Strategic Education, Inc. - Quarter Report: 2009 June (Form 10-Q)

(in thousands, except per share data)

		For the three months								For the six months
		ended June 30,								ended June 30,
		2008				2009				2008				2009
Revenues		$	97,928			$	125,931			$	195,002			$	250,409
Costs and expenses:
Instruction and educational support			32,909				40,948				64,551				80,017
Marketing and admissions			16,729				20,029				31,824				39,897
General and administration			14,683				19,875				29,462				37,805
Income from operations			33,607				45,079				69,165				92,690
Investment and other income			785				375				2,821				866
Income before income taxes			34,392				45,454				71,986				93,556
Provision for income taxes			13,069				17,954				27,142				37,003
Net income		$	21,323			$	27,500			$	44,844			$	56,553
Earnings per share:
Basic		$	1.52			$	2.01			$	3.19			$	4.11
Diluted		$	1.50			$	2.00			$	3.14			$	4.07
Weighted average shares outstanding:
Basic			14,001				13,653				14,052				13,764
Diluted			14,248				13,771				14,294				13,886
Common dividends per share:
Regular		$	0.38			$	0.50			$	0.75			$	1.00
Special			—				—			$	2.00				—

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

		For the three months								For the six months
		ended June 30,								ended June 30,
		2008				2009				2008				2009
Net income		$	21,323			$	27,500			$	44,844			$	56,553
Other comprehensive income:
Unrealized (loss) gain on investment, net of taxes			(69	)			20				(250	)			225
Comprehensive income		$	21,254			$	27,520			$	44,594			$	56,778

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

(in thousands, except share data)

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Retained				Comprehensive
		Shares				Amount				Capital				Earnings				Income (Loss)				Total
Balance at December 31, 2007			14,426,634			$	144			$	87,080			$	101,102			$	181			$	188,507
Exercise of stock options			223,000				2				10,323				—				—				10,325
Excess tax benefit from exercise of stock options and vesting of restricted shares			—				—				11,498				—				—				11,498
Repurchase of common stock			(419,682	)			(4	)			(68,972	)			—				—				(68,976	)
Restricted stock grants, net of forfeitures			42,937				—				—				—				—				—
Stock-based compensation			—				—				5,487				—				—				5,487
Common stock dividends			—				—				—				(10,691	)			—				(10,691	)
Change in net unrealized gains (losses) on marketable securities, net of income tax			—				—				—				—				(250	)			(250	)
Net income			—				—				—				44,844				—				44,844
Balance at June 30, 2008			14,272,889			$	142			$	45,416			$	135,255			$	(69	)		$	180,744

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Retained				Comprehensive
		Shares				Amount				Capital				Earnings				Income (Loss)				Total
Balance at December 31, 2008			14,089,189			$	141			$	17,185			$	158,834			$	(79	)		$	176,081
Exercise of stock options			20,000				—				1,691				—				—				1,691
Excess tax benefit from exercise of stock options and vesting of restricted shares			—				—				1,554				—				—				1,554
Repurchase of common stock			(375,885	)			(4	)			(24,768	)			(40,354	)			—				(65,126	)
Restricted stock grants, net of forfeitures			259,603				3				(3	)			—				—				—
Stock-based compensation			—				—				5,218				—				—				5,218
Common stock dividends			—				—				—				(14,130	)			—				(14,130	)
Change in net unrealized gains (losses) on marketable securities, net of income tax			—				—				—				—				225				225
Net income			—				—				—				56,553				—				56,553
Balance at June 30, 2009			13,992,907			$	140			$	877			$	160,903			$	146			$	162,066

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

(in thousands)

