Summary of STRAYER EDUCATION INC

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Notice Regarding Forward Looking Statements Certain of the statements included in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as elsewhere in this report on Form 10-Q are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995 ("Reform Act"). These statements are based on the Company's current expectations and are subject to a number of assumptions, risks and uncertainties. In accordance with the safe harbor provisions of the Reform Act, the Company has identified important factors that could cause the actual results to differ materially from those expressed in or implied by such statements. The assumptions, uncertainties and risks include the pace of growth of student enrollment, our continued compliance with Title IV of the Higher Education Act and the regulations thereunder, as well as regional accreditation standards and state regulatory requirements, competitive factors, risks associated with the opening of new campuses, risks associated with the offering of new educational programs and adapting to other changes, risks associated with the acquisition of existing educational institutions, risks relating to the timing of regulatory approvals, our ability to continue to implement our growth strategy, risks associated with the ability of our students to finance their education in a timely manner, and general economic and market conditions. Further information about these and other relevant risks and uncertainties may be found in the Company's annual report on Form 10-K and its other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise forward looking statements, except as may be required by law.
Additional Information
We maintain a website at http://www.strayereducation.com. The information on our website is not incorporated by reference in this Quarterly Report on Form 10-Q, and our web address is included as an inactive textual reference only. We make available, free of charge through our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Results of Operations
In the third quarter of 2009, the Company generated $114.4 million in revenue, an increase of 31% compared to the same period in 2008, as a result of average enrollment growth during the quarter of 24% and a 5% tuition increase which commenced at the beginning of 2009. Income from operations was $27.3 million for the third quarter of 2009, an increase of 49% compared to the same period in 2008. Net income was $16.7 million in the third quarter of 2009, an increase of 42%, compared to the same period in 2008. Diluted earnings per share was $1.21 for the third quarter of 2009 compared to $0.83 for the same period in 2008, an increase of 46%.

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Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Enrollment. Enrollment at Strayer University for the 2009 summer term, which began July 6, 2009 and ended September 21, 2009, increased 24% to 42,516 students compared to 34,176 students for the same term in 2008. Across the Strayer University campus and online system, new student enrollments increased 28% and continuing student enrollments increased 23%. Global online enrollments increased 43%. Students taking 100% of their classes online (including campus based students) increased 25%. The total number of students taking at least one course online in the 2009 summer term increased 25% to 31,338.
Revenues. Revenues increased 31% to $114.4 million in the third quarter of 2009 from $87.0 million in the third quarter of 2008, principally due to a 24% increase in enrollment during the quarter and a 5% tuition increase implemented at the beginning of 2009.
Instruction and educational support expenses. Instruction and educational support expenses increased $9.6 million, or 31%, to $40.1 million in the third quarter of 2009 from $30.5 million in the third quarter of 2008. This increase was principally due to direct costs necessary to support the increase in student enrollments, including faculty compensation, related academic staff salaries, and campus facility costs, which increased $2.2 million, $3.6 million, and $2.4 million, respectively. Instruction and educational support expenses as a percentage of revenues remained constant at 35.1% in both the third quarter of 2008 and 2009.
Marketing and admissions expenses. Marketing and admissions expenses increased $4.4 million, or 19%, to $27.4 million in the third quarter of 2009 from $23.0 million in the third quarter of 2008. This increase was principally due to the direct costs required to build the Strayer University brand and to attract prospective students, and the addition of admissions personnel, particularly at new campuses. Marketing and admissions expenses as a percentage of revenues decreased to 24.0% in the third quarter of 2009 from 26.4% in the third quarter of 2008, largely attributable to admissions costs growing at a lower rate than revenue.
General and administration expenses. General and administration expenses increased $4.4 million, or 29%, to $19.6 million in the third quarter of 2009 from $15.2 million in the third quarter of 2008. This increase was principally due to increased employee compensation, employee relocation costs, and higher bad debt expense, which increased $0.7 million, $0.6 million, and $2.0 million, respectively, from the third quarter of 2008. General and administration expenses as a percentage of revenues decreased to 17.1% in the third quarter of 2009 from 17.5% in the third quarter of 2008, largely attributable to employee costs and stock-based compensation growing at a lower rate than revenue partly offset by higher bad debt expense.
Income from operations. Income from operations increased $9.0 million, or 49%, to $27.3 million in the third quarter of 2009 from $18.3 million in the third quarter of 2008 due to the aforementioned factors.
Investment and other income. Investment and other income decreased $0.6 million, or 68%, to $0.3 million in the third quarter of 2009 from $0.9 million in the third quarter of 2008. The decrease was primarily attributable to lower investment yields and a lower average cash balance.

