What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-03-01 · 425 added, 408 removed, 930 unchanged (47% of the section changed)

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Strategic Education, Inc.

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 20 20 and 202 1

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 Income for each of the three years in the period ended December 31, 202 1

Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 202 1

Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 202 1

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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, 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”).

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, 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, 2021, 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, 2021, 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, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

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 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.

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 – Undergraduate Degree Programs

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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.

(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

Arlington, Virginia

March 1, 2021

Washington, DC

February 28, 2022

We have served as the Company’s auditor since 1993.

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Accounts payable and accrued expenses $ 104,742 $ 95,518

Income taxes payable 1,352 —

Contract liabilities 60,501 73,232

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STRATEGIC EDUCATION, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

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Restructuring costs — 12,382 25,472

Impairment of intangible assets 19,909 — —

Total costs and expenses 886,605 918,269 1,057,774

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

Income from operations 110,532 109,384 73,912

Other income 13,192 4,573 2,687

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

Provision (benefit) for income taxes ( 3,468 ) 42,586 27,689

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

Earnings (loss) per share:

Income before income taxes 123,724 113,957 76,599

Provision for income taxes 42,586 27,689 21,512

Net income $ 81,138 $ 86,268 $ 55,087

Earnings per share:

Basic $ 3.73 $ 3.81 $ 2.30

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STRATEGIC EDUCATION, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

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2019 2020 2021

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

Net income $ 81,138 $ 86,268 $ 55,087

Other comprehensive income:

Foreign currency translation adjustments — 48,068 ( 39,392 )

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

Comprehensive income (loss) $ ( 15,639 ) $ 81,339 $ 134,915

Unrealized gains (losses) on marketable securities, net of tax 201 579 ( 285 )

Comprehensive income $ 81,339 $ 134,915 $ 15,410

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

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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 — — — ( 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 — — 12,033 83 — 12,116

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

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

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

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

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 — — 18,094 55 — 18,149

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Foreign currency translation adjustment — — — — ( 39,392 ) ( 39,392 )

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

Unrealized losses on marketable securities, net of tax — — — — ( 285 ) ( 285 )

Net income — — — 55,087 — 55,087

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Cash flows from operating activities:

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

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

Net income $ 81,138 $ 86,268 $ 55,087

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

Loss on sale of marketable securities — — 781

Gain on sale of property and equipment — — ( 2,656 )

Amortization of deferred financing costs 333 466 552

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Impairment of right-of-use lease assets 6,046 848 18,876

Impairment of intangible assets 19,909 — —

Changes in assets and liabilities:

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Contract liabilities 7,716 ( 10,095 ) 13,995

Other long-term liabilities ( 4,522 ) ( 3,451 ) ( 5,689 )

Other liabilities ( 3,451 ) ( 5,689 ) ( 7,369 )

Net cash provided by operating activities 202,146 142,905 180,527

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Proceeds from marketable securities 43,762 36,192 9,300

Proceeds from sale of property and equipment — — 8,331

Other investments ( 2,658 ) ( 950 ) ( 1,292 )

Net cash provided by (used in) investing activities 130,137 ( 38,066 ) ( 642,192 )

Net cash used in investing activities ( 38,066 ) ( 642,192 ) ( 33,094 )

Cash flows from financing activities:

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Strategic Education, Inc.

(“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.

(“Strategic Education” or the “Company”), a Maryland corporation, is an education 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.

As discussed in Note 2 and Note 3, the Company completed its acquisition of Torrens University and associated assets in Australia and New Zealand (“ANZ”) on November 3, 2020.

As discussed in Note 20, beginning in the first quarter of 2021 the Company changed the way management reports financial information relied on by the Chief Operating Decision Maker (“CODM”) to evaluate performance and allocate the resources of the Company.

The Company's revised organizational structure includes the following three operating and reportable segments:

Higher Education, which is primarily comprised of the Company's previous Strayer University and Capella University segments and is focused on providing flexible and affordable certificate and degree programs to working adults;

(2) Education Technology Services, a new segment that is primarily focused on developing and maintaining relationships with employers to build employee education benefits programs;

and (3) Australia/New Zealand, which provides certificate and degree programs in Australia and New Zealand.

During the first three quarters of 2021, the Education Technology Services segment was called the Alternative Learning segment.

The Australia/New Zealand segment was not changed as a result of the Company's reorganization.

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 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 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.

On November 3, 2020, the Company completed its acquisition of ANZ, 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”).

Accordingly, the financial results of the Company as of and for any periods ended prior to November 3, 2020 do not include the financial results of ANZ 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 that support students and learners.

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

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.

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") .

Amortization of intangible assets consists of amortization and depreciation expense related to intangible assets and software assets acquired through the Company's merger with Capella Education Company (“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 and integration 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 and fixed assets associated with vacating leased space in connection with the Company's restructuring plan.

See Note 5 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 financial statements of its foreign 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.

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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).

For any transaction that is in a currency different from the entity’s functional currency, the Company records a net 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) in the consolidated statements of income.

Cash and Cash Equivalents

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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 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.

The Company may be required to return certain funds for students who withdraw from a U.S.

Higher Education institution during the academic term.

The Company had approximately $ 0.1 million and $ 0.7 million of these unpaid obligations as of December 31, 2020 and 2021, 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.

In addition, a portion of tuition prepayments from 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 and 2021, the Company had approximately $ 13.9 million and $ 9.1 million, respectively, 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.

As part of commencing operations in Pennsylvania in 2003, the Company is 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.

The Company holds these funds in an interest-bearing account which is included in other assets.

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Management determines the appropriate designation of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date.

All of the Company’s marketable securities are designated as available-for-sale and consist of tax-exempt municipal securities, variable rate demand notes, and corporate debt securities.

All of the Company’s marketable securities are designated as available-for-sale and consist of tax-exempt municipal securities and corporate debt securities.

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.

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Tuition Receivable and Allowance for Credit Losses

The Company adopted Accounting Standards Update (“ASU”) No.

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

Measurement of Credit Losses on Financial Instruments (“ASC 326”) on January 1, 2020, which revised 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.

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

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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.

In the event that current collection trends differ from historical trends, an adjustment is made to the allowance for credit losses and bad debt expense.

The Company’s tuition receivable and allowance for credit losses were as follows as of December 31, 2020 and 2021 (in thousands):

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Tuition receivable, net $ 50,169 $ 51,277

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.

Approximately $ 3.6 million and $ 2.5 million of tuition receivable are included in other assets as of December 31, 2020 and 2021, respectively, because these amounts are expected to be collected after 12 months.

The following table illustrates changes in the Company’s allowance for credit losses for each of the three years ended December 31, 2021 (in thousands):

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If it is determined that an impairment loss has occurred based on expected undiscounted future cash flows, then a loss is recognized using a fair value-based model.

Through 2020, no such impairment loss had occurred.

During the year ended December 31, 2021, the Company recognized $ 2.7 million of impairment charges related to property and equipment, which is included in Restructuring costs on the consolidated statements of income.