		For the six months ended June 30,
		2008				2009
Cash flows from operating activities:
Net income		$	44,844			$	56,553
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on disposal of assets			—				155
Amortization of gain on sale of assets			(141	)			(141	)
Amortization of deferred rent			(217	)			(91	)
Gain on sale of marketable securities			(785	)			—
Depreciation and amortization			4,991				6,600
Deferred income taxes			(2,059	)			(2,173	)
Stock-based compensation			5,487				5,218
Changes in assets and liabilities:
Tuition receivable, net			(1,755	)			546
Other current assets			(1,298	)			1,066
Other assets			(64	)			—
Accounts payable			(1,111	)			(589	)
Accrued expenses			1,155				556
Income taxes payable/receivable			5,098				6,884
Excess tax benefits from stock-based payment arrangements			(11,498	)			(1,554	)
Unearned tuition			461				(1,298	)
Deferred lease incentives			363				153
Net cash provided by operating activities			43,471				71,885
Cash flows from investing activities:
Purchases of property and equipment			(10,032	)			(13,023	)
Purchases of marketable securities			(30,180	)			(632	)
Proceeds from the sale of marketable securities			76,785				—
Net cash provided by (used in) investing activities			36,573				(13,655	)
Cash flows from financing activities:
Regular common dividends paid			(10,691	)			(14,130	)
Special common dividends paid			(28,854	)			—
Proceeds from exercise of stock options			10,325				1,691
Excess tax benefits from stock-based payment arrangements			11,498				1,554
Repurchase of common stock			(68,976	)			(65,126	)
Net cash used in financing activities			(86,698	)			(76,011	)
Net (decrease) in cash and cash equivalents			(6,654	)			(17,781	)
Cash and cash equivalents — beginning of period			95,036				56,379
Cash and cash equivalents — end of period		$	88,382			$	38,598
Non-cash transactions:
Purchases of property and equipment included in accounts payable		$	843			$	3,290

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

STRAYER EDUCATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Information as of June 30, 2008 and 2009 is unaudited.

1. Basis of Presentation

The financial statements are presented on a consolidated basis. The accompanying financial statements include the accounts of Strayer Education, Inc. and Strayer University, Inc. (the “University”), collectively referred to herein as the “Company”.

The results of operations for the three months and six months ended June 30, 2009 are not necessarily indicative of the results to be expected for the full fiscal year. All information as of June 30, 2008, December 31, 2008 and June 30, 2009 and for the three and six months ended June 30, 2008 and 2009 is unaudited but, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position, results of operations and cash flows of the Company. The year end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The Company performed an evaluation of subsequent events through July 31, 2009, which is the date the financial statements were issued.

The Company’s educational programs are offered on a quarterly basis. Approximately 97% of the Company’s revenues during the six months ended June 30, 2009 consisted of tuition revenue. Tuition revenue is recognized in the quarter of instruction. Tuition revenue is shown net of any refunds, withdrawals, corporate discounts, scholarships and employee tuition discounts. At the time of registration, a liability (unearned tuition) is recorded for academic services to be provided and a tuition receivable is recorded for the portion of the tuition not paid upfront in cash. Revenues also include application fees, commencement fees, placement test fees, withdrawal fees, textbook-related income and other income which are recognized when incurred.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

2. Nature of Operations

Strayer Education, Inc., a Maryland corporation, conducts its operations through its subsidiaries. The University is an accredited institution of higher education that provides undergraduate and graduate degrees in various fields of study through its 67 physical campuses in Alabama, Delaware, Florida, Georgia, Kentucky, Maryland, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Utah, Virginia, West Virginia, and Washington, D.C. and worldwide via the Internet.

3. Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share reflects the potential dilution that could occur assuming vesting, conversion or exercise of all dilutive unexercised stock options and restricted stock. The dilutive effect of stock options was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options, the amount of compensation cost for future service not yet recognized by the Company, and the amount of tax benefits that would be recorded in additional paid-in capital when the stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options are not included in the computation of diluted earnings per share when the stock option exercise price of an individual grant exceeds the average market price for the period. At June 30, 2009, all issued and outstanding stock options were included in the calculation.

Set forth below is a reconciliation of shares used to compute net income per share (in thousands):

		For the three months								For the six months
		ended June 30,								ended June 30,
		2008				2009				2008				2009
Weighted average shares outstanding used to compute basic net income per share			14,001				13,653				14,052				13,764
Incremental shares issuable upon the assumed exercise of stock options			74				52				66				54
Unvested restricted stock			173				66				176				68
Shares used to compute diluted net income per share			14,248				13,771				14,294				13,886

4. Credit Facilities

The Company maintains two credit facilities from two banks with borrowing availability of $10.0 million each. Interest on any borrowings under the facilities will accrue at an annual rate of no more than 1.25% above the London Interbank Offered Rate. There were no outstanding balances and there were no fees payable on either facility as of June 30, 2009.

