

Property and Equipment

The composition of property and equipment as of December 31, 2019 and 2020 is as follows (in thousands):

Estimated useful

December 31, 2019 December 31, 2020 Estimated useful

Land $ 7,138 $ 7,138 —

Buildings and improvements 21,143 21,373 5 - 40

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Construction in progress 7,808 15,517 —

306,110 385,783

Accumulated depreciation and amortization ( 189,081 ) ( 226,929 )

$ 117,029 $ 158,854

Construction in progress includes costs associated with the construction and renovation of campuses and the development of information technology applications.

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The Company subleases certain portions of unused building space to third parties.

During the year ended December 31, 2019 , the Company recognized $ 33.5 million of lease costs.

The components of lease costs were as follows for the year ended December 31, 2019 (in thousands):

December 31, 2019

The components of lease costs were as follows for the years ended December 31, 2020 and 2019 (in thousands)

Operating lease cost (1)

$ 35,335 $ 28,337

Short-term lease cost 885 534

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___________________________________________________________

Operating lease cost includes a $ 6.0 million of right-of-use lease asset impairment charge, which is included in Merger and integration costs on the consolidated statements of income, related to redundant leased space that was vacated during the year.

The following table provides a summary of the Company's average lease term and discount rate as of December 31, 2019 :

As of December 31, 2019

(1) During the years ended December 31, 2019 and 2020, operating lease cost includes $ 6.0 million and $ 0.8 million of right-of-use lease asset impairment charges, respectively, related to redundant leased space that was vacated during the year.

Prior to the adoption of ASU 2016-02 in the first quarter of 2019, the Company recognized minimum rental expense on a straight-line basis over the lease term.

Rent expense was $ 35.9 million for the year ended December 31, 2018 .

The following table provides a summary of the Company's average lease term and discount rate as of December 31, 2019 and 2020:

As of December 31, 2019 As of December 31, 2020

Weighted average remaining lease term (years) 5.7 5.6

Weighted average discount rate 4.15 % 4.37 %

Supplemental information related to the Company's leases for the year ended December 31, 2019 (in thousands):

December 31, 2019

Supplemental information related to the Company's leases for the years ended December 31, 2019 and 2020 (in thousands):

Year ended December 31, 2019 Year ended December 31, 2020

Cash paid for amounts included in the measurement of lease liabilities $ 32,883 $ 32,510

Right-of-use assets obtained in exchange for operating lease liabilities $ 4,431 $ 12,763

Leasehold improvements obtained in exchange for TIAs paid directly to third parties

Maturities of lease liabilities (in thousands):

Year Ending December 31,

2021 $ 40,336

Thereafter 34,898

Total lease payments (1)

interest ( 19,028 )

Present value of lease liabilities $ 140,960

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(1) Excludes $ 60.0 million of legally binding minimum payments for leases signed but not yet commenced.

The minimum rental commitments for the Company as of December 31, 2018 were as follows (in thousands):

Commitments (1)

__________________________________________________________

Amounts are based on the accounting guidance in ASC 840, Leases, that was superseded upon the Company's adoption of ASC 842 on January 1, 2019.

Rent expense was $ 33.6 million and $ 35.9 million for the years ended December 31, 2017 and 2018 , respectively.

Fair Value Measurement

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Assets/Liabilities

(Level 1) Significant

(Level 2) Significant

Money market funds $ 2,841 $ 2,841 $ — $ —

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Tax-exempt municipal securities 20,289 — 20,289 —

Variable rate demand notes

Total assets at fair value on a recurring basis $ 40,668 $ 2,841 $ 37,827 $ —

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Assets/Liabilities

(Level 1) Significant

(Level 2) Significant

Money market funds $ 30,693 $ 30,693 $ — $ —

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The Company does not hold securities in inactive markets.

Deferred payments — The Company acquired certain assets and entered into deferred payment arrangements with the sellers in transactions that occurred in 2011 and 2016.

• Deferred payments — The Company acquired certain assets and entered into deferred payment arrangements with the sellers in transactions that occurred in 2011.

The deferred payments are classified within Level 3 as there is no liquid market for similarly priced instruments and are valued using discounted cash flow models that encompass significant unobservable inputs.

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Changes in the fair value of the Company’s Level 3 liabilities during the years ended December 31, 2019 and 2020 are as follows (in thousands):

December 31, 2018

December 31, 2019

December 31, 2019 December 31, 2020

Balance as of the beginning of period $ 4,120 $ 3,257

Amounts paid ( 1,579 ) ( 1,628 )

Other adjustments to fair value 716 29

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The following table presents changes in the carrying value of goodwill by segment for the years ended December 31, 2019 and 2020 (in thousands):

Strayer University

Capella University

Non-Degree Programs

Strayer University Capella University Australia /

New Zealand Total

Balance as of December 31, 2018 $ 337,381 $ 395,159 $ — $ 732,540

Additions — — — —

Impairments — — — —

Currency translation adjustments — — — —

Adjustments to prior acquisitions — ( 465 ) — ( 465 )

Balance as of December 31, 2019 337,381 394,694 — 732,075

Additions — — 546,053 546,053

Impairments — — — —

Currency translation adjustments — — 40,398 40,398

Adjustments to prior acquisitions — — — —

Balance as of December 31, 2020 $ 337,381 $ 394,694 $ 586,451 $ 1,318,526

The additions to goodwill during the year ended December 31, 2018 were due to the acquisition of CEC described in Note 3.

During the year ended December 31, 2019, the Company recorded $ 0.5 million of net measurement period adjustments to goodwill, as described in Note 3.

During the year ended December 31, 2019, the Company recorded $ 0.5 million of net measurement period adjustments related to the CEC merger to goodwill, as described in Note 3.

The additions to goodwill during the year ended December 31, 2020 were due to the acquisition of ANZ described in Note 3.

The Company assesses goodwill at least annually for impairment on the first day of the fourth quarter, 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.

In 2019, the Company performed a qualitative impairment assessment of goodwill assigned to its Capella University and JWMI reporting units using the first day of the fourth quarter of 2019 as the assessment date.

In 2020, the Company performed a qualitative impairment assessment of goodwill assigned to its Strayer University, Capella University, and Jack Welch Management Institute ("JWMI") reporting units using the first day of the fourth quarter of 2020 as the assessment date.

The Company evaluated the likelihood of impairment by considering qualitative factors relevant to the reporting units, such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and any other factors that have a significant bearing on fair value.

Based on the results of its qualitative impairment analysis, the Company determined that no impairment indicators existed for the Capella University and JWMI reporting units as of the assessment date.

In 2019, The Company elected to bypass a qualitative impairment assessment for goodwill assigned to the Strayer University reporting unit and proceeded directly to a quantitative impairment assessment using the first day of the fourth quarter of 2019 as the assessment date.

The Company used an income-based approach to determine the fair value of the Strayer University reporting unit.

The income approach consisted of a discounted cash flow model that included projections of future cash flows for the Strayer University reporting unit, calculating a terminal value, and discounting such cash flows by a risk-adjusted rate of return.

The determination of fair value consists of using unobservable inputs under the fair value measurement standards.

The Company believes that the most critical assumptions and estimates used in determining the estimated fair value of the Strayer University reporting unit include, but are not limited to, the amounts and timing of expected future cash flows, the discount rate, and the terminal growth rate.

The assumptions used in determining the expected future cash flows consider various factors such as historical operating trends, particularly in student enrollment and pricing, anticipated economic and regulatory conditions, reasonable expectations for planned business expansion opportunities, and long-term operating strategies and initiatives.