Depreciation and amortization of property and equipment is calculated using the straight-line method over the estimated useful lives ranging from three years to 40 years.

Depreciation and amortization expense was $ 49.5 million, $ 51.8 million and $ 59.1 million for the years ended December 31, 2019, 2020, and 2021, respectively.

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).

Included in the 2019, 2020, and 2021 depreciation and amortization expense amount is $ 6.3 million, $ 6.9 million and $ 7.2 million of depreciation expense, respectively, related to computer software acquired in the Capella Education Company merger in 2018 and content acquired in the ANZ acquisition in 2020, which is included in Amortization of intangible assets on the consolidated statements of income.

Repairs and maintenance costs are expensed as incurred.

During the year ended December 31, 2021, the Company evaluated its leased and owned campus portfolio, which resulted in the decision to downsize or exit several of its underutilized campus locations, including two of its owned U.S.

Higher Education campuses.

In 2021, the Company sold the long-lived assets, consisting of land, buildings, and building improvements, related to the two owned campuses and recognized a $ 2.7 million gain on sale, which is included in Restructuring costs on the consolidated statements of income.

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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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 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 (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.

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

The Company combines lease and non-lease components for all leases.

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See Note 8 for additional information.

The Fair Value Measurement Topic, ASC 820-10 (“ASC 820-10”), establishes a framework for measuring fair value, establishes a fair value hierarchy based upon the observability of inputs used to measure fair value, and expands disclosures about fair value measurements.

about fair value measurements.

Assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

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The Company expenses advertising costs in the quarter incurred.

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).

Advertising costs were $ 149.8 million, $ 161.5 million and $ 165.1 million for the years ended December 31, 2019, 2020, and 2021, respectively, and are included within General and administration expense in our consolidated statements of income.

Stock-Based Compensation

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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 (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.

Stock-based compensation expense recognized in the consolidated statements of income for each of the three years in the period ended December 31, 2021 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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Refer to Note 15 for additional information.

Net Income (Loss) Per Share

Net Income Per Share

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

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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):

Set forth below is a reconciliation of shares used to calculate basic and diluted earnings per share for each of the three years ended December 31, 2021 (in thousands):

2019 2020 2021

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Unvested restricted stock and restricted stock units 318 213 162

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

Shares used to compute diluted earnings per share 22,097 22,860 24,122

Anti-dilutive shares excluded from the diluted earnings per share calculation 16 63 324

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, and foreign currency translation adjustments.

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.

Comprehensive Income

Comprehensive income includes net income 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, and foreign currency translation adjustments.

As of December 31, 2019, 2020, and 2021, the balance of accumulated other comprehensive income was $ 233,000 , net of tax of $ 90,000 , $ 48.9 million, net of tax of $ 0.3 million, and $ 9.2 million, net of tax of $ 0.2 million, respectively.

There were no reclassifications out of accumulated other comprehensive income to net income for the years ended December 31, 2019 and 2021.

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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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 (loss).

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 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 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.

During the years ended December 31, 2020 and 2021, 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.

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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.

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

On November 3, 2020, the Company completed its acquisition of Torrens University and associated assets in Australia and New Zealand 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 approximately 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 $ 11.0 million of net cash at close, and $ 4.7 million related to higher net working capital.

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.

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 $ 546.3 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):

The Company incurred $ 8.1 million of acquisition-related costs related to this acquisition.

During the year ended December 31, 2021, the Company finalized the fair value of assets acquired and liabilities assumed.

In 2021, the Company recorded a measurement period adjustment that reduced Property and equipment, net by $ 0.3 million and increased goodwill by $ 0.3 million.

This measurement period adjustment is reflected in the fair value of assets acquired and liabilities assumed in the table below.

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

Cash and cash equivalents $ 16,082

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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.

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

Pro Forma Financial information

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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, 2021 are not presented below because the results of ANZ are included in the Company's December 31, 2021 consolidated statement of income.

Pro Forma Combined

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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 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.

Outstanding equity awards held by existing CEC employees and certain non-employee directors of CEC were assumed by the Company and converted into comparable Company awards at the exchange ratio.

Outstanding equity awards held by CEC non-employee directors who did not serve as directors of the Company after completion of the merger were converted to Company awards and settled.

Outstanding equity awards held by former CEC employees were settled upon completion of the merger in exchange for cash payments as specified in the merger agreement.

The following table summarizes the components of the aggregate consideration transferred for the acquisition of CEC (in thousands):

Fair value of Company common stock issued in exchange for CEC outstanding shares (1)

Fair value of Company equity-based awards issued in exchange for CEC equity-based awards 27,478

Total fair value of consideration transferred $ 1,236,961

_____________________________________________________

(1) The Company issued 10,263,775 common shares at a market price of $ 117.84 in exchange for each issued and outstanding share of CEC common stock.

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.

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 (loss).

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

During the year ended December 31, 2019, the Company finalized the fair value of assets acquired and liabilities assumed.

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

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.

These adjustments resulted in a $ 0.5 million decrease to goodwill recognized in connection with the CEC merger during the year ended December 31, 2019.

All measurement period adjustments are reflected in the fair value of assets acquired and liabilities assumed in the table below.

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

Cash and cash equivalents $ 167,859

Marketable securities 31,419

Tuition receivable 36,716

Income tax receivable 163

Other current assets 9,041

Marketable securities, non-current 34,700

Property and equipment, net 53,182

Other assets 14,556

Intangible assets 349,800

Goodwill 725,275

Total assets acquired 1,422,711

Accounts payable and accrued expenses ( 48,103 )

Contract liabilities ( 39,000 )

Deferred income taxes ( 96,320 )

Other long-term liabilities ( 2,327 )

Total liabilities assumed ( 185,750 )

Total consideration $ 1,236,961

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 $ 183,800 Indefinite

Student relationships 166,000 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 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 (loss) for the year ended December 31, 2018 were $ 160.4 million and $ 39.6 million, respectively.

Pro Forma Financial information

The following unaudited pro forma information has been presented as if the CEC acquisition occurred on January 1, 2018.

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 year ended December 31, 2018;

• 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, 2018, 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 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

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.

Torrens University offers the majority of its education programs on a trimester system having three primary academic terms, which all occur within the 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, 2019, 2020, and 2021 (in thousands):

2019 2020 2021

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

Capella University Segment

Higher Education Segment

Tuition, net of discounts, grants and scholarships $ 923,534 $ 928,476 $ 795,266

39,518 38,103 34,004

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

Higher Education Segment 963,052 966,579 829,270

Australia/New Zealand Segment

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Total Australia/New Zealand Segment — 23,381 250,124

Education Technology Services Segment (2)

34,085 37,693 52,292

Consolidated revenue $ 997,137 $ 1,027,653 $ 1,131,686

___________________________________________________________

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

(1) Other revenue is primarily comprised of academic fees, sales of course materials, placement fees and other non-tuition revenue streams.

