Edgar Filing: STRAYER EDUCATION INC

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 2006
COMMISSION FILE NO. 0-21039

STRAYER EDUCATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THIS CHARTER)

Maryland 52-1975978

(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)

1100 Wilson Blvd., Suite 2500
Arlington, VA 22209

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (703) 247-2500

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_]

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN
ACCELERATED FILER, OR A NON-ACCELERATED FILER. SEE DEFINITION OF "ACCELERATED
FILER" AND "LARGE ACCELERATED FILER" IN RULE 12b-2 OF THE EXCHANGE ACT. (CHECK
ONE)'

LARGE ACCELERATED FILER [X] ACCELERATED FILER [_] NON-ACCELERATED FILER [_]

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN
RULE 12b-2 OF THE EXCHANGE ACT). YES [_] NO [X]

AS OF OCTOBER 25, 2006, THERE WERE OUTSTANDING 14,363,884 SHARES OF COMMON
STOCK, PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.

STRAYER EDUCATION, INC.
INDEX
FORM 10-Q

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Condensed Consolidated Balance Sheets at December 31,
2005 and September 30, 2006..................................... 3

Unaudited Condensed Consolidated Statements of Income for the
three and nine month periods ended September 30, 2005 and 2006.. 4

Unaudited Condensed Consolidated Statements of Comprehensive
Income for the three and nine month periods ended September 30,
2005 and 2006................................................... 5

Unaudited Condensed Consolidated Statements of Stockholders'
Equity for the nine month periods ended September 30, 2005 and
2006............................................................ 6

Unaudited Condensed Consolidated Statements of Cash Flows for
the nine month periods ended September 30, 2005 and 2006........ 7

Notes to Unaudited Condensed Consolidated Financial Statements.. 8

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 17

Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 23

Item 4. Controls and Procedures......................................... 23

PART II -- OTHER INFORMATION

Item 1A. Risk Factors................................................... 24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 24

Item 6. Exhibits........................................................ 25

SIGNATURES................................................................. 26

CERTIFICATIONS

STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

December 31, September 30,
2005 2006
------------ -------------

ASSETS
Current assets:
Cash and cash equivalents ..................... $ 74,212 $ 46,854
Marketable securities available for sale, at
fair value .................................. 45,594 75,763
Income taxes receivable -- 4,557
Tuition receivable, net of allowances for
doubtful accounts of $1,927 and $2,201 at
December 31, 2005 and September 30, 2006,
respectively ................................ 55,935 75,884
Other current assets .......................... 2,581 5,243
-------- --------
Total current assets ........................ 178,322 208,301
Property and equipment, net ..................... 46,684 50,407
Deferred income taxes ........................... -- 2,331
Restricted cash ................................. 500 500
Other assets .................................... 339 813
-------- --------
Total assets ................................ $225,845 $262,352
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $ 6,402 $ 10,438
Accrued expenses .............................. 1,483 1,954
Income taxes payable .......................... 3,773 --
Unearned tuition .............................. 55,778 77,287
-------- --------
Total current liabilities ................... 67,436 89,679
Deferred income taxes ........................... 205 --
Long-term liabilities ........................... 6,364 7,138
-------- --------
Total liabilities ........................... 74,005 96,817
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; 20,000,000
shares authorized; 14,292,249 and
14,363,884 shares issued and outstanding as
of December 31, 2005 and September 30,
2006, respectively .......................... 143 142
Additional paid-in capital .................... 104,923 93,001
Retained earnings ............................. 47,020 72,536
Accumulated other comprehensive income (loss) . (246) (144)
-------- --------
Total stockholders' equity .................. 151,840 165,535
-------- --------
Total liabilities and stockholders' equity .. $225,845 $262,352
======== ========

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

STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
2005 2006 2005 2006
------- ------- -------- --------

Revenues ................................ $47,087 $56,693 $158,489 $189,341
------- ------- -------- --------
Costs and expenses: (a)
Instruction and educational support.... 18,084 21,613 56,575 66,370
Selling and promotion.................. 13,009 16,164 30,325 38,011
General and administration............. 6,422 9,918 20,037 29,503
------- ------- -------- --------
Total costs and expenses................. 37,515 47,695 106,937 133,884
------- ------- -------- --------
Income from operations................. 9,572 8,998 51,552 55,457
Investment and other income.............. 686 1,160 2,091 3,277
------- ------- -------- --------
Income before income taxes............. 10,258 10,158 53,643 58,734
Provision for income taxes............... 3,820 3,822 20,589 22,423
------- ------- -------- --------
Net income............................. $ 6,438 $ 6,336 $ 33,054 $ 36,311
======= ======= ======== ========
Net income per share:
Basic.................................. $ 0.45 $ 0.45 $ 2.28 $ 2.56
Diluted................................ $ 0.44 $ 0.44 $ 2.23 $ 2.50
Weighted average shares outstanding:
Basic.................................. 14,374 14,157 14,521 14,204
Diluted................................ 14,637 14,462 14,792 14,506