5. Stockholders’ Equity

Common stock

A total of 20,000,000 shares of common stock, par value $0.01, have been authorized. As of December 31, 2008 and June 30, 2009, the Company had 14,089,189 and 13,992,907 shares of common stock issued and outstanding, respectively. Commencing in the fourth quarter of 2008, the Company increased the annual cash dividend from $1.50 to $2.00 per share, or $0.50 per share quarterly.

Stock-based compensation

In January 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-based Payment, (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases related to the Company’s Employee Stock Purchase Plan, based on estimated fair values. Stock-based compensation expense recognized in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2009 is based on awards ultimately expected to vest and, therefore, has been adjusted for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are based on historical experience.

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The Company has elected to estimate fair value using the Black-Scholes option pricing valuation model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statements of Income. The Company’s determination of fair value of share-based payment awards is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

Stock-based compensation plans

In July 1996, the Company’s stockholders approved 1,500,000 shares of common stock for grants under the Company’s 1996 equity compensation plan. This plan was amended by the stockholders at the May 2001 Annual Stockholders’ Meeting and at the May 2005 Annual Stockholders’ Meeting to increase the number of shares authorized for issuance thereunder by 1,000,000 and 500,000, respectively (as amended, the “Plan”). A total of 3,000,000 shares have therefore been approved for grants under the Plan. The Plan was again amended at the May 2006 Annual Stockholders’ Meeting to authorize a one-time exchange of stock options for restricted stock by employees (excluding the five highest compensated executive officers) and to permit restricted stock and cash awards to qualify for favorable tax treatment under Section 162(m) of the Internal Revenue Code. The Plan provides for the granting of stock options as well as restricted stock to employees, officers and directors of the Company at the discretion of the Board of Directors. Vesting provisions are also at the discretion of the Board of Directors. Options may be granted at option prices based at or above the fair market value of the shares at the date of grant. The maximum term of the options granted under the Plan is ten years. In 2006, the Company began granting shares of restricted stock instead of stock options. The Company believes that annual grants of restricted stock are generally preferable as an equity compensation vehicle and more suited to the Company’s long-term business model than larger, sporadic grants of stock options. This is so because shares of restricted stock have an intrinsic value when granted (as opposed to options) and therefore, the employee holding restricted stock shares a downside risk to such value with other owners of the Company’s common stock.

In May 1998, the Company adopted the Strayer Education, Inc. Employee Stock Purchase Plan (“ESPP”). Under the ESPP, eligible employees may purchase shares of the Company’s common stock, subject to certain limitations, at 90% of its market value at the date of

purchase. Purchases are limited to 10% of an employee’s eligible compensation. The aggregate number of shares of common stock that may be made available for purchase by participating employees under the ESPP is 2,500,000 shares.

In February 2009, the Company’s Board of Directors approved grants of 253,142 shares of restricted stock to certain employees. Robert Silberman, Chairman and Chief Executive Officer, was granted 183,680 of these shares of restricted stock, none of which vest until February 10, 2019, subject to the satisfaction of certain academic and financial performance criteria. Karl McDonnell, President and Chief Operating Officer, was granted 45,920 of these shares of restricted stock, none of which vest until February 10, 2014, subject to the satisfaction of the same performance criteria that apply to Mr. Silberman’s grant. The remaining 23,542 shares of restricted stock, which vest over a 3-5 year period, were granted to certain employees pursuant to the Company’s existing annual equity compensation plan. Mr. Silberman and Mr. McDonnell do not participate in the employee annual equity compensation plan. The Company’s stock price closed at $217.77 on the date of these restricted stock grants.

In April 2009, the Company awarded a total of 6,770 shares of restricted stock. These shares were awarded to various non-employee members of the Company’s Board of Directors, as part of the Company’s annual director compensation program, as well as to a recently-hired corporate officer. The Company’s stock price closed at $175.82 on the date of this restricted stock grant.