(2) Education Technology Services revenue is primarily derived from tuition 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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The Company generally determines standalone selling prices based on the prices charged to customers and observable market prices.

The standalone selling price of material rights to receive free classes in the future is estimated based on class tuition prices and likelihood of redemption based on historical student attendance and completion behavior.

The standalone selling price of material rights to receive free classes or scholarships in the future is estimated based on class tuition prices or amounts of scholarships, and likelihood of redemption based on historical student attendance and completion behavior.

At the start of each academic term or program, a contract liability is recorded for academic services to be provided, and a tuition receivable is recorded for the portion of the tuition not paid in advance.

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Some students may be eligible for scholarship awards, the estimated value of which will be realized in the future and is deducted from revenue when earned, based on historical student attendance and completion behavior.

Contract liabilities are recorded as a current or long-term liability in the consolidated balance sheets based on when the benefit is expected to be realized.

Course materials available through Capella University enable students to access electronically all required materials for courses in which they enroll during the quarter.

Contract liabilities are recorded as a current or long-term liability in the consolidated balance sheets based on when the performance obligations are expected to be satisfied and the related benefits are expected to be realized.

Substantially all of the contract liability balance classified as short term at the beginning of the year was recognized into revenue during the year ended December 31, 2021.

Course materials are available to enable students to access electronically all required materials for courses in which they enroll during the quarter.

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.

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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.

Students 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.

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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.

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

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

The Company defers the value of the related performance obligation associated with the credits estimated to be redeemed in the future based on the underlying revenue transactions that result in progress by the student toward earning the benefit.

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

underlying revenue transactions that result in progress by the student toward earning the benefit.

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

Each quarter, the Company assesses its methodologies and assumptions underlying these estimates, and to date, any adjustments to the estimates have not been material.

Each quarter, the Company assesses its assumptions underlying these estimates, and to date, any adjustments to the estimates have not been material.

The amount estimated to be redeemed in the next 12 months is $ 19.5 million and is included as a current contract liability in the consolidated balance sheets.

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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

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Restructuring and Related Charges

In October 2013, the Company implemented a restructuring to better align the Company’s resources with student enrollments at the time.

This restructuring included the closing of 20 physical locations and reductions in the number of campus-based and corporate employees.

At the time of this restructuring, a liability for lease obligations, some of which continue through 2022, was recorded and measured at fair value using a discounted cash flow approach encompassing significant unobservable inputs (Level 3).

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 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).

These changes related to the integration of Capella Education Company 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.

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):

Severance and Other Employee Separation Costs

Lease and Related Costs, Net CEC Integration Plan 2020

Under this plan, the Company incurred severance and other employee separation costs related to voluntary and involuntary employee terminations.

In addition, the 2020 restructuring plan included an evaluation of the Company's owned and leased real estate portfolio, which resulted in the consolidation and sale of underutilized facilities.

During the years ended December 31, 2020 and 2021, the Company recorded right-of-use lease asset charges of approximately $ 0.4 million and $ 18.9 million, respectively, related to facilities consolidated as a result of the restructuring plan.

The Company also recorded fixed asset impairment charges of approximately $ 2.7 million during the year ended December 31, 2021.

During the year ended December 31, 2021, the Company recorded a $ 2.7 million gain from the sale of property and equipment of owned campuses that were closed in connection with the 2020 restructuring plan.

All severance and other employee separation charges, right-of-use lease asset and fixed asset impairment charges, and gains on the sale of property and equipment related to the 2020 restructuring plan are included in Restructuring costs on the consolidated statements of income.

The following details the changes in the Company’s severance and other employee separation costs restructuring liabilities for the years ended December 31, 2019, 2020, and 2021 (in thousands):

Integration Plan 2020

Restructuring Plan Total

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Adjustments — — —

( 6,540 ) — — ( 6,540 )

Balance at December 31, 2020 (1)

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___________________________________________________________

(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.

In accordance with ASC 842, the lease related restructuring liability balance as of December 31, 2018 was netted against the initial ROU lease asset recognized upon adoption.

Asset retirement obligations related to these restructured properties are also included in the adjustments amount.

(2) The current portion of restructuring liabilities was $ 6.4 million and $ 3.1 million as of December 31, 2019 and December 31, 2020, respectively, which are included in accounts payable and accrued expenses.

The long-term portion is included in other long-term liabilities.

(1) Restructuring liabilities are included in accounts payable and accrued expenses.

Marketable Securities

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

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

Tax-exempt municipal securities $ 18,546 $ 271 $ — $ 18,817

Corporate debt securities 10,898 163 — 11,061

Total $ 29,444 $ 434 $ — $ 29,878

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

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

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

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

Corporate debt securities 17,086 452 — 17,538

Total $ 37,010 $ 817 $ — $ 37,827

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Total $ 43,762 $ 36,192 $ 9,300

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.

The Company recorded approximately $ 35,000 in gross realized gains and $ 0.8 million in gross realized losses in net income during the years ended December 31, 2020 and December 31, 2021, respectively.

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

Property and Equipment

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$ 158,854 $ 150,589

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

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

The Company has long-term, non-cancelable operating leases for campuses and other administrative facilities.

These leases generally range from 1 year to 10 years and may include renewal options to extend the lease term.

In addition, the leases commonly include lease incentives in the form of rent abatements and tenant improvement allowances ("TIAs").

These leases generally range from 3 years to 15 years and may include renewal options to extend the lease term.

In addition, the leases commonly include lease incentives in the form of rent abatements and tenant improvement allowances.

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

The components of lease costs were as follows for the years ended December 31, 2019, 2020, and 2021 (in thousands)

2019 2020 2021

Operating lease cost (1)

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___________________________________________________________

(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 .

(1) During the years ended December 31, 2019 , 2020 and 2021, operating lease cost includes $ 6.0 million, $ 0.8 million, and $ 18.9 million of right-of-use lease asset impairment charges, respectively, 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, 2020 and 2021:

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Supplemental information related to the Company's leases for the years ended December 31, 2019, 2020, and 2021 (in thousands):

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

Year ended December 31, 2019 Year ended December 31, 2020 Year ended December 31, 2021

Cash paid for amounts included in the measurement of lease liabilities $ 32,883 $ 32,510 $ 43,021

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Present value of lease liabilities $ 189,826

__________________________________________________________

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

Fair Value Measurement

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Marketable securities:

Corporate debt securities 17,538 — 17,538 —

Tax-exempt municipal securities 18,817 — 18,817 —

Corporate debt securities 11,061 — 11,061 —

Total assets at fair value on a recurring basis $ 34,012 $ 4,134 $ 29,878 $ —

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Marketable securities:

Corporate debt securities 42,709 — 42,709 —

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

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

Corporate debt securities 17,538 — 17,538 —

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

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Goodwill and Intangible Assets

During the first quarter of 2021, the Company reallocated a portion of its goodwill to the Education Technology Services segment based on a relative fair value analysis performed using several probability weighted scenarios.