----------
(a) In 2006, the Company adopted FAS 123(R) and began recording stock-based
compensation expense for all forms of stock-based compensation. Prior to
the adoption of FAS 123(R), the Company recorded expense for some forms of
stock-based compensation such as restricted stock. The table below sets
forth the expense for various forms of stock-based compensation, including
stock options, restricted stock and cash payments on vested stock options,
recorded both prior to and after the adoption of FAS 123(R) in each of the
expense line items. See Note 5 below for more information.

For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
2005 2006 2005 2006
---- ------ ---- ------

Instruction and educational support... $-- $ 149 $-- $ 488
Selling and promotion................. -- 136 -- 409
General and administration............ 19 1,899 19 4,634

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

STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(IN THOUSANDS)

For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
2005 2006 2005 2006
------ ------ ------- -------

Net income................................. $6,438 $6,336 $33,054 $36,311
Other comprehensive income:
Unrealized gain (loss) on investment,
net of taxes........................... (20) 207 (69) 102
------ ------ ------- -------
Comprehensive income....................... $6,418 $6,543 $32,985 $36,413
====== ====== ======= =======

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

STRAYER EDUCATION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

Accumulated
Common Stock Other
------------------- Additional Retained Comprehensive
Shares Amount Paid-in Capital Earnings Income (Loss) Total
---------- ------ --------------- -------- ------------- --------

Balance at December 31, 2004 ..................... 14,669,487 $147 $140,943 $ 7,983 $(151) $148,922
Repurchase of common stock ....................... (329,161) (3) (29,990) -- -- (29,993)
Restricted stock grants .......................... 4,500 -- -- -- -- --
Stock-based compensation ......................... -- -- 19 -- -- 19
Common stock dividends ........................... -- -- -- (5,444) -- (5,444)
Change in net unrealized gains (losses)
on marketable securities, net of income tax .... -- -- -- -- (69) (69)
Net income ....................................... -- -- -- 33,054 -- 33,054
---------- ---- -------- ------- ----- --------
Balance at September 30, 2005 .................... 14,344,826 $144 $110,972 $35,593 $(220) $146,489
========== ==== ======== ======= ===== ========

Balance at December 31, 2005 ..................... 14,292,249 $143 $104,923 $ 47,020 $(246) $151,840
Exercise of stock options ........................ 147,334 2 6,502 -- -- 6,504
Tax benefit from exercise of stock options ....... -- -- 3,540 -- -- 3,540
Repurchase of common stock ....................... (276,766) (3) (27,036) -- -- (27,039)
Restricted stock grants .......................... 201,067 -- -- -- -- --
Stock-based compensation ......................... -- -- 5,072 -- -- 5,072
Common stock dividends ........................... -- -- -- (10,795) -- (10,795)
Change in net unrealized gains on marketable
securities, net of income tax ................. -- -- -- -- 102 102
Net income ........................................ -- -- -- 36,311 -- 36,311
---------- ---- --------- -------- ----- --------
Balance at September 30, 2006 .................... 14,363,884 $142 $ 93,001 $ 72,536 $(144) $165,535
========== ==== ======== ======== ===== ========

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

STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

For the nine months
ended September 30,
-------------------
2005 2006
-------- --------