The table below sets forth the stock option activity for the six months ended June 30, 2009 and other stock option information at June 30, 2009:

										Weighted-
						Weighted-				average
						average				remaining				Aggregate intrinsic
		Number of				exercise				contractual				value(1)
		shares				price				life (yrs.)				(in thousands)
Balance, December 31, 2008			167,084			$	102.98				3.8			$	18,618
Grants			—				—
Exercises			(20,000	)		$	84.55
Forfeitures			—				—
Balance, June 30, 2009			147,084			$	105.49				2.5			$	16,564
Vested, June 30, 2009			147,084			$	105.49				2.5			$	16,564
Exercisable, June 30, 2009			147,084			$	105.49				2.5			$	16,564

The following table summarizes information regarding share-based payment arrangements for the six months ended June 30, 2008 and 2009 (in thousands):

		For the six months ended
		June 30,
		2008				2009
Proceeds from stock options exercised		$	10,325			$	1,691
Excess tax benefits related to stock options exercised and vested restricted stock		$	11,498			$	1,554
Intrinsic value of stock options exercised (1)		$	28,581			$	1,604

The following table summarizes information about the stock options to purchase the Company’s common stock at June 30, 2009:

		Options Outstanding												Options Exercisable
						Weighted-
						average
		Number				remaining				Weighted-				Number				Weighted-
		outstanding				contractual life				average				exercisable at				average
Exercise prices		at 6/30/09				(yrs.)				exercise price				6/30/09				exercise price
$67.84			6,667				0.9			$	67.84				6,667			$	67.84
$107.28			140,417				2.6			$	107.28				140,417			$	107.28
			147,084				2.5			$	105.49				147,084			$	105.49

The table below sets forth the restricted stock activity for the six months ended June 30, 2009:

						Weighted-
		Number				average grant
		of shares				price
Balance, December 31, 2008			122,095			$	124.06
Grants			259,912				216.68
Vested shares			(24,216	)			88.25
Forfeitures			(309	)			162.10
Balance, June 30, 2009			357,482			$	192.62

At June 30, 2009, total stock-based compensation cost which has not yet been recognized was $58.5 million, all for unvested restricted stock. This cost is expected to be recognized over the next 89 months on a weighted-average basis.

Valuation and Expense Information Under FAS 123(R)

The following table summarizes the stock-based compensation expense recorded for the three and six months ended June 30, 2008 and 2009 by expense line item (in thousands):

		For the three months								For the six months
		ended June 30,								ended June 30,
		2008				2009				2008				2009
Instruction and educational support		$	365			$	447			$	693			$	855
Marketing and admissions			229				30				437				67
General and administration			2,217				2,373				4,909				4,296
Stock-based compensation expense included in operating expense		$	2,811			$	2,850			$	6,039			$	5,218
Tax benefit			1,068				1,126				2,294				2,061
Stock-based compensation expense, net of tax		$	1,743			$	1,724			$	3,745			$	3,157

6. Investments in Marketable Securities

At June 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 fund’s underlying securities. As of June 30, 2009, the Company had a total of $51.8 million invested in the short-term tax-exempt bond fund. The investments are considered “available-for-sale” as they are not held for trading and will not be held to maturity, in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company records the net unrealized gains and losses for changes in fair value as a component of accumulated other comprehensive income in stockholders’ equity. Realized gains and losses from the sale of marketable securities are based on the specific identification method.

7. Long-Term Liabilities

Lease Incentives

In conjunction with the opening of new campuses and renovating existing ones, the Company, in some instances, was reimbursed by the lessors for improvements made to the leased properties. In accordance with Financial Accounting Standards Board (“FASB”) Technical Bulletin No. 88-1, these improvements were capitalized as leasehold improvements and a long-term liability was established for the reimbursements. The leasehold improvements and the long-term liability will be amortized on a straight-line basis over the corresponding lease terms, which range from five to ten years. As of December 31, 2008 and June 30, 2009, the Company had deferred lease incentives of $4.5 million and $4.1 million, respectively.

Lease Obligations

In accordance with the FASB Technical Bulletin No. 85-3, Accounting for Operating Leases with Schedule Rent Increases, the Company records rent expense on a straight-line basis over the initial term of a lease. The difference between the rent payment and the straight-line rent expense is recorded as a long-term liability. As of December 31, 2008 and June 30, 2009, the Company had deferred lease obligations of $5.1 million and $5.6 million, respectively.

Deferred Gain

In conjunction with the sale and lease back of its Loudoun, Virginia campus building in June 2007, the Company realized a gain of $2.8 million before tax, which is deferred and recognized over the 10-year lease term. The non-current portion of this gain, which was $2.1 million and $1.9 million at December 31, 2008 and June 30, 2009, respectively, is recorded as a long-term liability.