The following table presents changes in the carrying value of goodwill by segment for the years ended December 31, 2020 and 2021 (in thousands):

Strayer University Capella University Australia /

New Zealand Total

Higher Education Australia / New Zealand Education Technology Services Total

Balance as of December 31, 2019 $ 732,075 $ — $ — $ 732,075

Additions (1)

— 546,053 — 546,053

Impairments — — — —

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Balance as of December 31, 2020 732,075 586,451 — 1,318,526

Reporting unit reallocation (2)

( 100,000 ) — 100,000 —

Additions — — — —

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Balance as of December 31, 2021 $ 632,075 $ 553,789 $ 100,000 $ 1,285,864

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 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.

___________________________________________________

(1) Represents additions related to the acquisition of ANZ in 2020, as discussed in Note 3.

(2) Represents the reallocation of goodwill as a result of the Company reorganizing its segments in 2021.

(3) Represents a measurement period adjustment recorded in 2021, as discussed in Note 3.

The Company assesses goodwill at least annually for impairment during 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 2021, the Company performed a qualitative impairment assessment of goodwill assigned to its reporting units using the first day of the fourth quarter of 2021 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 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).

There were no impairment charges related to goodwill recorded during the years ended December 31, 2019, 2020, and 2021.

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):

The following table represents the balance of the Company’s intangible assets as of December 31, 2020 and 2021 (in thousands):

December 31, 2020 December 31, 2021

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In addition, there are no legal, regulatory, contractual, economic, or other factors to limit the useful life of the trade name intangibles.

The Company assesses indefinite-lived intangible assets 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.

The Company assesses indefinite-lived intangible assets at least annually for impairment during 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 2021, the Company performed a qualitative impairment assessment related to its indefinite-lived intangible assets using the first day of the fourth quarter of 2021 as the assessment date.

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There were no impairment charges related to indefinite-lived intangible assets recorded during the years ended December 31, 2019, 2020, and 2021.

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 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, 2020 and 2021 (in thousands):

4 unchanged sentences

Other investments 2,527 3,576

Tuition receivable, non-current 3,585 2,466

Other 4,218 4,864

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

Other assets $ 54,928 $ 52,297

Prepaid Expenses

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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.

As of December 31, 2020 and 2021, $ 20.7 million and $ 19.2 million, respectively, 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.

Equity Method Investments

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

Tuition Receivable

Non-current tuition receivable represents tuition that the Company expects to collect, but not within the next 12 months.

Other is comprised primarily of deferred financing costs associated with the Company's credit facility, deferred contract costs related to commissions paid by ANZ to third party international agents, and refundable security deposits associated with the Company's leased campus and office space.

Accounts Payable and Accrued Expenses

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Accrued compensation and benefits 33,160 27,424

Accrued student obligations 4,580 4,017

Real estate liabilities 751 668

Other 4,070 2,848

Accrued student obligations and other 7,533 22,754

Accounts payable and accrued liabilities $ 104,742 $ 95,518

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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.

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 Revolving Credit Facility.

The Amended Credit Facility is guaranteed by all domestic subsidiaries, subject to certain exceptions, and secured by substantially all of the assets of the Company and its subsidiary guarantors.

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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.

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.

The Company was in compliance with all the covenants of the Amended Credit Facility as of December 31, 2021.

As of December 31, 2020 and 2021, the Company had approximately $ 141.8 million and $ 141.6 million, respectively, outstanding under the Revolving Credit Facility.

Approximately $ 3.8 million and $ 3.6 million was denominated in Australian dollars as of December 31, 2020 and 2021, respectively.

During the years ended December 31, 2019, 2020 and 2021, the Company paid $ 0.5 million, $ 1.0 million and $ 2.7 million, respectively, of interest and unused commitment fees related to its Revolving Credit Facility.

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Deferred payments related to acquisitions 715 —

Employee separation costs 1,838 —

Other 2,827 3,263

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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 number of shares of common stock authorized for issuance under the 2018 Plan is 700,000 , plus the number of shares available for grant under the 2015 Plan at the time of stockholder approval of the 2018 Plan, plus the number of shares which may in the future become available under the 2015 Plan due to forfeitures of outstanding awards.

As of December 31, 2020, the Company has issued and outstanding awards under the 2018 Plan as well as the 2015 Plan, the Capella Education Company 2005 Stock Incentive Plan, and the Capella Education Company 2014 Equity Incentive Plan (collectively, the “Prior Plans”).

As of December 31, 2021, 404,787 shares were available for issuance under the 2018 Plan.

In connection with the merger with Capella Education Company on August 1, 2018, the Capella Education Company 2014 Equity Incentive Plan (the “2014 Capella Plan”) and the Capella Education Company 2005 Stock Incentive Plan (collectively, the “Capella Plans”) were assumed by the Company.

Under the Capella Plans, shares of the Company's common stock may be issued upon the exercise or settlement of equity awards that were granted prior to the merger date or pursuant to awards granted after the closing of the merger to legacy Capella Education Company employees under the 2014 Capella Plan.

As of December 31, 2021, 1,020,818 shares were available for issuance to legacy Capella Education Company employees under the 2014 Capella Plan.

As of December 31, 2021, the Company has issued and outstanding awards under the 2018 Plan as well as the 2015 Plan, the Capella Education Company 2005 Stock Incentive Plan, and the Capella Education Company 2014 Equity Incentive Plan.

Dividends paid on unvested restricted stock are reimbursed to the Company, and dividend equivalents accumulated on unvested restricted stock units are forfeited, if the recipient forfeits his or her shares as a result of termination of employment prior to vesting in the award, other than as a result of the recipient’s death, disability, or certain qualifying terminations in connection with a change in control of the Company, or unless waived by the Company.

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Grants 158,748 128.87

Awards assumed through acquisition of CEC 136,324 118.29

Vested shares ( 393,588 ) 141.75

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

Awards assumed through acquisition of CEC 319,846 66.98

Exercises ( 208,114 ) 67.61

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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, 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.

The Company paid $ 1.8 million, and received $ 1.2 million and $ 0.1 million of net cash proceeds related to stock options exercised during the years ended December 31, 2019, 2020, and 2021, respectively.

The aggregate intrinsic value of the stock options exercised during the years ended December 31, 2019, 2020, and 2021 was $ 17.4 million, $ 2.0 million and $ 24 thousand, 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.

At December 31, 2021, total stock-based compensation cost which has not yet been recognized was $ 37.6 million for unvested restricted stock and restricted stock units.

This cost is expected to be recognized over the next 2.0 years on a weighted-average basis.

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Merger and integration costs 367 — —

Restructuring costs — — ( 703 )

Stock-based compensation expense included in operating expense 12,160 14,610 18,149

1 unchanged sentence

Stock-based compensation expense, net of tax $ 9,034 $ 10,839 $ 13,340

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.

During the years ended December 31, 2019, 2020, and 2021, the Company recognized windfall tax benefits related to share-based payment arrangements of approximately $ 4.0 million, $ 2.8 million, and $ 18,000 , respectively, which were adjustments to the provision for income taxes.