Cash flows from operating activities:
Net income .......................................................... $ 33,054 $ 36,311
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred rent ..................................... 127 136
Depreciation and amortization ..................................... 4,944 5,165
Provision for student loan losses ................................. (98) (95)
Deferred income taxes ............................................. (45) (2,641)
Stock-based compensation .......................................... 19 5,072
Changes in assets and liabilities:
Tuition receivable, net ........................................... (16,554) (19,949)
Other current assets .............................................. 133 (1,911)
Other assets ...................................................... 6 (474)
Accounts payable .................................................. 1,935 4,081
Accrued expenses .................................................. (1,168) 471
Income taxes payable .............................................. (9,773) (4,790)
Excess tax benefits from stock-based payment arrangements ......... -- (3,540)
Unearned tuition .................................................. 20,723 21,509
Deferred lease incentives ......................................... 1,531 --
Student loans originated ............................................ (673) (3)
Collections on student loans receivable and held for sale ........... 709 23
-------- --------
Net cash provided by operating activities ......................... 34,870 39,365
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ................................. (9,739) (8,933)
Purchases of marketable securities .................................. -- (30,000)
-------- --------
Net cash used in investing activities ............................. (9,739) (38,933)
-------- --------
Cash flows from financing activities:
Common stock dividends paid ......................................... (5,444) (10,795)
Proceeds from exercise of stock options ............................. -- 6,504
Excess tax benefits from stock-based payment arrangements ........... -- 3,540
Repurchase of common stock .......................................... (29,993) (27,039)
-------- --------
Net cash used in financing activities ............................. (35,437) (27,790)
-------- --------
Net decrease in cash and cash equivalents ......................... (10,306) (27,358)
Cash and cash equivalents - beginning of period ....................... 97,004 74,212
-------- --------
Cash and cash equivalents - end of period ............................. $86,698 $ 46,854
======== ========
Non-cash transactions:
Purchases of property and equipment included in accounts payable .... $ 234 $ 516

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

STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF SEPTEMBER 30, 2005 AND 2006 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., Strayer
University, Inc. (the "University") and Education Loan Processing, Inc. ("ELP"),
collectively referred to herein as the "Company."

The results of operations for the three months and nine months ended September
30, 2006 are not necessarily indicative of the results to be expected for the
full fiscal year. All information as of September 30, 2005 and 2006 and for the
three and nine months ended September 30, 2005 and 2006 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 Company's educational programs are offered on a quarterly basis.
Approximately 96% of the Company's revenues during the nine months ended
September 30, 2006 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, loan
service and origination fees, textbook-related income and other income which are
recognized when incurred.

As of January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), Share-based Payment ("FAS 123(R)") using the modified
prospective method, which requires measurement of compensation cost for all
stock-based awards at fair value on the date of grant and recognition of
compensation expense over the service period for awards expected to vest. Prior
to the adoption of FAS 123(R), the Company recorded expense for some forms of
stock-based compensation such as restricted stock. With the adoption of the
provisions of FAS 123(R), the Company incurred stock-based compensation expenses
for the three months ended September 30, 2006 of $2.2 million (or $1.4 million
net of taxes) which reduced diluted earnings per share by $0.09 after tax. For
the nine months ended September 30, 2006, the Company incurred stock-based
compensation expenses of $5.5 million (or $3.4 million net of taxes) which
reduced diluted earnings per share by $0.24 after tax. The amount of stock-based
compensation expense recorded for the three and nine months ended September 30,
2005 was immaterial. See Note 5 below for more information.

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,
2005.

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 43 campuses in Pennsylvania, Delaware, Maryland, Washington,
D.C., Virginia, North Carolina, South Carolina, Tennessee, Alabama, Georgia and
Florida, and worldwide via the Internet through Strayer University Online. ELP
originates and administers student loans for the University's students. These
loans are held for sale.

3. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding. Diluted earnings per share
is computed by dividing net income by the weighted average common and
potentially dilutive common equivalent shares outstanding. 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 September 30, 2006, the Company had 160,417 issued and outstanding
stock options that were excluded from 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 nine months
ended September 30, ended September 30,
-------------------- -------------------
2005 2006 2005 2006
------ ------ ------ ------

Weighted average shares outstanding used to compute
basic net income per share......................... 14,374 14,157 14,521 14,205
Incremental shares issuable upon the assumed
exercise of stock options.......................... 263 272 271 288
Unvested restricted stock............................. -- 33 -- 13
------ ------ ------ ------
Shares used to compute diluted net income per share... 14,637 14,462 14,792 14,506
====== ====== ====== ======

4. CREDIT FACILITIES

The Company maintains two credit facilities from two banks in the amount of
$10.0 million each. Interest on any borrowings under the facilities will accrue
at an annual rate of no more than 0.75% above the London Interbank Offered Rate.
There was no outstanding balance and there were no fees payable on either
facility as of September 30, 2006. An unsecured letter of credit in the amount
of $938,000, which expires in July 2007, was issued by Strayer University in
favor of regulators in connection with their periodic approval activities.