The discount rate is based on the Company's assumption of a prudent investor's required rate of return for assuming the risk of investing in a particular company.

The terminal growth rate reflects the sustainable operating income a reporting unit could generate in a perpetual state as a function of revenue growth, inflation, and future margin expectations.

The Company also believes that these assumptions are consistent with a reasonable market participant view while employing the concept of highest and best use of the asset.

Based on the results of its quantitative impairment assessment, the Company concluded that the fair value of its Strayer University reporting unit exceeded its carrying value.

Accordingly, no goodwill impairment charges were recorded during the year ended December 31, 2019 .

During the year ended December 31, 2018, the Company recorded a goodwill impairment charge of $ 13.9 million related to its NYCDA reporting unit (which, following the CEC merger, is included in the Non-Degree Programs segment) based on a quantitative impairment analysis performed.

The goodwill impairment charge represented the excess of the carrying value of the net assets of the NYCDA reporting unit over its estimated fair value and is reflected within the Fair value adjustments and impairment of intangible assets line in the consolidated statements of income.

There were no goodwill impairment charges recorded during the year ended December 31, 2017 .

Based on the results of its qualitative impairment analysis, the Company determined that no impairment indicators existed for its reporting units as of the assessment date.

There were no goodwill impairment charges recorded during the years ended December 31, 2020 and 2019.

During the year ended December 31, 2018, the Company recorded a goodwill impairment charge of $ 13.9 million related to its NYCDA reporting unit (which is included in the Strayer University segment) based on a quantitative impairment analysis performed.

The goodwill impairment charge represented the excess of the carrying value of the net assets of the NYCDA reporting unit over its estimated fair value and is included within the Impairment of intangible assets line in the consolidated statements of income (loss).

Intangible Assets

The following table represents the balance of the Company’s intangible assets for the years ended December 31, 2019 and 2020 (in thousands):

December 31, 2018

December 31, 2019

Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount

Accumulated Amortization

December 31, 2019 December 31, 2020

Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net

Subject to amortization

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Not subject to amortization

Trade names 185,400 — 185,400 259,262 — 259,262

Total $ 351,400 $ ( 78,389 ) $ 273,011 $ 462,123 $ ( 135,703 ) $ 326,420

The Company’s finite-lived intangible assets are comprised of student relationships, which are being amortized on a straight-line basis over a three-year useful life.

Straight-line amortization expense for finite-lived intangible assets reflects the pattern in which the assets' economic benefits are consumed over their estimated useful lives.

Amortization expense related to finite-lived intangible assets was $ 23.1 million and $ 55.3 million for the years ended December 31, 2018 and 2019 , respectively.

Amortization expense related to finite-lived intangible assets was $ 23.1 million, $ 55.3 million, and $ 57.3 million for the years ended December 31, 2018, 2019 and 2020, respectively.

The following table presents future amortization expense for finite-lived intangible assets as of December 31, 2020 (in thousands):

2021 $ 44,589

2026 and thereafter —

Total $ 67,158

Indefinite-lived intangible assets not subject to amortization consist of trade names.

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Based on the results of its qualitative impairment analysis, the Company determined that no impairment indicators existed for the indefinite-lived intangible assets as of the assessment date.

Accordingly, no impairment charges related to indefinite-lived intangible assets were recorded during the year ended December 31, 2019 .

There were no impairment charges related to indefinite-lived intangible assets recorded during the years ended December 31, 2020 and 2019.

During the year ended December 31, 2018, the Company recorded an indefinite-lived intangible asset impairment charge of $ 5.4 million related to the NYCDA trade name based on a quantitative impairment analysis performed.

The indefinite-lived intangible asset impairment charge represented the excess of the carrying value of the NYCDA trade name over its estimated fair value and is reflected within the Fair value adjustments and impairment of intangible assets line in the consolidated statements of income.

There were no indefinite-lived intangible asset impairment charges recorded during the year ended December 31, 2017 .

The indefinite-lived intangible asset impairment charge represented the excess of the carrying value of the NYCDA

trade name over its estimated fair value and is included within the Impairment of intangible assets line in the consolidated statements of income (loss).

Other assets consist of the following as of December 31, 2019 and 2020 (in thousands):

December 31, 2019 December 31, 2020

Prepaid expenses, net of current portion $ 191 $ 22,418

Equity method investments 15,795 15,795

Cloud computing arrangements — 6,385

Other investments 2,123 2,527

Other 3,679 7,803

Balance at end of period $ 21,788 $ 54,928

Prepaid Expenses

Long-term prepaid expenses primarily relate to payments that have been made for future services to be provided after one year.

In the fourth quarter of 2020, pursuant to the terms of the perpetual license agreement associated with JWMI, the Company made a final one-time cash payment of approximately $ 25.3 million for the right to continue to use the Jack Welch name and likeness.

As of December 31, 2020, $ 20.7 million of this payment is included in the prepaid expenses, net of current portion balance, as the payment is being amortized over an estimated useful life of 15 years.

The prepaid balance was partially offset by a $ 2.8 million liability balance that represented a seller's continuing interest in JWMI that terminated following payment.

Equity Method Investments

The Company holds investments in certain limited partnerships that invest in various innovative companies in the health care and education-related technology fields.

The Company has commitments to invest up to an additional $ 1.8 million across these partnerships through 2027.

The Company's investments range from 3 %- 5 % of any partnership’s interest and are accounted for under the equity method.

The following table illustrates changes in the Company’s limited partnership investments for the years ended December 31, 2019 and 2020 (in thousands):

Limited partnership investments, beginning of period $ 13,449 $ 15,795

Capital contributions 1,035 550

Pro-rata share in the net income of limited partnerships 2,337 1,862

Distributions ( 1,026 ) ( 2,412 )

Limited partnership investments, end of period $ 15,795 $ 15,795

Cloud Computing Arrangements

The Company defers implementation costs incurred in cloud computing arrangements and amortizes these costs over the term of the arrangement.

Other Investments

The Company's venture fund, SEI Ventures, makes investments in education tech start-ups focused on transformational technologies that improve student success.

These investments are accounted for at cost less impairment as they do not have readily determinable fair value.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following as of December 31, 2019 and 2020 (in thousands):

December 31, 2019 December 31, 2020

Trade payables $ 47,503 $ 64,049

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Real estate liabilities 751 668

Other 4,070 2,848

Accounts payable and accrued liabilities $ 90,828 $ 104,742

Long-Term Debt

On August 1, 2018, the Company entered into an amended credit facility (the “Amended Credit Facility”), which provides for a senior secured revolving credit facility (the “Revolver”) in an aggregate principal amount of up to $ 250 million .

The Amended Credit Facility provides the Company with an option, under certain conditions, to increase the commitments under the Revolver or establish one or more incremental term loans (each, an “Incremental Facility”) in an amount up to the sum of (x) $ 150 million and (y) if such Incremental Facility is incurred in connection with a permitted acquisition, any amount so long as the Company’s leverage ratio (calculated on a trailing four-quarter basis) on a pro forma basis will be no greater than 1.75:1.00.

The maturity date of the Amended Credit Facility is August 1, 2023.

On November 3, 2020, the Company entered into an amended credit facility ("Amended Credit Facility"), which provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $ 350 million.