Other Employee Benefit Plans

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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.

The Company incurred $ 1.5 million and $ 8.4 million in expense related to these arrangements for the benefit of ANZ employees for the years ended December 31, 2020 and 2021, respectively.

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

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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.

The Company’s Board of Directors amended the program on various dates, increasing the repurchase amount authorized and extending the expiration date.

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, 2021, $ 250 million of the Company’s share repurchase authorization was remaining for repurchases through December 31, 2022.

2 unchanged sentences

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.

Shares of common stock repurchased on the open market under the Company's repurchase program for the years ended December 31, 2019, 2020, and 2021 were as follows:

repurchased Average price

paid per share

2020 1,769 $ 139.78

2021 76,969 $ 76.72

Commitments and Contingencies

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.

The Company's U.S.

Higher Education institutions 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% 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.

118 and revalued its federal deferred tax assets based upon the new 21 % rate, which resulted in an $ 11.4 million provisional charge recorded to income tax expense during the year ended December 31, 2017.

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.

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.

These changes affect the tax deductibility of certain arrangements, which resulted in a discrete item recorded during the three months ended March 31, 2019, reducing the Company’s deferred tax assets by $ 11.5 million, and increasing the Company’s 2019 effective tax rate and future cash tax payments.

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

The income tax provision for the years ended December 31, 2019, 2020 and 2021 is summarized below (in thousands):

2019 2020 2021

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Total deferred ( 6,876 ) ( 13,620 ) ( 7,739 )

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

Total provision for income taxes $ 42,586 $ 27,689 $ 21,512

and foreign components of income (loss) before income taxes for the years ended December 31, 2019, 2020 and 2021 are summarized below (in thousands):

2019 2020 2021

United States $ 123,724 $ 128,822 $ 57,804

Foreign — ( 14,865 ) 18,795

Total income before income taxes $ 123,724 $ 113,957 $ 76,599

The Company is making an assertion that all earnings generated by its foreign subsidiaries are permanently reinvested in non-U.S.

business or are distributable to the United States without material tax implications.

As such, income taxes have not been accrued in the United States with respect to foreign subsidiary earnings.

The Company intends to continue to reinvest the earnings outside of the United States for which there would be a material tax implication to distributing, such as withholding tax, for the foreseeable future and, as a result, have not recognized additional tax expense on these earnings.

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, 2020 and 2021 (in thousands):

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Contract liabilities 8,500 10,214

Loss carryforward 4,459 7,307

Other 1,955 6,713

Stock-based compensation 6,318 7,758

Other 6,713 7,020

Other facility-related costs 582 1,916

Loss carryforward 7,307 619

Intangible assets ( 84,515 ) ( 74,016 )

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Net deferred tax liability $ ( 53,407 ) $ ( 44,595 )

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.

The valuation allowance for deferred tax assets as of December 31, 2021 was $ 0.6 million and is primarily related to net operating loss carryforwards in states where the Company does not file a consolidated tax return.

The Company concluded that it was more likely than not that the deferred tax asset for the net operating loss carryforwards would not be realized due to negative evidence outweighing the positive evidence regarding the realization of the deferred tax assets.

The Company will continue to evaluate its ability to realize its net deferred tax assets on a quarterly basis.

The Company had no valuation allowance for deferred tax assets as of December 31, 2020.

As of December 31, 2021, Loss carryforward consists of net operating losses related to the states where the Company does not file a consolidated return.

As of December 31, 2020 and 2021, 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 (loss).

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

The Company recognized $ 64,000 and $ 33,000 of expense related to interest and penalties in 2020 and 2021, respectively.

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State income taxes, net of federal benefits 4.6 5.6 3.4

Impact of foreign operations — ( 1.2 ) 2.2

Termination of deferred compensation arrangements 9.2 — —

1 unchanged sentence

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

Impact of foreign operations — — ( 1.2 )

Impairment of intangible assets ( 15.3 ) — —

Other 2.2 0.3 1.5

Effective tax rate 34.4 % 24.3 % 28.1 %

Cash payments for income taxes were $ 48.8 million, $ 45.4 million, and $ 27.3 million in 2019, 2020, and 2021, respectively.

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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.

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.

In the first quarter of 2021, the Company changed the way management reports financial information relied on by the Chief Operating Decision Maker (“CODM”) to evaluate performance and allocate the resources of the Company.

The Company’s revised organizational structure includes three operating and reportable segments:

Higher Education (“USHE”), which is primarily comprised of the Company's previous Strayer University and Capella University segments, Education Technology Services, and Australia/New Zealand.

During the first three quarters of 2021, the Education Technology Services segment was called the Alternative Learning segment.

Financial reporting under the new organizational structure began in the first quarter of 2021.

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.

The USHE segment provides flexible and affordable certificate and degree programs to working adults primarily through Strayer University and Capella University, including the Jack Welch Management Institute MBA, which is a unit of Strayer University.

USHE also operates non-degree web and mobile application development courses through Hackbright Academy and Devmountain, which are units of Strayer University.

The Education Technology Services segment is primarily focused on developing and maintaining relationships with employers to build employee education benefits programs that provide employees with access to affordable and industry relevant training, certificate, and degree programs.

The employer relationships developed by the Education Technology Services division are an important source of student enrollment for Strayer University and Capella University, and the majority of the revenue attributed to the Education Technology Services division is driven by the volume of enrollment derived from these employer relationships.

Education Technology Services also supports employer partners through Workforce Edge, a platform which provides employers a full-service education benefits administration solution, and Sophia Learning, which enables lower cost education benefits programs through the use of low-cost online general education courses recommended by the American Council on Education for credit at other colleges and universities.

The Australia/New Zealand segment is comprised of Torrens University, Think Education and Media Design School in Australia and New Zealand, which collectively offer certificate and degree programs in business, design, education, hospitality, healthcare, and technology through campuses in Australia, New Zealand, and online.

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

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2019 2020 2021

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

Capella University 156,346 460,168 466,639

Higher Education $ 963,052 $ 966,579 $ 829,270

Australia/New Zealand — 23,381 250,124

Education Technology Services 34,085 37,693 52,292

Consolidated revenues $ 997,137 $ 1,027,653 $ 1,131,686

Income (loss) from operations

Strayer University $ 62,294 $ 103,409 $ 120,398

Capella University 6,314 90,713 92,638

Higher Education $ 172,889 $ 193,393 $ 104,914

Australia/New Zealand — ( 13,275 ) 35,855

Education Technology Services 21,233 19,643 21,311

Amortization of intangible assets ( 61,667 ) ( 64,225 ) ( 51,495 )

1 unchanged sentence

Restructuring costs — ( 12,382 ) ( 25,472 )

Impairment of intangible assets ( 19,909 ) — —

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

Consolidated income from operations $ 110,532 $ 109,384 $ 73,912

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

1 unchanged sentence

Depreciation and amortization

Strayer University $ 20,427 $ 23,956 $ 24,570

Capella University 7,693 18,837 18,080

Higher Education $ 41,962 $ 41,822 $ 38,178

Australia/New Zealand — 1,930 10,640

Education Technology Services 831 828 1,067

Amortization of intangible assets 61,667 64,225 51,495

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Stock-Based compensation

Strayer University $ 11,720 $ 5,970 $ 7,292

Capella University 1,570 5,823 7,272

Higher Education $ 11,445 $ 14,452 $ 16,926

Australia/New Zealand — 46 1,359

Education Technology Services 348 112 567

Merger and integration costs 367 — —

Restructuring costs — — ( 703 )

Consolidated stock-based compensation $ 12,160 $ 14,610 $ 18,149

5 unchanged sentences

International 91,198 143,787

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

Net income (loss) 11,500 24,409 16,692 28,537

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.