8. Income Taxes

The Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), an interpretation of FASB Statement No. 109 (“SFAS 109”) on January 1, 2007. As a result of the implementation of FIN 48, no material adjustment in the liability for unrecognized income tax benefits was recognized. The amount of unrecognized tax benefits at the adoption date of January 1, 2007 and at June 30, 2009 are immaterial. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2009, the amount of accrued interest related to uncertain tax positions was immaterial. The tax years 2005-2008 remain open to examination by the major taxing jurisdictions in which the Company is subject.

9. Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157 (‘‘SFAS 157’’), Fair Value Measurements, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 157, effective January 1, 2008, did not have a material impact on the Company’s consolidated financial position, results of operations or cash flow.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, ‘‘The Fair Value Option for Financial Assets and Financial Liabilities’’ (‘‘SFAS 159’’). This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for the first fiscal year beginning after November 15, 2007. The adoption of SFAS 159, effective January 1, 2008, did not have a material effect on the Company’s financial position or results of operations.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1 (EITF 03-6-1), “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This staff position requires certain share-based payment awards that entitle holders to receive non-forfeitable dividends before they vest to be treated as participating securities in basic and diluted EPS calculations. EITF 03-6-1 is effective for the first fiscal year beginning after December 15, 2008. The adoption of EITF 03-6-1, effective January 1, 2009, did not have a material effect on the Company’s consolidated financial statements.

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 second quarter of 2009, the Company generated $125.9 million in revenue, an increase of 29% compared to the same period in 2008, as a result of average enrollment growth of 22% and a 5% tuition increase at the beginning of 2009. Income from operations was $45.1 million for the second quarter of 2009, an increase of 34% compared to the same period in 2008. Net income was $27.5 million in the second quarter of 2009, an increase of 29%, compared to the

same period in 2008. Diluted earnings per share was $2.00 for the second quarter of 2009 compared to $1.50 for the same period in 2008, an increase of 33%.

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Enrollment. Enrollment at Strayer University for the 2009 spring term, which began April 13, 2009 and ended June 29, 2009, increased 22% to 46,038 students compared to 37,733 students for the same term in 2008. Across the Strayer University campus and online system, new student enrollments increased 26% and continuing student enrollments increased 21%. Global online enrollments increased 40%. Students taking 100% of their classes online (including campus based students) increased 24%. The total number of students taking at least one course online in the 2009 spring term increased 23% to 33,208.

Revenues. Revenues increased 29% to $125.9 million in the second quarter of 2009 from $97.9 million in the second quarter of 2008, principally due to a 22% increase in enrollment and a 5% tuition increase implemented at the beginning of 2009.

Instruction and educational support expenses. Instruction and educational support expenses increased $8.0 million, or 24%, to $40.9 million in the second quarter of 2009 from $32.9 million in the second 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 $2.5 million, $1.8 million, and $1.8 million, respectively. Instruction and educational support expenses as a percentage of revenues decreased to 32.5% in the second quarter of 2009 from 33.6% in the second quarter of 2008 largely attributable to faculty costs growing at a lower rate than tuition revenue.

Marketing and admissions expenses. Marketing and admissions expenses increased $3.3 million, or 20%, to $20.0 million in the second quarter of 2009 from $16.7 million in the second 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 15.9% in the second quarter of 2009 from 17.1% in the second quarter of 2008.

General and administration expenses. General and administration expenses increased $5.2 million, or 35%, to $19.9 million in the second quarter of 2009 from $14.7 million in the second quarter of 2008. This increase was principally due to increased employee compensation and higher bad debt expense, which increased $1.1 million and $2.5 million, respectively. General and administration expenses as a percentage of revenues increased to 15.8% in the second quarter of 2009 from 15.0% in the second quarter of 2008 primarily due to bad debt expense, partly offset by lower stock-based compensation expense.

Income from operations. Income from operations increased $11.5 million, or 34%, to $45.1 million in the second quarter of 2009 from $33.6 million in the second quarter of 2008 due to the aforementioned factors.

Investment and other income. Investment and other income decreased $0.4 million, or 52%, to $0.4 million in the second quarter of 2009 from $0.8 million in the second quarter of 2008.

The decrease was primarily attributable to lower investment yields and a lower average cash balance.