The Amended Credit Facility provides the Company with an option, subject to obtaining additional loan commitments and satisfaction of certain conditions, to increase the commitments under the Revolving Credit Facility or establish one or more incremental term loans (each, an “Incremental Facility”) in the future in an aggregate amount of up to the sum of (x) the greater of (A) $ 300 million and (B) 100 % of the Company’s consolidated EBITDA (earnings before interest, taxes, depreciation, amortization, and noncash charges, such as stock-based compensation) calculated on a trailing four-quarter basis and on a pro forma basis, and (y) if such Incremental Facility is incurred in connection with a permitted acquisition or other permitted investment, any amounts so long as the Company's leverage ratio (calculated on a trailing four-quarter basis) on a pro forma basis will be no greater than 1.75 :1.00.

In addition, the Amended Credit Facility provides for a subfacility for borrowings in certain foreign currencies in an amount equal to the U.S.

dollar equivalent of $ 150 million.

The maturity date of the Amended Credit Facility is November 3, 2025.

The Company paid approximately $ 1.9 million in debt financing costs associated with the Amended Credit Facility, and these costs are being amortized on a straight-line basis over the five-year term of 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 1.50 % to 2.00 % depending on the Company’s leverage ratio.

Borrowings under the Revolving Credit Facility bear interest at a per annum rate equal to LIBOR or a base rate, plus a margin ranging from 1.50 % to 2.00 % depending on the Company’s leverage ratio.

The Company also is subject to a quarterly unused commitment fee ranging from 0.20 % to 0.30 % per annum depending on the Company’s leverage ratio, times the daily unused amount under the Revolver.

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• A leverage ratio of not greater than 2.00 to 1.00.

Leverage ratio is defined as the ratio of total debt to trailing four-quarter EBITDA (earnings before interest, taxes, depreciation, amortization, and noncash charges, such as stock-based compensation).

Leverage ratio is defined as the ratio of total debt (net of unrestricted cash in an amount not to exceed $ 150 million) to trailing four-quarter EBITDA.

• A coverage ratio of not less than 1.75 to 1.00.

Coverage ratio is defined as the ratio of trailing four-quarter EBITDA and rent expense to trailing four-quarter interest and rent expense.

Department of Education (“Department” or "Department of Education") Financial Responsibility Composite Score of not less than 1.5 .

Department of Education (“Department” or "Department of Education") Financial Responsibility Composite Score of not less than 1.0 for any fiscal year and not less than 1.5 for any two consecutive fiscal years.

The Company was in compliance with all the covenants of the Amended Credit Facility at December 31, 2020.

During the years ended December 31, 2018 and 2019 , the Company paid unused commitment fees of $ 0.4 million and $ 0.5 million , respectively.

The Company had no borrowings under the Revolver during 2017 , 2018 and 2019 .

As of December 31, 2020, the Company had $ 141.8 million outstanding under the Revolving Credit Facility.

Approximately $ 3.8 million is denominated in Australian dollars.

The Company had no borrowings under the Revolving Credit Facility during 2018 and 2019.

During the years ended December 31, 2018, 2019 and 2020, the Company paid $ 0.4 million, $ 0.5 million and $ 1.0 million, respectively, of interest and unused commitment fees related to its Revolving Credit Facility.

Other Long-Term Liabilities

Other long-term liabilities consist of the following as of December 31, 2019 and 2020 (in thousands):

December 31, 2019 December 31, 2020

Contract liabilities, net of current portion $ 30,925 $ 34,866

Asset retirement obligations 1,961 7,647

Deferred payments related to acquisitions 4,963 715

Employee separation costs 1,838 —

Other 1,764 2,827

Other long-term liabilities $ 41,451 $ 46,055

Contract Liabilities

As discussed in Note 4, in connection with its student tuition contracts, the Company has an obligation to provide free classes in the future should certain eligibility conditions be maintained (the Graduation Fund).

Long-term contract liabilities represent the amount of revenue under these arrangements that the Company expects will be realized after one year.

Asset Retirement Obligations

Certain of the Company's lease agreements require the leased premises to be returned in a predetermined condition.

As of December 31, 2020, approximately $ 5.8 million relates to asset retirement obligation assumed in the ANZ acquisition.

Deferred Payments Related to Acquisitions

In connection with previous acquisitions, the Company acquired certain assets and entered into deferred payment arrangements with the sellers.

The deferred payment arrangements are valued at approximately $ 2.2 million and $ 0.7 million as of December 31, 2019 and 2020, respectively.

In addition, one of the sellers contributed $ 2.8 million to the Company representing the seller’s continuing interest in the assets acquired.

The seller's continuing interest terminated following the final one-time cash payment that the Company made related to the JWMI perpetual license agreement (as discussed in Note 11).

Employee Separation Costs

Severance and other employee separation costs to be paid after one year.

Equity Awards

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The table below sets forth the restricted stock and restricted stock units activity for each of the three years in the period ended December 31, 2020:

shares or units

shares or units Weighted-

Balance, December 31, 2017 716,128 $ 99.65

Grants 159,005 93.30

Awards assumed through acquisition of CEC 136,324 118.29

Vested shares ( 236,164 ) 76.78

Forfeitures ( 37,343 ) 83.69

Balance, December 31, 2018 737,950 114.43

Awards assumed through acquisition of CEC

Grants 158,748 128.87

Vested shares ( 393,588 ) 141.75

Forfeitures ( 34,160 ) 79.02

Balance, December 31, 2019 468,950 98.98

Grants 150,107 140.39

Vested shares ( 116,724 ) 69.94

Forfeitures ( 7,364 ) 130.68

Balance, December 31, 2020 494,969 $ 117.91

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The table below sets forth the stock option activity and other stock option information for each of the three years in the period ended December 31, 2020:

exercise price

shares Weighted-

exercise price Weighted-

life (years) Aggregate

intrinsic value (1)

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Balance, December 31, 2017 100,000 $ 51.95 3.1 $ 3,763

Balance, December 31, 2017

Awards assumed through acquisition of CEC 319,846 66.98

Exercises ( 162,831 ) 58.11

Forfeitures/Expirations ( 769 ) 51.96

Balance, December 31, 2018 256,246 66.80 7.0 11,947

Exercises ( 208,114 ) 67.61

Forfeitures/Expirations ( 2,036 ) 58.38

Balance, December 31, 2019 46,096 63.49 5.2 4,398

Exercises ( 20,522 ) 60.62

Forfeitures/Expirations — —

Balance, December 31, 2020 25,574 $ 65.80 5.0 $ 755

Exercisable, December 31, 2020 20,954 $ 60.98 4.8 $ 720

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The amount of intrinsic value will change based on the fair market value of the Company’s common stock.

The Company received $ 8.6 million and paid $ 1.8 million of net cash proceeds related to stock options exercised during the years ended December 31, 2018 and 2019 , respectively.

The aggregate intrinsic value of the stock options exercised during

the years ended December 31, 2018 and 2019 was $ 11.3 million and $ 17.4 million , respectively.

No stock options were exercised during the year ended December 31, 2017 .

The Company received $ 8.6 million, paid $ 1.8 million, and received $ 1.2 million of net cash proceeds related to stock options exercised during the years ended December 31, 2018, 2019, and 2020, respectively.

The aggregate intrinsic value of the

stock options exercised during the years ended December 31, 2018, 2019, and 2020 was $ 11.3 million, $ 17.4 million and $ 2.0 million, respectively.

Valuation and Expense Information under Stock Compensation Topic ASC 718

At December 31, 2020, total stock-based compensation cost which has not yet been recognized was $ 30.0 million for unvested restricted stock, restricted stock units, and stock option awards.