Certain of these matters are discussed below.

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 accrues for estimated costs related to existing lawsuits, claims and proceedings when it is probable that it

will incur these costs in the future and the costs are reasonably estimable.

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.

On April 20, 2021, Capella University received a letter from the Department of Education referencing the Wright matter (described below), and indicating that the Department will require a fact-finding process pursuant to the borrower defense to repayment regulations to determine the validity of more than 1,000 borrower defense applications that have been submitted regarding Capella.

According to the Department, some of the applications allege similar claims as in the Wright matter concerning alleged misrepresentations of the length of time to complete doctoral programs.

Capella has since received approximately 500 applications for borrower defense to repayment and is cooperating with the Department’s fact-finding process.

At this time, the Company is unable to predict the outcome of the Department's fact-finding process or the resolution of the borrower defense applications.

Wright, et al.

Capella Education Co., et al.

(now captioned Ornelas, et al.

Capella, et al.) was filed several years ago in the United States District Court for the District of Minnesota.

After the court granted Capella’s motion to dismiss in relation to all but one plaintiff, the plaintiff filed a motion for leave to file a second amended complaint on October 5, 2020, seeking to add six named plaintiffs as well as additional sub-classes and causes of action to the lawsuit.

On September 22, 2021, the court affirmed a magistrate’s order granting plaintiffs’ motion to amend, and plaintiffs subsequently filed their second amended complaint.

In January 2022, the parties reached an agreement in principle regarding the terms of a confidential settlement, and Capella anticipates the settlement agreement will become effective in Q1 2022, at which time the parties will file a joint Stipulation of Dismissal of the case.

United States Regulation

American Rescue Plan Act of 2021

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021.

Similar to previous stimulus packages, this legislation provided additional funding for the Higher Education Emergency Relief Fund.

A small portion of the $39.6 billion allocated for institutions of higher education has been made available for student emergency aid for students at for-profit institutions.

Capella University disbursed $ 184,323 to students of the highest need in June 2021, and Strayer University disbursed $ 2,554,682 to students of the highest need in July 2021.

The legislation also amends the “90/10 Rule” to include “all federal education assistance” in the “90” side of the ratio calculation.

Business – Regulation – U.S.

Regulatory Environment – The 90/10 Rule” for a description of the 90/10 Rule.

The legislation requires the Department to conduct a negotiated rulemaking process to modify related Department regulations, which the Department has announced its intent to convene beginning no earlier than January 2022.

This rulemaking process may result in a definition of “federal education assistance” that will include tuition assistance programs offered by the U.S.

Department of Defense and U.S.

Department of Veterans Affairs, in addition to the Title IV programs already covered by the 90/10 Rule.

Under the legislation, these revisions to the 90/10 Rule would apply to institutional fiscal years beginning on or after January 1, 2023.

Further legislation has been introduced in both chambers of Congress that seeks to modify the 90/10 Rule further, including proposals to change the ratio requirement to 85/15 (federal to nonfederal revenue).

We cannot predict whether Congress will pass any of these legislative proposals.

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.

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

Among other things, this package funded the government through September 2021, provided 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 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.

The legislation also extends until January 1, 2026 expanded employer-provided educational assistance permitting employers to pay up to $5,250 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.

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;

restoring Pell Grant eligibility for incarcerated students attending non-profit institutions;

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

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

and significantly simplifying the FAFSA form.

The Department is expected to provide, 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.

In January 2021, the Department released a table of institutional allocation of funds which indicated that Capella University was eligible for $ 328,602 and Strayer University was eligible for $ 5,831,606 , all of which was disbursed to students with the highest need, in the form of direct grants in spring 2021.

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;

On January 5, 2021, former 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 or provisional approval status by the Department of Education, is subject to any punitive action by a federal or state entity, faces 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 from the closed school or program;

protects students from debt collection by the Department of Veterans Affairs (“VA”) for overpaid tuition benefits;

and establishes a number of institutional requirements, including:

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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.

and prohibiting more than three unsolicited recruiting contacts during any 1-month period.

The legislation will require guidance from the VA, and most provisions became effective August 1, 2021.

Institutions were permitted to seek waivers for certain sections of the new law if they were not able to satisfy compliance requirements by August 1, 2021, but neither Strayer University nor Capella University sought a waiver.

On June 8, 2021, President Biden signed into law the Training in High-Demand Roles to Improve Veteran Employment Act (the “THRIVE Act”), which amended provisions of the Veterans Health Care and Benefits Improvement Act and the American Rescue Plan Act.

The law requires the Department of Labor and VA to collaborate on a list of high-demand occupations for a rapid retraining assistance program.

Additionally, the law requires the Government Accountability Office to report on the outcomes and effectiveness of retraining programs.

The THRIVE Act amends the Veterans Health Care and Benefits Improvement Act by clarifying that programs pursued solely through distance education on a half-time basis or less are not eligible for the housing stipend that is generally available for retraining programs.

As noted above, the Veterans Health Care and Benefits Improvement Act prohibits certain high-pressure recruiting tactics.

The THRIVE Act requires the VA to take disciplinary action if a person with whom an institution has a recruiting or educational services agreement violates the VA’s incentive compensation bans.

On December 21, 2021, President Biden signed into law the Responsible Education Mitigating Options and Technical Extensions (“REMOTE”) Act, which amended provisions of the Veterans Health Care and Benefits Improvement Act, the American Rescue Plan Act, and the THRIVE Act.

The law includes changes to help institutions satisfy the Veterans Health Care and Benefits Improvement Act’s requirements by using the College Financing Plan template, in addition to extending some COVID-related flexibilities previously granted amid the pandemic.

The law also extends remote learning waivers, simplifies the Department of Veterans Affairs verification process for tuition reimbursement, and fixes a technical error to ensure US institutions of higher education can continue to recruit foreign students without losing GI bill funding for their students.

On March 27, 2020, Congress passed and former 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.

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.

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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.

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

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 March 30, 2021, the Secretary of Education also extended student loan relief to all Federal Family Education Loans (“FFEL”) not previously covered.