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, 2005 and September 30, 2006, the Company had
14,292,249 and 14,363,884 shares of common stock issued and outstanding,
respectively. Commencing in the fourth quarter of 2006, the Company increased
the annual common stock cash dividend from $1.00 to $1.25 per share, or from
$0.25 to $0.3125 per share quarterly.

Stock-based compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), Share-based Payment ("FAS 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. FAS 123(R) supersedes the Company's previous
accounting under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25") for periods beginning January 1, 2006. In
March 2005, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 107 ("SAB 107") relating to FAS 123(R). The Company has applied the
provisions of SAB 107 in its adoption of FAS 123(R).

The Company adopted FAS 123(R) using the modified prospective transition method
provided under the rule, which requires the application of the accounting
standard as of January 1, 2006. The Company's consolidated financial statements
as of and for the three and nine months ended September 30, 2006 reflect the
impact of FAS 123(R). In accordance with the modified prospective transition
method provided under the rule, the Company's consolidated financial statements
for prior periods have not been restated to reflect, and do not include, the
impact of FAS 123(R). Stock-based compensation expense recognized under FAS
123(R) for the three months ended September 30, 2006 was $2.2 million (or $1.4
million after tax) and for the nine months ended September 30, 2006 was $5.5
million (or $3.4 million after tax).

FAS 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. Prior to the adoption of FAS 123(R), the
Company accounted for stock-based awards to employees and directors using the
intrinsic value method in accordance with APB 25 pursuant to Statement of
Financial Accounting Standards No. 123, Accounting for Stock-based Compensation
("FAS 123"). Under the intrinsic value method, no stock-based compensation
expense was recognized in the Company's Consolidated Statements of Income for
stock options because the exercise price of the Company's stock options granted
to employees and directors equaled the fair market value of the underlying stock
at the date of grant.

Stock-based compensation expense recognized in the Company's Consolidated
Statements of Income for the three and nine months ended September 30, 2006
included compensation

expense for share-based payment awards granted prior to, but not yet vested as
of December 31, 2005, based on the grant date fair value estimated in accordance
with the pro forma provisions of FAS 123 and compensation expense for the
share-based payment awards granted subsequent to December 31, 2005, based on the
grant date fair value estimated in accordance with the provisions of FAS 123(R).
As stock-based compensation expense recognized in the Consolidated Statements of
Income for the three and nine months ended September 30, 2006 is based on awards
ultimately expected to vest, the amounts have been reduced for estimated
forfeitures. FAS 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.

The Company's determination of fair value of share-based payment awards on the
date of grant using an option-pricing model 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 Stock Option Plan (as amended, the
"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. A total of 3,000,000 shares have therefore been
approved for grant 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 grant of options intended to qualify as incentive
stock options, and also provides for the grant of non-qualifying options and
restricted stock to employees, officers and directors of the Company. Options
and restricted stock may be granted to eligible employees, officers or 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 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 2006, the Company granted 19,500 shares of restricted stock to
several employees. These shares vest 100% on February 14, 2010. The Company's
stock price closed at $91.27 on the date of the restricted stock grant.

In February 2006, the Company's Board of Directors approved cash payments to the
holders of vested, unexercised stock options in an amount equal to the Company's
common stock dividend. These cash payments are remitted on the same dates as the
Company's dividends.

In the second quarter of 2006, the Company granted 32,765 shares of restricted
stock to employees in exchange for 105,000 stock options pursuant to the
one-time exchange offer approved by the shareholders. Of the 11 eligible
employees, 10 chose to participate in the offer. The incremental stock-based
compensation expense incurred by the Company as a result of this offer was
immaterial. The Company's stock price closed at $103.60 on the date that the
exchange offer was approved by the shareholders and priced.

In May 2006, the Company's Board of Directors approved a grant of 131,478 shares
of restricted stock to the Chairman and Chief Executive Officer. These shares
vest 100% on December 10, 2008 based on the achievement of certain performance
criteria. The performance criteria categories contained in the grant are covered
by the May 2006 amendment to the Plan, so that this restricted stock grant is
eligible for favorable tax treatment by the Company under Section 162(m) of the
Internal Revenue Code. The Company's stock price closed at $103.60 on the date
of the restricted stock grant.

In May 2006, the Company's Board of Directors granted 4,632 shares of restricted
stock to various members of the Board of Directors. These shares vest equally
over a three year period. The Company's stock price closed at $103.60 on the
date of the restricted stock grant.