This cost is expected to be recognized over the next 23 months on a weighted-average basis.

This cost is expected to be recognized over the next 1.9 years on a weighted-average basis.

Approximately 308,000 shares of restricted stock awards are subject to performance conditions.

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The following table reflects the amount of stock-based compensation expense recorded in each of the expense line items for the years ended December 31, 2018, 2019, and 2020 (in thousands):

2018 2019 2020

Instructional and support costs $ 2,588 $ 3,823 $ 5,111

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Stock-based compensation expense included in operating expense 15,532 12,160 14,610

Tax benefit 3,922 3,126 3,771

Stock-based compensation expense, net of tax $ 11,610 $ 9,034 $ 10,839

During the years ended December 31, 2018, 2019, and 2020, the Company recognized tax windfalls related to share-based payment arrangements of approximately $ 3.5 million, $ 4.0 million, and $ 2.8 million, respectively, which were adjustments to the provision (benefit) for income taxes.

Other Long-Term Liabilities

Other long-term liabilities consist of the following as of December 31, 2018 and 2019 (in thousands):

Contract liabilities, net of current portion

Deferred payments related to acquisitions

Deferred rent and other facility costs

Employee separation costs

Loss on facilities not in use

Lease incentives

Other long-term liabilities

Contract Liabilities

Long-term contract liabilities represent the amount of revenue under these arrangements that the Company expects will be realized after one year.

Employee Separation Costs

Severance and other employee separation costs to be paid after one year.

Deferred Rent and Other Facility Costs and Loss on Facilities Not in Use

Prior to the adoption of ASC 842 on January 1, 2019, the Company recorded a liability for lease costs of campus and non-campus facilities that are not currently in use (see Note 5).

For facilities still in use, the Company recorded 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

was recorded as a liability.

Upon adoption of ASC 842, these liability balances were netted against the ROU asset recognized on January 1, 2019.

As such, there are no long-term liability balances for deferred rent and loss on facilities not in use as of December 31, 2019 .

At December 31, 2018 and 2019 , the Company had $ 1.9 million and $ 2.1 million , respectively, included in the deferred rent and other facility costs balances, which relate to asset retirement obligations for lease agreements requiring the leased premises to be returned in a predetermined condition.

Deferred Payments Related to Acquisitions

In connection with previous acquisitions, the Company acquired certain assets and entered into deferred payment arrangements with the sellers.

The deferred payment arrangements are valued at approximately $ 3.1 million and $ 2.2 million as of December 31, 2018 and 2019 , respectively.

In addition, one of the sellers contributed $ 2.8 million to the Company representing the seller’s continuing interest in the assets acquired.

Lease Incentives

In conjunction with the opening of new campuses or renovation of existing campuses, the Company, in some instances, was reimbursed by the lessors for improvements made to the leased properties.

Prior to the adoption of ASC 842 on January 1, 2019, the underlying assets were capitalized as leasehold improvements and a liability was established for the reimbursements in accordance with ASC 840-20.

The leasehold improvements and the liability are amortized on a straight-line basis over the corresponding lease terms, which generally range from five years to ten years .

Upon adoption of ASC 842, the liability balance associated with the reimbursement was netted against the ROU asset recognized on January 1, 2019.

As such, there is no lease incentive long-term liability balance as of December 31, 2019 .

Other Employee Benefit Plans

The Company sponsors the Strayer Education, Inc.

401(k) Plan and the Capella Education Company Retirement Savings Plan which, collectively, cover all eligible employees of the Company.

The Company sponsors the Strategic Education, Inc.

401(k) Plan, which covers all eligible employees of the Company.

Effective January 1, 2021, participants may voluntarily contribute up to $ 19,500 of their base compensation annually.

Discretionary contributions were made by the Company to participants of the Strayer Education, Inc.

401(k) Plan matching 50 % of employee deferrals up to a maximum of 3 % of the employee’s annual salary.

Under the Capella Education Company Retirement Savings Plan, the Company matches 100 % on the first 2 % , and 50 % on the next 4 % , of the employee contributions.

The Company makes discretionary contributions to participants of the Strategic Education, Inc.

401(k) Plan through a Company match of 100 % on the first 2 %, and 50 % on the next 2 %, of the employee contributions, for a maximum company match of 3 %.

The Company’s contributions to these plans totaled $ 3.5 million, $ 7.2 million and $ 7.6 million for the years ended December 31, 2018, 2019, and 2020, respectively.

Pursuant to local laws, ANZ is required to make contributions on behalf of its employees for post-retirement benefits.

In addition, ANZ has recorded a liability for long service leave, an entitlement for which employees meeting certain requirements are eligible for extended paid leave.

In 2020, the Company incurred $ 1.5 million in expense for these arrangements for the benefit of ANZ employees.

In May 1998, the Company adopted the Strayer Education, Inc.

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Shares purchased in the open market for employees for the years ended December 31, 2018, 2019, and 2020 were as follows:

Average price

purchased Average price

2018 4,647 $ 100.34

2019 4,918 $ 126.83

2020 7,274 $ 112.65

Stock Repurchase Plan

In November 2003, the Company’s Board of Directors authorized the Company to repurchase up to an aggregate of $ 15 million in value of common stock in open market purchases from time to time at the discretion of the Company’s management depending on market conditions and other corporate considerations.

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, 2019 , $ 70 million of the Company’s share repurchase authorization was remaining and in February 2020 the Board of Directors increased its authorization for share repurchases to $ 250 million through December 31, 2020.

At December 31, 2020, $ 250 million of the Company’s share repurchase authorization was remaining for repurchases through December 31, 2021.

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.

Repurchases of common stock are recorded as a reduction to additional paid-in capital.

To the extent additional paid-in capital had been reduced to zero through stock repurchases, retained earnings was then reduced.

No shares were repurchased on the open market under the stock repurchase plan during each of the three years ended December 31, 2017 , 2018 , and 2019 .

Repurchases of common stock are recorded as a reduction to additional paid-in capital in an amount equal to the price at which the repurchased shares were originally sold, with any excess cash paid to repurchase the shares being recorded as a reduction to retained earnings.

During the year ended December 31, 2020, the Company invested $ 0.2 million to repurchase 1,769 shares of common stock on the open market under the stock repurchase plan at an average price per share of $ 139.78 .

No shares were repurchased on the open market under the stock repurchase plan during the years ended December 31, 2018 and 2019.

Commitments and Contingencies

The Universities participate in various federal student financial assistance programs which are subject to audit by agencies, including the Department of Education, the Veterans Administration, and the Department of Defense.

Strayer University and Capella University participate in various federal student financial assistance programs which are subject to audit by agencies, including the Department of Education, the Veterans Administration, and the Department of Defense.

Management believes that the potential effects of audit adjustments, if any, for the periods currently under audit will not have a material adverse effect, individually or in the aggregate, on the Company’s consolidated financial position, results of operations, or cash flows.

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Act”) was signed into law, enacting a broad range of tax reform legislation affecting businesses, including reducing the corporate tax rate from 35% t o 21% for tax years beginning after December 31, 2017.

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Act”) was signed into law, enacting a broad range of tax reform legislation affecting businesses, including reducing the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017.

The company recognized the income tax effects of the 2017 Act in accordance with Staff Accounting Bulletin No.

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During 2018, the Company completed the accounting for all of the enactment-date income tax effects of the 2017 Act and recognized a $ 1.2 million tax benefit related to adjustments to the provisional amount recorded as of December 31, 2017.