Provision for income taxes. Income tax expense increased $4.9 million, or 37%, to $18.0 million in the second quarter of 2009 from $13.1 million in the second 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 second quarter of 2009, compared to 38.0% for the second quarter of 2008. The increase in the Company’s effective tax rate is largely attributable to lower income from tax-exempt securities in 2009.

Net income. Net income increased $6.2 million, or 29%, to $27.5 million in the second quarter of 2009 from $21.3 million in the second quarter of 2008 because of the factors discussed above.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Enrollment. Average enrollment increased 22% to 45,868 students for the six months ended June 30, 2009 compared to 37,528 students for the same period in 2008.

Revenues. Revenues increased 28% to $250.4 million in the six months ended June 30, 2009 from $195.0 million in the six months ended June 30, 2008, principally due to a 22% 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 $15.4 million, or 24%, to $80.0 million in the six months ended June 30, 2009 from $64.6 million in the six months ended June 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 $4.8 million, $3.4 million, and $3.7 million, respectively. These expenses as a percentage of revenues decreased to 32.0% for the six months ended June 30, 2009 from 33.1% in the six months ended June 30, 2008.

Marketing and admissions expenses. Marketing and admissions expenses increased $8.1 million, or 25%, to $39.9 million in the six months ended June 30, 2009 from $31.8 million in the six months ended June 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 15.9% for the six months ended June 30, 2009 from 16.3% in the six months ended June 30, 2008.

General and administration expenses. General and administration expenses increased $8.3 million, or 28%, to $37.8 million in the six months ended June 30, 2009 from $29.5 million in the six months ended June 30, 2008. This increase was principally due to increased employee compensation costs and higher bad debt expense, which increased $3.3 million and $4.0 million, respectively. General and administration expenses as a percentage of revenues was 15.1% for the six months ended June 30, 2008 and 2009.

Income from operations. Income from operations increased $23.5 million, or 34%, to $92.7 million in the six months ended June 30, 2009 from $69.2 million in the six months ended June 30, 2008 due to the aforementioned factors.

Investment and other income. Investment and other income decreased $1.9 million, or 69%, to $0.9 million in the six months ended June 30, 2009 from $2.8 million in the six months ended June 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 $9.9 million, or 36%, to $37.0 million in the six months ended June 30, 2009 from $27.1 million in the six months ended June 30, 2008, primarily due to the increase in income before taxes discussed above. The Company’s effective tax rate was 39.5% for the six months ended June 30, 2009, compared to 37.7% for the six months ended June 30, 2008. The increase in the Company’s effective tax rate is largely attributable to lower income from tax-exempt securities in 2009.

Net income. Net income increased $11.8 million, or 26%, to $56.6 million in the six months ended June 30, 2009 from $44.8 million in the six months ended June 30, 2008 because of the factors discussed above.

Liquidity and Capital Resources 

At June 30, 2009, the Company had cash, cash equivalents and marketable securities of $90.4 million compared to $107.3 million at December 31, 2008 and $118.4 million at June 30, 2008. At June 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 June 30, 2009, the Company had a total of $51.8 million invested in the short-term tax-exempt bond fund. At June 30, 2009, the 850 issues in this fund had an average credit rating of AA, an average maturity of 1.1 years, an average duration of 1.0 years, as well as an average yield to maturity of 1.4%. The Company had no debt as of December 31, 2008 and June 30, 2009.

For the six months ended June 30, 2009, the Company generated $71.9 million of net cash from operating activities compared to $43.5 million for the same period in 2008. Capital expenditures were $13.0 million for the six months ended June 30, 2009 compared to $10.0 million for the same period in 2008. During the six months ended June 30, 2009, the Company paid regular, quarterly dividends totaling $14.1 million ($0.50 per share for each dividend). The Company also received $1.7 million upon the exercise of options to purchase 20,000 shares of Company stock. During the three months ended June 30, 2009, the Company invested $5.1 million for the repurchase of 27,800 shares of stock at an average price of $181.95 per share as part of a previously announced stock repurchase authorization. The Company’s remaining authorization for stock repurchases was $5.0 million at June 30, 2009, having spent $65.1 million for repurchases in the six months ended June 30, 2009.