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Provision for income taxes. Income tax expense increased $3.5 million, or 47%, to $10.9 million in the third quarter of 2009 from $7.4 million in the third quarter of 2008, primarily due to the increase in income before taxes attributable to the factors discussed above. The Company's effective tax rate was 39.5% for the third quarter of 2009, compared to 38.6% for the third quarter of 2008. The increase in the Company's effective tax rate is largely attributable to a lower percentage of the Company's income being derived from tax-exempt securities in 2009.
Net income. Net income increased $4.9 million, or 42%, to $16.7 million in the third quarter of 2009 from $11.8 million in the third quarter of 2008 because of the factors discussed above.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Enrollment. Average enrollment increased 23% to 44,750 students for the nine months ended September 30, 2009 compared to 36,411 students for the same period in 2008.
Revenues. Revenues increased 29% to $364.8 million in the nine months ended September 30, 2009 from $282.0 million in the nine months ended September 30, 2008, principally due to a 23% increase in average enrollment and a 5% tuition increase implemented at the beginning of 2009.
Instruction and educational support expenses. Instruction and educational support expenses increased $25.0 million, or 26%, to $120.1 million in the nine months ended September 30, 2009 from $95.1 million in the nine months ended September 30, 2008. This increase was principally due to direct costs necessary to support the increase in student enrollments, including faculty compensation, related academic staff salaries, and campus facility costs, which increased $7.0 million, $7.0 million, and $6.1 million, respectively. These expenses as a percentage of revenues decreased to 32.9% for the nine months ended September 30, 2009 from 33.7% in the nine months ended September 30, 2008. Marketing and admissions expenses. Marketing and admissions expenses increased $12.5 million, or 23%, to $67.3 million in the nine months ended September 30, 2009 from $54.8 million in the nine months ended September 30, 2008. This increase was principally due to the direct costs required to build the Strayer University brand and to attract prospective students, and the addition of admissions personnel, particularly at new campuses. These expenses as a percentage of revenues decreased to 18.4% for the nine months ended September 30, 2009 from 19.4% in the nine months ended September 30, 2008. General and administration expenses. General and administration expenses increased $12.7 million, or 28%, to $57.4 million in the nine months ended September 30, 2009 from $44.7 million in the nine months ended September 30, 2008. This increase was principally due to increased employee compensation costs and higher bad debt expense, which increased $4.0 million and $6.0 million, respectively. General and administration expenses as a percentage of revenues decreased slightly to 15.7% for the nine months ended September 30, 2009 from 15.8% in the nine months ended September 30, 2008.
Income from operations. Income from operations increased $32.6 million, or 37%, to $120.0 million in the nine months ended September 30, 2009 from $87.4 million in the nine months ended September 30, 2008 due to the aforementioned factors.