The 2017 Act also allows for immediate full expensing for property placed in service after September 27, 2017 and before January 1, 2023.

The Company made the election to accelerate these deductions for the year ended December 31, 2017 tax returns.

In addition, the 2017 Act places limitations on the deductibility of certain executive compensation awards in the future.

In February 2019, to align compensation and benefit plans after completion of the merger with CEC, the Compensation Committee of the Company’s Board of Directors took action to terminate all deferred compensation arrangements, including for employees already participating in such arrangements.

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The income tax provision (benefit) for the years ended December 31, 2018, 2019 and 2020 is summarized below (in thousands):

2018 2019 2020

Federal $ 9,069 $ 37,878 $ 31,398

State 3,785 11,584 9,786

Foreign — — 125

Total current 12,854 49,462 41,309

Change in federal tax rate due to the 2017 Act

Federal ( 13,381 ) ( 7,009 ) ( 8,537 )

State ( 2,941 ) 133 ( 538 )

Foreign — — ( 4,545 )

Total deferred ( 16,322 ) ( 6,876 ) ( 13,620 )

Total provision (benefit) for income taxes $ ( 3,468 ) $ 42,586 $ 27,689

The tax effects of the principal temporary differences that give rise to the Company’s net deferred tax asset (liability) are as follows as of December 31, 2018 and 2019 (in thousands):

Deferred leasing costs

Allowance for doubtful accounts

The tax effects of the principal temporary differences that give rise to the Company’s net deferred tax liability are as follows as of December 31, 2019 and 2020 (in thousands):

Lease liabilities $ 27,074 $ 28,017

Allowance for credit losses 8,884 14,083

Contract liabilities 8,139 8,500

Loss carryforward 4,459 7,307

Other 1,955 6,713

Stock-based compensation 6,322 6,318

Capital loss carryforward

Other facility-related costs 489 582

Intangible assets ( 65,777 ) ( 84,515 )

Right-of-use lease assets

Property and equipment ( 13,120 ) ( 20,421 )

Right-of-use lease assets ( 21,673 ) ( 19,991 )

Valuation allowance ( 4,694 ) —

Net deferred tax asset (liability)

The valuation allowance for deferred tax assets as of December 31, 2018 and 2019 was $ 4.4 million and $ 4.7 million , respectively, and is primarily related to capital loss carryforwards acquired in the merger with CEC.

The Company concluded that it was more likely than not that the deferred tax asset for the capital loss carryforward would not be realized due to a lack of history of recognizing capital gains.

Net deferred tax liability $ ( 47,942 ) $ ( 53,407 )

The valuation allowance for deferred tax assets as of December 31, 2019 was $ 4.7 million and was primarily related to capital loss carryforwards acquired in the merger with CEC.

The Company concluded that it was more likely than not that the deferred tax asset for the capital loss carryforwards would not be realized due to a lack of history of recognizing capital gains.

In 2020, the capital loss carryforwards expired and the Company reversed the valuation allowance associated with the capital loss carryforwards, which resulted in the Company having no valuation allowance for deferred tax assets as of December 31, 2020.

As of December 31, 2020, Loss carryforward consists of net operating losses related to the ANZ acquisition which may be carried forward indefinitely.

As of December 31, 2019 and 2020, the Company’s liabilities for unrecognized tax benefits are included in other long-term liabilities in the consolidated balance sheets.

Interest and penalties, including those related to uncertain tax positions, are included in the provision for income taxes in the consolidated statements of income.

Interest and penalties, including those related to uncertain tax positions, are included in the provision for income taxes in the consolidated statements of income (loss).

The Company recognized $ 145,000 and $ 64,000 of expense related to interest and penalties in 2019 and 2020, respectively.

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Additions for tax positions taken in the prior year 845 30

Additions from merger

Reductions for tax positions taken in prior years ( 304 ) ( 881 )

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A reconciliation between the Company’s statutory tax rate and the effective tax rate for the years ended December 31, 2018, 2019, and 2020 is as follows:

2018 2019 2020

Statutory federal rate 21.0 % 21.0 % 21.0 %

State income taxes, net of federal benefits ( 1.4 ) 4.6 5.6

Adjustment to deferred tax assets as a result of the 2017 Act

Termination of deferred compensation arrangements — 9.2 —

Transaction costs ( 6.2 ) — 0.6

Adjustments to contingent consideration

Excess tax benefit on share-based compensation 15.5 ( 2.6 ) ( 2.0 )

Impact of foreign operations — — ( 1.2 )

Impairment of intangible assets ( 15.3 ) — —

Acceleration of deductions due to change in tax law

Other 4.5 2.2 0.3

Effective tax rate 18.1 % 34.4 % 24.3 %

Cash payments for income taxes were $ 13.4 million, $ 48.8 million, and $ 45.4 million in 2018, 2019, and 2020, respectively.

Other Investments

At December 31, 2019 , the Company held $ 15.8 million in investments in certain limited partnerships that invest in various innovative companies in the health care and education-related technology fields.

The Company has commitments to invest up to an additional $ 2.2 million across these partnerships through 2027.

The Company's investments range from 3 % - 5 % of any partnership’s interest and are accounted for under the equity method.

The following table illustrates changes in the Company’s limited partnership investments for the years ended December 31, 2018 and 2019 (in thousands):

Limited partnership investments, beginning of period

Additions from merger

Capital contributions

Pro-rata share in the net income of limited partnerships

Distributions

Limited partnership investments, end of period

Segment Reporting

Segment and Geographic Information

Strategic Education is an educational services company that provides access to high-quality education through campus-based and online post-secondary education offerings, as well as through programs to develop job-ready skills for high-demand markets.

Strategic Education’s portfolio of companies is dedicated to closing the skills gap by placing adults on the most direct path between learning and employment.

Two of the Company’s operating segments that meet the quantitative thresholds to qualify as reportable segments are the Strayer University and Capella University segments.

The Strayer University segment is comprised of Strayer University, including its programs offered through the Jack Welch Management Institute;

the Capella University segment consists of Capella University.

None of the Company’s other operating segments individually meets the quantitative thresholds to qualify as reportable segments;

therefore, these other operating segments are combined and presented below as Non-Degree Programs.

The Non-Degree Programs reportable segment is comprised of the DevMountain, Hackbright Academy, and Sophia Learning operations.

In 2020, the Company merged DevMountain into Strayer University and acquired ANZ, which resulted in a change to the way management reviews financial information and by which the Chief Operating Decision Maker evaluates performance and allocates the resources of the Company.

Prior period segment disclosures have been recast to conform to the current period presentation.

The Company’s three operating segments, Strayer University, Capella University, and Australia/New Zealand, meet the quantitative thresholds to qualify as reportable segments.

The Strayer University segment is comprised of Strayer University, including its programs offered through the Jack Welch Management Institute and DevMountain, as well as Hackbright Academy.

The Capella University segment consists of Capella University and Sophia Learning.

The Australia/New Zealand segment is comprised of Torrens University, Think Education, and Media Design School.

Revenue and operating expenses are generally directly attributable to the segments.