In the second quarter of 2009, bad debt expense as a percentage of revenues was 4.2% compared to 2.8% for the same period in 2008. Days sales outstanding, adjusted to exclude

tuition receivable related to future quarters, was 15 days at the end of the second quarter of 2009, compared to 12 days at the end of the second 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 two $10.0 million credit facilities from two banks. There have been no borrowings by the Company under these credit facilities. The Company believes that existing cash and cash equivalents, cash generated from operating activities, and if necessary, cash borrowed under the credit facilities, 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 June 30, 2009.

		Payments due by period (in thousands)
										2-3				4-5				After 5
		Total				Within 1 Year				Years				Years				Years
Operating leases		$	190,838			$	23,363			$	49,212			$	42,910			$	75,353

New Campuses

Strayer University is opening four new campuses in preparation for the fall academic term. Two campuses will be located in the state of Ohio serving the Cleveland and Akron markets. The third campus will be located in Florence, Kentucky, which will serve residents in the Cincinnati, Ohio market. The fourth new campus will be in Miami, Florida. These four new campuses, together with the seven campuses opened earlier this year, will complete the Company’s planned 11 campus openings in 2009. In October, the Company intends to announce the number of new campuses Strayer University plans to open in 2010.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

The Company is subject to the impact of interest rate changes and may be subject to changes in the market values of its future investments. The Company invests its excess cash in bank overnight deposits, money market funds and a short-term tax-exempt bond fund. The Company has not used derivative financial instruments in its investment portfolio.

Earnings from investments in bank overnight deposits, money market mutual funds, and short-term tax-exempt bond funds may be adversely affected in the future should interest rates change. The Company’s future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. As of June 30, 2009, a 10% increase or decrease in interest rates would not have a material impact on the Company’s future earnings, fair values, or cash flows related to investments in cash equivalents or interest earning marketable securities.

ITEM 4: CONTROLS AND PROCEDURES

a)		Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2009. Based upon such review, the Chief Executive Officer and Chief Financial Officer have concluded that the Company has in place, as of June 30, 2009, effective controls and procedures designed to ensure that information required to be disclosed by the Company (including consolidated subsidiaries) in the reports it files or submits under the Securities Exchange Act of 1934, as amended, and the rules thereunder, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in reports it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
b)		Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company is involved in litigation and other legal proceedings arising out of the ordinary course of its business. There are no pending material legal proceedings to which the Company is subject or to which the Company’s property is subject.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously described in Part I, Item 1A included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended June 30, 2009, the Company used $5.1 million to repurchase shares of common stock under its repurchase program⁽¹⁾. The Company’s remaining authorization for common stock repurchases was $5.0 million at June 30, 2009. A summary of the Company’s share repurchases during the quarter is set forth below:

										Total number of				Approximate dollar
										shares purchased				value of shares that
		Total number				Average				as part of publicly				may yet be purchased
		of shares				price paid				announced plans				under the plans or
		purchased				per share				or programs				programs ($ mil)
Beginning Balance (at 3/31/09)														$	10.1
April			—				—				—				—
May			27,800			$	181.95				27,800				(5.1	)
June			—				—				—				—
Total (at 6/30/09)			27,800			$	181.95				27,800			$	5.0

Item 3. Defaults Upon Senior Securities.

     None

Item 4. Submission of Matter to a Vote of Security Holders.

     At the Annual Meeting of the Stockholders held on April 28, 2009, the following matters were submitted to a vote of our common stockholders:

     Proposal

     1. Election of directors:

		For				Against				Abstain
Robert S. Silberman			13,187,490				148,738				31,919
Dr. Charlotte F. Beason			13,267,457				65,093				35,596
William E. Brock			13,288,969				43,528				35,648
David A. Coulter			13,221,052				115,106				31,986
Robert R. Grusky			13,311,015				21,456				35,674
Robert L. Johnson			10,930,249				2,405,899				31,996
Todd A. Milano			10,931,508				2,404,553				32,081
G. Thomas Waite, III			13,264,047				72,097				32,000
J. David Wargo			10,929,191				2,403,253				35,701

2.

Ratification of Appointment of PricewaterhouseCoopers LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009:

For		Against		Abstain
13,270,107		62,137		35,901

     3. Re-authorization of Employee Stock Purchase Plan:

						Broker
For		Against		Abstain		Non-Votes
11,976,164		232,859		28,932		1,130,190

Item 5. Other Information.

     None

Item 6. Exhibits.  

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Act.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Act.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: July 31, 2009

Exhibit Index

Exhibit		Description
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Act.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Act.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.