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Investment and other income. Investment and other income decreased $2.5 million, or 69%, to $1.2 million in the nine months ended September 30, 2009 from $3.7 million in the nine months ended September 30, 2008. This decrease was principally attributable to lower investment yields and a lower average cash balance, as well as a gain on sale of marketable securities of $0.8 million recognized in 2008.
Provision for income taxes. Income tax expense increased $13.3 million, or 39%, to $47.9 million in the nine months ended September 30, 2009 from $34.5 million in the nine months ended September 30, 2008, primarily due to the increase in income before taxes discussed above. The Company's effective tax rate was 39.5% for the nine months ended September 30, 2009, compared to 37.9% for the nine months ended September 30, 2008. The increase in the Company's effective tax rate is largely attributable to a lower percentage of the Company's income being derived from tax-exempt securities in 2009.
Net income. Net income increased $16.6 million, or 29%, to $73.2 million in the nine months ended September 30, 2009 from $56.6 million in the nine months ended September 30, 2008 because of the factors discussed above. Liquidity and Capital Resources
At September 30, 2009, the Company had cash, cash equivalents and marketable securities of $93.4 million compared to $107.3 million at December 31, 2008 and $117.1 million at September 30, 2008. At September 30, 2009, most of the Company's excess cash was invested in tax-exempt money market funds and a diversified, short-term, investment grade, tax-exempt bond fund to minimize the Company's principal risk and to benefit from the tax efficiency of the funds' underlying securities. As of September 30, 2009, the Company had a total of $52.3 million invested in the short-term tax-exempt bond fund. At September 30, 2009, the 971 issues in this fund had an average credit rating of AA, an average maturity of 1.2 years, an average duration of 1.1 years and an average yield to maturity of 1.0%. The Company had no debt as of December 31, 2008 and September 30, 2009.
For the nine months ended September 30, 2009, the Company generated $89.8 million of net cash from operating activities compared to $63.0 million for the same period in 2008. Capital expenditures were $22.1 million for the nine months ended September 30, 2009 compared to $15.3 million for the same period in 2008. During the nine months ended September 30, 2009, the Company paid regular, quarterly dividends totaling $21.1 million ($0.50 per share for each quarterly dividend). The Company also received $6.0 million upon the exercise of options to purchase 60,417 shares of Company stock. During the three months ended September 30, 2009, the Company invested $5.0 million for the repurchase of 24,528 shares of stock at an average price of $202.13 per share as part of a previously announced stock repurchase authorization. The Company had no remaining authorization for stock repurchases at September 30, 2009, having spent $70.1 million for repurchases in the nine months ended September 30, 2009. On October 27, 2009, the Company's Board of Directors amended the share repurchase program to authorize the repurchase of up to $100 million in value of the Company's common stock over the next 14 months.
In the third quarter of 2009, bad debt expense as a percentage of revenues was 4.5% compared to 3.7% for the same period in 2008. Days sales outstanding, adjusted to exclude tuition

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receivable related to future quarters, was 15 days at the end of the third quarter of 2009, compared to 13 days at the end of the third quarter of 2008. Currently, the Company invests its cash in bank overnight deposits, money market funds, and a short-term, tax exempt bond fund. In addition, the Company has available a $15.0 million credit facility. There has been no borrowing by the Company under this credit facility. The Company believes that existing cash and cash equivalents, cash generated from operating activities, and if necessary, cash borrowed under the credit facility, will be sufficient to meet the Company's requirements for at least the next 12 months.
The table below sets forth our contractual commitments associated with operating leases as of September 30, 2009.

                                        Payments due by period (in thousands)
                                                            2-3          4-5        After 5
                            Total       Within 1 Year      Years        Years        Years
      Operating leases   $ 199,210      $     23,874     $ 51,231     $ 45,070     $ 79,035

New Campuses
The Company is planning to open 13 new campuses in 2010. Three new campuses are currently scheduled to open for the 2010 winter term start of classes. Two of these campuses will be located in New Jersey serving the Lawrenceville and New Brunswick markets. The third new campus will be located in Little Rock, Arkansas, a new state for Strayer.
Fiscal Year 2007 Cohort Default Rate
During the third quarter, the Company received notification from the U.S. Department of Education that its cohort default rate for fiscal year 2007 (the most recent annual period for which the data is available) was 6.0% as compared to 3.8% for fiscal year 2006. The average cohort default rates for proprietary institutions nationally were 11.0% and 9.7% for fiscal years 2007 and 2006, respectively.

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