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A summary of financial information by reportable segment (in thousands) for the years ended December 31, 2018, 2019, and 2020 is presented in the following table:

2018 2019 2020

Strayer University $ 477,839 $ 536,969 $ 537,633

Capella University 156,346 460,168 466,639

Non-Degree Programs

Australia/New Zealand — — 23,381

Consolidated revenues $ 634,185 $ 997,137 $ 1,027,653

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Capella University 6,314 90,713 92,638

Non-Degree Programs

Australia/New Zealand — — ( 13,275 )

Amortization of intangible assets ( 25,694 ) ( 61,667 ) ( 64,225 )

Merger and integration costs ( 45,745 ) ( 21,923 ) ( 13,770 )

Fair value adjustments and impairment of intangible assets

Restructuring costs — — ( 12,382 )

Impairment of intangible assets ( 19,909 ) — —

Consolidated income (loss) from operations $ ( 22,740 ) $ 110,532 $ 109,384

The following table presents a schedule of significant non-cash items included in segment income (loss) from operations by reportable segment (in thousands):

2018 2019 2020

Depreciation and amortization

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Capella University 7,693 18,837 18,080

Non-Degree Programs

Australia/New Zealand — — 1,930

Amortization of intangible assets 25,694 61,667 64,225

Merger and integration costs 729 401 —

Restructuring costs — — 349

Consolidated depreciation and amortization $ 54,543 $ 104,861 $ 109,154

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Capella University 1,570 5,823 7,272

Non-Degree Programs

Australia/New Zealand — — 46

Merger and integration costs 2,242 367 —

Consolidated stock-based compensation $ 15,532 $ 12,160 $ 14,610

Geographic Information

The Company's long-lived assets are comprised of Property and equipment, net and Right-of-use lease assets.

The Company's long-lived assets by geographic area as of December 31, 2019 and 2020 were as follows (in thousands):

December 31, 2019 December 31, 2020

United States $ 201,807 $ 188,343

International — 91,198

Summarized Quarterly Financial Data (Unaudited)

Quarterly financial information for 2019 and 2020 is as follows (in thousands except per share data):

2019 First Second Third Fourth

Revenues $ 246,508 $ 245,110 $ 241,747 $ 263,772

Income from operations 25,723 27,596 20,000 37,213

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Net income (loss) per share:

Basic $ 0.53 $ 1.12 $ 0.77 $ 1.31

Diluted $ 0.52 $ 1.10 $ 0.75 $ 1.29

2020 First Second Third Fourth

Revenues $ 265,302 $ 255,831 $ 239,026 $ 267,494

Income from operations 43,959 46,395 15,422 3,608

Net income 35,239 34,152 10,960 5,917

Net income per share:

Basic $ 1.62 $ 1.57 $ 0.48 $ 0.25

Diluted $ 1.60 $ 1.55 $ 0.47 $ 0.25

The Company is involved in litigation and other legal proceedings arising out of the ordinary course of its business.

From time to time, certain matters may arise that are other than ordinary and routine.

The outcome of such matters is uncertain and the Company may incur costs in the future to defend, settle, or otherwise resolve them.

The outcome of such matters is uncertain and

the Company may incur costs in the future to defend, settle, or otherwise resolve them.

The Company currently believes that the ultimate outcome of such matters will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or cash flows.

However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect future results of operations in a particular period.

Consolidated Appropriations Act, 2021

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act of 2021.

Among other things, this package funded the government through September 2021, provides additional COVID-related relief, and made a number of U.S.

higher education changes.

Among other things, the legislation includes a number of tax provisions, including replacing the tuition deduction with an expanded Lifetime Learning Credit, which now shares the higher income limitations of the American Opportunity Tax Credit;

and extends until January 1, 2026 expanded employer provided educational assistance permitting employers to pay up to $5250 toward an employee’s federal student loans as a tax-free benefit.

The legislation also includes a number of higher education-related provisions, including:

eliminating the “expected family contribution” from the Free Application for Federal Student Aid (“FAFSA”) and replacing it with a “Student Aid Index;” expanding eligibility for Pell Grants;

restores Pell Grant eligibility for incarcerated student attending non-profit institutions;

restores quarters/semesters of Pell eligibility to students who have successfully asserted a borrower defense to repayment;

repeals the limitation on lifetime subsidized loan eligibility (known as “Subsidized Usage Limit Applies,” or SULA);

and significantly simplifies the FAFSA form.

The Department is expected to, but has not yet, provided institutions with guidance on the higher education provisions included in the Consolidated Appropriations Act of 2021, which take effect on July 1, 2023.

Additionally, the bill provides $22.7 billion for higher education institutions and students impacted by COVID-19, including $680.9 million (3 percent of the total) for student emergency aid for students at for-profit institutions.

The Department has not yet released additional information on institutional allocation of funds, including any funding for which Capella University or Strayer University may qualify.

Veterans Health Care and Benefits Improvement Act of 2020

On January 5, 2021, President Trump signed into law the Veterans Health Care and Benefits Improvement Act of 2020, which expands student veterans’ protections.

Among other things, the legislation requires a risk-based review of schools if an institution is operating under Heightened Cash Monitoring 2, under provisional approval status by the Department of Education, subject to any punitive action by a federal or state entity, facing the loss or risk of loss of accreditation, or has converted from for-profit to non-profit status.

The legislation also restores veterans benefits to students whose school closed, as long as the student transferred fewer than 12 credits;

protects students from debt collection by the Department of Veterans Affairs for overpaid tuition benefits;

and establishes a number of institutional requirements, including:

providing clear disclosures about cost, loan debt, graduation and job placement rates, and acceptance of transfer credit;

ensuring institutions are accommodating short absences due to service;

prohibiting same-day recruitment and registration;

and prohibiting more than three unsolicited recruiting contacts.

The legislation will require guidance from the Department of Veterans Affairs, and is effective August 21, 2021.

On March 27, 2020, Congress passed and President Trump signed into law the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.

Among other things, the $2.2 trillion bill established some flexibilities related to the processing of federal student financial aid, established a higher education emergency fund, and created relief for some federal student loan borrowers.

Through the CARES Act, Congress provided institutions of higher education relief from conducting a return to Title IV (R2T4) calculation in cases where the student withdrew because of COVID-19, including removing the requirement that the institution return unearned funds to the Department of Education and providing loan cancellation for the portion of the Direct Loan associated with a payment period that the student did not complete due to COVID-19.

The CARES Act also allows institutions to exclude from satisfactory academic progress calculations any attempted credits that the student did not complete due to COVID-19, without requiring an appeal from the student.

Additionally, under the legislation, institutions are permitted to transfer up to 100% of Federal Work Study funds into their Federal Supplemental Educational Opportunity Grant allocation and are granted a waiver of the 2019/2020 and 2020/2021 non-federal share institutional match.

Institutions may continue to make Federal Work Study payments to student employees who are unable to meet their employment obligations due to COVID-19.

The CARES Act also suspended payments and interest accrual on federal student loans until September 30, 2020, in addition to

suspending involuntary collections such as wage garnishment, tax refund reductions, and reductions of federal benefits like Social Security benefits during the same timeframe.

On August 8, 2020, President Trump issued a memorandum directing the Secretary of Education to take action to extend CARES Act student loan relief through December 31, 2020.

On December 4, 2020, the Secretary of Education extended CARES Act student loan relief through January 31, 2021.

The Department issued and will continue to issue sub-regulatory guidance to institutions regarding implementation of the provisions included in the CARES Act.

Finally, the CARES Act allocated $14 billion to higher education through the creation of the Education Stabilization Fund.

Fifty percent of the emergency funds received by institutions must go directly to students in the form of emergency financial aid grants to cover expenses related to the disruption of campus operations due to COVID-19.