Through a series of administrative actions, student loan relief has been extended through May 1, 2022.

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

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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;

Institutions may use remaining emergency funds not given to students for 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.

Institutions received 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 .

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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.

Both Strayer University and Capella 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, Strayer University and Capella 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.

On December 8, 2021, the Department announced its intention to establish negotiated rulemaking committees to develop proposed regulations for gainful employment and other topics related to programs authorized under Title IV of the Higher Education Act of 1965, as amended, with negotiations scheduled to occur January-March 2022.

Borrower Defenses to Repayment

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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 December 10, 2019, the Secretary of Education released a formula to calculate the amount of relief a borrower may receive for a successful BDTR application.

This formula analyzed a borrower’s earnings as compared to median earnings of comparable programs to determine the amount of loans that would be discharged.

Under this formula, even successful BDTR applicants may receive only a partial loan discharge.

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.

Former 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.

On March 18, 2021, the Department revised its BDTR review process and repealed the previous administration’s partial relief formula.

Under the new BDTR procedures, the Department will grant full loan relief to borrowers with approved BDTR applications.

Additionally, the Department has eliminated certain evidentiary requirements for borrowers who have received a loan cancellation due to total or permanent disability.

These borrowers will no longer be required to provide proof of insufficient income for the relief program for the three years after discharge of their loans.

On August 10, 2021, the Department announced its intention to establish a negotiated rulemaking committee to develop proposed regulations for borrower defenses to repayment and other topics related to programs authorized under Title IV of the Higher Education Act of 1965, as amended, and solicited negotiator nominations.

Negotiated rulemaking for the Affordability and Student Loans Committee began October 4, 2021 and concluded December 10, 2021.

See “Current Negotiated Rulemaking” below.

We cannot predict the outcome of the negotiated rulemaking process.

Accrediting Agencies and State Authorization

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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.

accrediting agencies in terms of their oversight of accredited institutions and programs.

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.

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create a definition of academic engagement;

and update eligibility

and program design, for programs offered through the direct assessment of learning.

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.

The final rule became effective July 1, 2021.

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.

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The final rule became effective August 14, 2020.

On March 8, 2021, President Biden signed an executive order that requires the Secretary of Education and the Attorney General to review the previous administration’s rulemakings and guidance documents related to Title IX.

In June 2021, the Department of Education held virtual public hearings to gather information for providing enforcement of Title IX, as part of the Office for Civil Rights’ (“OCR”) comprehensive review of the regulation.

After the public hearings, the Department of Education indicated that it plans to introduce proposed rule changes for Title IX in May 2022.

On June 16, 2021, the OCR issued a notice of interpretation clarifying that the Department interprets Title IX and its enforcement authority under the regulation to include the prohibition of sex discrimination based on sexual orientation and gender identity.

On July 20, 2021, the Department of Education released a Questions and Answers document outlining the OCR's interpretation of the Title IX regulations related to sexual harassment.

On August 24, 2021, OCR, in alignment with recent federal court decisions, issued guidance indicating it would cease enforcement of Title IX’s current prohibition against consideration of statements made by individuals failing to submit to cross-examination.

In December 2021, OCR indicated that proposed rule changes for Title IX can be expected in April 2022, one month ahead of the anticipated schedule.

Current Negotiated Rulemaking

On May 26, 2021, the Department announced its intention to establish negotiated rulemaking committees to prepare proposed regulations for programs authorized under Title IV of the Higher Education Act of 1965, as amended.

As part of the notice, the Department suggested the following topics for regulation:

change of ownership and change in control of institutions of higher education under 34 CFR § 600.31;

certification procedures for participation in Title IV, HEA programs under 34 CFR § 668.13;

standards of administrative capability under 34 CFR § 668.16;

ability to benefit under 34 CFR § 668.156;

borrower defense to repayment under 34 CFR §§ 682.410, 668.411, 685.206, and 685.222;

discharges for borrowers with a total and permanent disability under 34 CFR §§ 674.61, 682.402, and 685.213;

closed school discharges under 34 CFR §§ 685.214 and

discharges for false certification of student eligibility under 34 CFR §§ 685.215(a)(1) and 682.402;

loan repayment plans under 34 CFR §§ 682.209, 682.215, 685.208, and 685.209;

the Public Service Loan Forgiveness program under 34 CFR § 685.219;

mandatory pre-dispute arbitration and prohibition of class action lawsuits provisions in institutions’ enrollment agreements (formerly under 34 CFR § 685.300) and associated counseling about such arrangements under 34 CFR § 685.304;

financial responsibility for participating institutions of higher education under 34 CFR subpart L, such as events that indicate heightened financial risk;

gainful employment (formerly located in 34 CFR subpart Q);

and Pell Grant eligibility for prison education programs under 34 CFR part 690.

Additionally, the Department invited public input on how it could address, through regulations, gaps in postsecondary outcomes such as retention, completion, loan repayment, and student loan default by race, ethnicity, gender, and other key student characteristics.

To support this work, the Department held a series of virtual public hearings in June 2021, as well as accepted written comments.

At the virtual public hearings and via written comments, members of the public discussed proposed changes for all of the issues noted above, as well as comments addressing data transparency, including disclosures of outcomes for veteran students.

The Department has indicated its intention to convene multiple committees, including the Affordability and Student Loans Committee.

See “Affordability and Student Loans Committee” below.

On October 4, 2021 the Department announced its intention to establish a negotiated rulemaking committee to prepare proposed regulations affecting institutional and programmatic eligibility, including the 90/10 rule.

As part of the notice, the Department announced public hearings on October 26 and October 27.

Meetings of this negotiated rulemaking committee are scheduled to occur January-March 2022.

We cannot predict the outcome of the negotiated rulemaking process.

Affordability and Student Loans Committee

On August 10, 2021, the Department announced its intention to establish the Affordability and Student Loans committee, to prepare proposed regulations to address the following topics:

borrower defense to repayment, closed school discharges, discharges for borrowers with a total and permanent disability, discharges for false certification of student eligibility, loan repayment plans, interest capitalization, mandatory pre-dispute arbitration and prohibition of class action lawsuits provisions in institutions’ enrollment agreements and associated counseling about such arrangements, Pell Grant eligibility or prison education programs, and the Public Service Loan Forgiveness program.

The Department also announced the formation of a Prison Education Program Subcommittee.

The Department selected negotiators in September 2021, with negotiations occurring October-December 2021.

Issue papers provided by the Department indicate the Department is considering changes to borrower to defense to repayment regulations that include eliminating a limitations period on claims, making the group claims process the default process for loan relief, establishing the borrower defense application as a form of evidence, and redefining misrepresentation.

See “Current Negotiated Rulemaking” above.

We cannot predict the outcome of the negotiated rulemaking process.

Institutional and Programmatic Eligibility Committee

On December 8, 2021, the Department announced its intention to establish the Institutional and Programmatic Eligibility committee, to prepare proposed regulations to address the following topics:

90/10, ability to benefit, certification procedures for participating in Title IV programs, change of ownership and change in control of institutions of higher education, financial responsibility for participating institutions of higher education, gainful employment, and standards of administrative capability.