Students who were previously enrolled in exclusively online courses prior to March 13, 2020 are not eligible for these grants.

Institutions may use remaining emergency funds not given to students on costs associated with significant changes to the delivery of instruction due to COVID-19, as long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, including marketing and advertising;

or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.

Institutions receive funds under the Education Stabilization Fund based on a formula that factors in their relative percentage of full-time, Federal Pell Grant-eligible students who were not exclusively enrolled in online education prior to the emergency period.

On April 9, 2020, the Department published guidance and funding levels for the Education Stabilization Fund, indicating that Strayer University was eligible to receive $ 5,792,122 .

Given that Strayer University is predominantly online, and very few students take only on-ground classes, Strayer declined to accept the funds allocated to it because most students would not have expenses related to the disruption of campus operations.

Instead, Strayer University provided a $ 500 tuition grant for all students who had enrolled in on-ground classes for the Spring term, prior to the classes being converted to online.

Because Capella University’s students are exclusively online, Capella was ineligible for Education Stabilization funding.

Gainful Employment

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.

The Department of Education has published final regulations related to gainful employment that went into effect on July 1, 2015 (the "2015 Regulations"), with the exception of new disclosure requirements, which generally went into effect January 1, 2017, but which were delayed, to some extent, until July 1, 2019.

The 2015 Regulations included two debt-to-earnings measures, consisting of an annual income rate and a discretionary income rate.

The annual income rate measured student debt in relation to earnings, and the discretionary income rate measured student debt in relation to discretionary income.

A program passed if the program’s graduates:

• have an annual income rate that does not exceed 8 % ;

• have a discretionary income rate that does not exceed 20 % .

In addition, a program that did not pass either of the debt-to-earnings metrics and had an annual income rate between 8 % and 12 % , or a discretionary income rate between 20 % and 30 % , was considered to be in a warning zone.

A program failed if the program’s graduates had an annual income rate of 12 % or greater and a discretionary income rate of 30 % or greater.

A program became Title IV-ineligible for three years if it failed both metrics for two out of three consecutive years, or failed to pass at least one metric for four consecutive award years.

On January 8, 2017, Strayer University and Capella University received their final 2015 debt-to-earnings measures.

None of Strayer University or Capella University programs failed the debt-to-earnings metrics.

Two active Strayer University programs, the Associate in Arts in Accounting and Associate in Arts in Business Administration, and one active Capella University program, the Masters of Science in Marriage and Family

Counseling/Therapy, were “in the zone,” which means each of those three programs remained fully eligible.

The Department has not yet released 2016 debt-to-earnings measures.

On July 1, 2019, the Department of Education released final gainful employment regulations, which contain a full repeal of the 2015 Regulations, including all debt measures, reporting, disclosure, and certification requirements.

Per the Department of Education's Master Calendar, these rules go into effect July 1, 2020.

However, the Secretary used her authority under the HEA to allow institutions to implement the new rules early as of July 1, 2019.

Those institutions that implement early are not required to report gainful employment data for the 2018-2019 award year, are not required to comply with gainful employment disclosure and template publication requirements, and are not required to comply with the regulation’s certification requirements with respect to programmatic accreditation and program satisfaction of prerequisites for professional licensure/state certification.

Both Capella University and Strayer University have elected to implement the July 2019 regulations early and have documented their decision to do so as required by the Department of Education.

The Clery Act

Strayer University and Capella University must comply with the campus safety and security reporting requirements as well as other requirements in the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act (the “Clery Act”), including changes made to the Clery Act by the Violence Against Women Reauthorization Act of 2013.

On October 20, 2014, the Department promulgated regulations, effective July 1, 2015, implementing amendments to the Clery Act.

In addition, the Department has interpreted Title IX to categorize sexual violence as a form of prohibited sex discrimination and to require institutions to follow certain disciplinary procedures with respect to such offenses.

Failure by Strayer University or Capella University to comply with the Clery Act or Title IX requirements or regulations thereunder could result in action by the Department fining Strayer University or Capella University, or limiting or suspending its participating in Title IV programs, could lead to litigation, and could harm Strayer University or Capella University’s reputation.

The Company believes that Strayer University and Capella University are in compliance with these requirements.

Under the Higher Education Act ("HEA"), 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.

The Department of Education published final regulations related to gainful employment that went into effect on July 1, 2015, with the additional disclosure requirements that became effective January 1, 2017 and July 1, 2019 (the “2015 Regulations”).

On July 1, 2019, the Department of Education released final gainful employment regulations, which contained a full repeal of the 2015 Regulations and became effective on July 1, 2020.

Both Capella University and Strayer University implemented the July 2019 regulations early, by means permitted by the Secretary, and accordingly were not required to report gainful employment data for the 2018-2019 award year.

For the period between July 2019 and July 1, 2020, Capella University and Strayer University were not required to comply with gainful employment disclosure and template publication requirements and were not required to comply with the regulation’s certification requirements with respect to programmatic accreditation and program satisfaction of prerequisites for professional licensure/state certification.

We cannot predict how recent changes in the administration and Congress might affect the likelihood that gainful employment regulations are re-enacted in their previous or in an altered form.

Borrower Defenses to Repayment

On September 23, 2019, the Department published final Borrower Defense to Repayment regulations (the “2019 BDTR Rule”), which governs borrower defense to repayment claims in connection with loans first disbursed on or after July 1, 2020, the date the 2019 BDTR Rule became effective.

The 2019 BDTR Rule supplants the 2016 Borrower Defense to Repayment rule.

Under the 2019 BDTR Rule, an individual borrower can assert a defense to repayment and be eligible for relief if she or he establishes, by a preponderance of the evidence, that (1) the institution at which the borrower enrolled made a misrepresentation of material fact upon which the borrower reasonably relied in deciding to obtain a Direct Loan or a loan repaid by a Direct Consolidation Loan;

(2) the misrepresentation directly and clearly related to the borrower’s enrollment or continuing enrollment at the institution or the institution’s provision of education services for which the loan was made;

and (3) the borrower was financially harmed by the misrepresentation.

The Department will grant forbearance on all loans related to a claim at the time the claim is made.

The 2019 BDTR Rule defines “financial harm” as the amount of monetary loss that a borrower incurs as a consequence of a misrepresentation.

The Department will determine financial harm based upon individual earnings and circumstances, which must include consideration of the individual borrower’s career experience subsequent to enrollment and may include, among other factors, evidence of program-level median or mean earnings.

“Financial harm” does not include damages for non-monetary loss, and the act of taking out a Direct Loan, alone, does not constitute evidence of financial harm.

Financial harm also cannot be predominantly due to intervening local, regional, national economic or labor market conditions, nor can it arise from the borrower’s voluntary change in occupation or decision to pursue less than full-time work or decision not to work.

The 2019 BDTR Rule contains certain limitations and procedural protections.

Among the most prominent of these restrictions, the regulation contains a three-year limitation period of claims, measured from the student’s separation from the institution, does not permit claims to be filed on behalf of groups, and requires that institutions receive access to any evidence in the Department’s possession to inform its response.

The 2019 BDTR Rule permits the usage of pre-dispute arbitration agreements and class action waivers as conditions of enrollment, so long as the institution provides plain-language disclosures to students and the disclosures are placed on the institution’s website.

The regulations also allow for a borrower to choose whether to apply for a closed school loan discharge or accept a teach-out opportunity.

In addition, the closed school discharge window is expanded from 120 days to 180 days prior to the school’s closure, though the final rule does not allow for an automatic closed school loan discharge.

Institutions are required to accept responsibility for the repayment of amounts discharged by the Secretary pursuant to the borrower defense to repayment, closed school discharge, false certification discharge, and unpaid refund discharge regulations.

If the Secretary discharges a loan in whole or in part, the Department of Education may require the school to repay the amount of the discharged loan.

On March 11, 2020, the 116th Congress passed a joint resolution providing for Congressional disapproval of the 2019 BDTR Rule.

President Trump vetoed the joint resolution on May 29, 2020, and the House subsequently failed to override the veto during a vote on June 26, 2020.

Accrediting Agencies and State Authorization

On November 1, 2019, the Department of Education published final rules amending regulations governing the recognition of accrediting agencies, certain student assistance provisions including state authorization rules, and institutional eligibility.

Among other changes, the final rules revise the definition of “state authorization reciprocity agreement” such that member states may enforce their own general-purpose state laws and regulations, but may not impose additional requirements related to state authorization of distance education directed at all or a subgroup of educational institutions.

The regulations also clarify that state authorization requirements related to distance education courses are based on the state where a student is “located,” as determined by the institution, and not the state of the student’s “residence.” In addition, the final rules remove certain disclosure requirements related to programs offered solely through distance education, and they replace those requirements with certain disclosure requirements applicable to all programs that lead to professional licensure or certification, regardless of the delivery modality of those programs.

The Department’s new rules also refine the process for recognition and review of accrediting agencies, the criteria used by the Department to recognize accrediting agencies, and the Department’s requirements for accrediting agencies in terms of their oversight of accredited institutions and programs.

The final regulations became effective on July 1, 2020, excepting certain provisions which were eligible to be implemented early by institutions, and certain provisions relating to recognition of accrediting agencies effective January 1 or July 1, 2021.

Neither Capella University nor Strayer University opted for early implementation.

On July 29, 2020, the National Advisory Committee on Institutional Quality and Integrity (“NACIQI”) held a meeting to review compliance by the Higher Learning Commission (“HLC”) with Department of Education requirements for recognized accrediting agencies.

HLC is the institutional accreditor for Capella University.

On June 30, 2020, the Department released a staff report that outlined HLC’s alleged noncompliance with its own policies and the Department’s regulations with regard to a change of ownership approval process for the acquisition of the Art Institute of Colorado and the Illinois Institute of Art, by Dream Center Educational Holdings.

The staff report noted noncompliance in the areas of due process, consistency in decision making, and proper appeals procedures.

The staff report proposed a one-year prohibition on HLC accrediting new institutions and a required compliance report on HLC’s remedial actions.

NACIQI voted 9-2 to reject the staff report’s proposed sanctions, but NACIQI’s recommendation was non-binding.

On October 26, 2020, a Senior Department Official ("SDO") found HLC non-compliant, in part.

While the SDO required that HLC submit periodic reporting for twelve months, the SDO did not restrict HLC's scope of accreditation or ability to accredit new institutions.

HLC did not appeal the Secretary's decision.

Distance Education and Innovation

On August 24, 2020, the Department of Education published final rules related to distance education and innovation to amend the sections of the institutional eligibility regulations issued under the HEA regarding establishing eligibility, maintaining eligibility, and losing eligibility.

Among other changes, the final rules establish an updated definition of distance education;

amend the existing definition of the credit hour;

create a definition of academic engagement;

and update eligibility

and program design, for programs offered through the direct assessment of learning.

The final rules also make operational changes to several financial aid awarding, disbursing and refunding rules, including how aid can be delivered to students enrolled in subscription period programs, such as Capella’s FlexPath offerings.

The final rule will become effective July 1, 2021, with the option for early implementation.

Both Capella University and Strayer University opted to early implement the final rules in December 2020.

On May 6, 2020, the Department of Education published final rules related to implementation of Title IX of the Education Amendments of 1972 (“Title IX”), which prohibits discrimination on the basis of sex in education programs that receive funding from the federal government.

The final rules define what constitutes sexual harassment for purposes of Title IX in the administrative enforcement context, describe what actions trigger an institution’s obligation to respond to incidents of alleged sexual harassment, and specify how an institution must respond to allegations of sexual harassment.

Among other things, the new rules include a requirement for live hearings on Title IX sexual harassment claims, which includes direct and cross-examination of parties, university-provided advisors (in the event a student or party does not provide an advisor), rulings on questions of relevance by decision-makers, and the creation and maintenance of a record of the live hearing proceedings.

The final rule became effective August 14, 2020.

Compliance Reviews

Strayer University and Capella University are subject to announced and unannounced compliance reviews and audits by various external agencies, including the Department of Education, its Office of Inspector General (“ED OIG”), state licensing 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 Title IV programs conducted by an independent certified public accountant in accordance with Generally Accepted Government Auditing Standards and applicable ED OIG audit guides.

For fiscal years beginning after June 30, 2016, the Universities must submit such audits that have been conducted in accordance with a revised guide for audits of proprietary schools that was issued by the ED OIG in September 2016.

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 June 2019, the Department of Education conducted an announced, on-site program review at Capella University, focused on Capella University’s FlexPath program.

The review covered the 2017-2018 and 2018-2019 federal financial aid years.

The program review has not concluded.

In general, after the Department of Education conducts its site visit and reviews data supplied by the institution, it sends the institution a program review report.

The institution has the opportunity to respond to any findings in the report.

The Department of Education then issues a Final Program Review Determination, which identifies any liabilities.

The institution may appeal any monetary liabilities specified in the Final Program Review Determination.

The Universities are subject to announced and unannounced compliance reviews and audits by various external agencies, including the Department, its Office of Inspector General, state licensing agencies, guaranty agencies, and accrediting agencies.

In June 2019, the Department conducted an announced, on-site program review at Capella University, focused on Capella University’s FlexPath program.

The review covered the 2017-2018 and 2018-2019 federal student financial aid years.

The Department issued its preliminary report on November 13, 2020, and Capella University responded to the report.

On February 9, 2021, Capella University received the Department’s Final Program Review Determination, which closed the Program Review without further action required on the part of Capella University.

Program Participation Agreement

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On October 11, 2017, the Department and Strayer University executed a new Program Participation Agreement, approving Strayer University’s continued participation in Title IV programs with full certification through June 30, 2021.

Strayer University is required to apply for recertification by March 31, 2021.

As a result of the August 1, 2018 merger, Capella University experienced a change of ownership, with the Company as its new owner.

On January 18, 2019, consistent with standard procedure upon a Title IV institution’s change of ownership, the Department and Capella University executed a new Program Participation Agreement, approving Capella’s continued participation in Title IV programs with provisional certification through December 31, 2022.

As is typical, the Provisional Program Participation Agreement subjects Capella University to certain requirements during the period of provisional certification, including that Capella must apply for and receive approval from the Department in connection with establishing new locations or the addition of new Title IV-eligible educational programs.

On January 18, 2019, consistent with standard procedure upon a Title IV institution’s change of ownership, the Department and Capella University executed a new Provisional Program Participation Agreement, approving Capella’s continued participation in Title IV programs with provisional certification through December 31, 2022.

As is typical, the Provisional Program Participation Agreement subjects Capella University to certain requirements during the period of provisional certification, including that Capella must apply for and receive approval from the Department in connection with new locations or the addition of new Title IV-eligible educational programs.

Capella will be required to apply for recertification by September 30, 2022.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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What changed 10-K

Item 8. Financial Statements and Supplementary Data