Committee meetings began on January 18, 2022 and are to be completed in March 2022.

Public Service Loan Forgiveness Program

On October 6, 2021, the Department of Education announced new changes and initiatives related to the Public Service Loan Forgiveness (“PSLF”) program.

This announcement aimed to make discharge of federal student loans easier for those that participate in the PSLF.

One such way the Department of Education is streamlining the PSLF process is by implementing a time-limited waiver, which gives borrowers flexibility in counting prior payments towards PSLF, even if the previous payments were for different loan programs such as FFEL or if the payments were partial payments.

Borrowers with Direct Loans will be able to seek this waiver until October 31, 2022.

The Department of Education announced that the waiver will help over 550,000 borrowers progress towards loan relief under PSLF.

Additionally, the Department of Education plans to automate aspects of the PSLF process for federal employees and military service members.

The Department of Education plans to pair these changes to the program with increased support and communications to borrowers who may benefit from PSLF.

Compliance Reviews

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.

Strayer University and Capella University 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.

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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.

On March 17, 2021, the Department informed Strayer University that it planned to conduct an announced, remote program review.

The review commenced on April 19, 2021 and covered the 2019-2020 and 2020-2021 federal student financial aid years.

On September 21, 2021, Strayer University received the Department’s Final Program Review Determination, which closed the Program Review without further action required on the part of Strayer University.

Program Participation Agreement

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Under the agreement, the institution agrees to follow the Department’s rules and regulations governing Title IV programs.

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.

On December 13, 2021, 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 September 30, 2025.

As a result of the August 1, 2018 merger, Capella University experienced a change of ownership, with the Company as its new owner.

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Capella will be required to apply for recertification by September 30, 2022.

Federal Trade Commission

On October 6, 2021 the Federal Trade Commission (“FTC”) announced that it is resurrecting Penalty Offense Authority under Section 5(m) of the FTC Act (the “Act”).

Under the Act, the FTC may secure penalties against entities not a party to an original proceeding if the FTC can show that the entity had actual knowledge that the conduct in question was found to be unfair or deceptive.

Entities that have actual knowledge of acts or practices the FTC has found to be unlawful and that subsequently engage in such unlawful acts or practices may be held liable for civil penalties up to $43,792 per violation.

Also on October 6, 2021, in an effort to establish actual knowledge and create a pathway for penalties in the event of post-notice acts or practices, the FTC issued notice to the 70 largest for-profit schools based on enrollment and revenues.

The notice included a list of acts and practices that the FTC has determined are unfair or deceptive, including but not limited to acts relating to misrepresentation of employment opportunities and other benefits, together with citation to various prior determinations from cases previously litigated by the FTC.

Strayer and Capella University received the FTC’s notice on October 7, 2021.

The FTC made clear that receipt of the notice itself does not reflect any assessment as to whether Capella or Strayer has engaged in deceptive or unfair conduct.

Office of Enforcement

On October 8, 2021, the Department of Education announced establishment of an Office of Enforcement within the Department's Office of Federal Student Aid, designed to strengthen oversight over and enforcement against postsecondary schools that participate in federal student loan, grant, and work-study programs.

The Office of Enforcement restores an office first established by the Department in 2016.

The Office of Enforcement will be comprised of four existing divisions:

Administrative Actions and Appeals Services Group, Borrower Defense Group, Investigations Group, and Resolution and Referral Management Group.

The Department intends the Office of Enforcement to coordinate with other state and federal partners, including the Department of Justice, Consumer Financial Protection Bureau, Federal Trade Commission, and state attorneys general.

Australian Regulation

The Company operates two post-secondary educational institutions in Australia, Torrens University Australia Limited (“Torrens”) and Think:

Colleges Pty Ltd (“Think”).

In Australia, a distinction is made between higher education and vocational education organizations.

Higher education providers consist of public and private universities, Australian branches of overseas universities and other higher education providers.

Higher education qualifications consist of undergraduate awards (bachelor’s degrees, associate degrees and diplomas) and postgraduate awards (graduate certificates and diplomas, master’s degrees and doctoral degrees).

The regulation of higher education providers is undertaken at a national level by the Tertiary Education Quality and Standards Agency (“TEQSA”).

All organizations that offer higher education qualifications in or from Australia must be registered by TEQSA.

Higher education providers that have not been granted self-accrediting status must also have their courses of study accredited by TEQSA.

Registration as a higher education provider is for a fixed period of up to seven years.

TEQSA regularly reviews the conduct and operation of accredited higher education providers.

The vocational education and training (“VET”) sector consists of technical and further education institutes, agricultural colleges, adult and community education providers, community organizations, industry skill centers and private providers.

VET qualifications include certificates, diplomas and advanced diplomas.

The regulation of VET providers is undertaken at a national level by the Australian Skills Quality Authority (“ASQA”).

Organizations providing VET courses in Australia must be registered by ASQA as a Registered Training Organisation (“RTO”).

Courses offered by RTOs need to be accredited by ASQA.

Registration as an RTO is for a fixed period of up to seven years.

ASQA regularly reviews the conduct and operations of RTOs.

Torrens is one of 43 universities in Australia.

It is a for-profit entity and registered as a university by TEQSA.

As a self-accrediting university, it is not required to have its courses of study accredited by TEQSA.

Torrens is also registered by ASQA as an RTO and is thus entitled to offer vocational and training courses.

Think is one of approximately 5,000 RTOs in Australia and in that capacity is regulated by ASQA.

It is also registered as a higher education provider by TEQSA.

Its higher education courses require, and have received, accreditation by TEQSA.

Australia also maintains a Commonwealth Register of Institutions and Courses for Overseas Students (“CRICOS”) for Australian education providers that recruit, enroll and teach overseas students.

Registration in CRICOS allows providers to offer courses to overseas students studying on Australian student visas.

Both Torrens and Think are so registered.

The Commonwealth government has established income-contingent loan schemes that assist eligible fee-paying students to pay all or part of their tuition fees (separate schemes exist for higher education and vocational courses).

Under the schemes, the relevant fees are paid directly to the institutions.

A corresponding obligation then exists from the participating student to the Commonwealth government.

Neither Torrens nor Think have any responsibility in connection with the repayment of these loans by students and, generally, this assistance is not available to international students.

Both Torrens and Think are registered for the purposes of these plans (a precondition to their students being eligible to receive such loans).

New Zealand Regulation

The Company operates a post-secondary educational institution in New Zealand, Media Design School Limited (“MDS”).

MDS is a Private Training Establishment (“PTE”);

a private organization offering education or training.

It is a globally renowned and specialist provider of design and creative technology education with qualifications ranging from diplomas to postgraduate degrees.

MDS also has access to New Zealand Government student finance where study loans are offered to students who are New Zealand citizens or ordinarily resident in New Zealand, subject to certain conditions.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data