In July 2006, the Company's Board of Directors approved a grant of 20,192 shares
of restricted stock to the Company's newly appointed President and Chief
Operating Officer. These shares vest 100% on July 25, 2010 based on the
achievement of certain performance criteria. The performance criteria categories
contained in the grant are covered by the May 2006 amendment to the Plan, so
that this restricted stock grant is eligible for favorable tax treatment by the
Company under Section 162(m) of the Internal Revenue Code. The Company's stock
price closed at $99.05 on the date of the restricted stock grant.

The table below sets forth the stock option activity for the nine months ended
September 30, 2006 and other stock option information at September 30, 2006:

Weighted-
average
Weighted- remaining Aggregate
average contractual intrinsic
Number exercise life value
of shares price (yrs.) (in thousands)
--------- --------- ----------- --------------

Balance, December 31, 2005........ 1,103,334 $ 62.79
Grants............................ -- --
Exercises......................... (147,334) 44.15
Forfeitures....................... (191,666) 102.64
--------- ------- --- -------
Balance, September 30, 2006...... 764,334 $ 56.39 2.5 $39,581
========= ======= === =======
Vested, September 30, 2006........ 563,917 $ 41.89 1.8 $37,399
Exercisable, September 30, 2006... 563,917 $ 41.89 1.8 $37,399

The aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value (the difference between the Company's closing stock price on the
last trading day of the third quarter of 2006 and the exercise price, multiplied
by the number of in-the-money options) that would have been received by the
option holders had all option holders exercised their options on September 30,
2006. The amount of aggregate intrinsic value will change based on the fair
market value of our stock.

The following table summarizes information regarding stock option exercises for
the nine months ended September 30, 2006 (in thousands):

For the nine months
ended September 30,
-------------------
2005 2006
---- ------
Proceeds from stock options exercised .................... -- $6,504
Tax benefits related to stock options exercised .......... -- $3,540
Intrinsic value of stock options exercised(1) ............ -- $9,098

----------
(1) Intrinsic value of stock options exercised is estimated by taking the
difference between the Company's closing stock price on the date of
exercise and the exercise price, multiplied by the number of options
exercised for each option holder and then aggregated.

The following table summarizes information about the stock options to purchase
the Company's common stock at September 30, 2006:

Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted-
average Weighted- Weighted-
Number remaining average Number average
Range of outstanding contractual exercise exercisable exercise
exercise prices at 9/30/06 life (yrs.) price at 9/30/06 price
--------------- ----------- ----------- --------- ----------- ---------
$ 33.69 - 67.87 603,917 1.7 $ 42.67 563,917 $41.89
$107.28 - 119.72 160,417 5.3 $108.06 -- --
---------------- ------- --- ------- ------- ------
$ 33.69 - 119.72 764,334 2.5 $ 56.39 563,917 $41.89

The table below sets forth the restricted stock activity for the nine months
ended September 30, 2006:

Weighted-
Number average
of shares grant price
--------- -----------
Balance, December 31, 2005............................ 4,500 $100.58
Grants................................................ 208,567 102.01
Vested shares......................................... -- --
Forfeitures........................................... (7,500) 91.27
------- -------
Balance, September 30, 2006........................... 205,567 $102.37
======= =======

At September 30, 2006, total stock-based compensation cost which has not yet
been recognized was $20.8 million, representing $16.9 million for unvested
restricted stock and $3.9 million for unvested stock options. This cost is
expected to be recognized over the next 46 months on a weighted-average basis.

Valuation and Expense Information Under FAS 123(R) and Proforma Information
Under FAS 123 for Periods Prior to January 1, 2006

For the three and nine months ended September 30, 2005, had compensation expense
been determined based on the fair value of the options at grant dates computed
in accordance with FAS 123, the pro forma amounts would be as follows (in
thousands except per share data):

For the three For the nine
months ended months ended
September 30, September 30,
2005 2005
------------- -------------
(Pro forma) (Pro forma)

Net income ..................................... $6,438 $33,054
Stock-based compensation expense, net of tax ... 921 2,099
------ -------
Pro forma net income ........................... $5,517 $30,955
====== =======
Net income per share:
As reported:
Basic .................................... $ 0.45 $ 2.28
Diluted .................................. $ 0.44 $ 2.23
Pro forma
Basic .................................... $ 0.38 $ 2.13
Diluted .................................. $ 0.37 $ 2.08

The following table summarizes the pro forma stock-based compensation expense
related to employee stock options under FAS 123 for the three and nine months
ended September 30, 2005. The table also includes the actual stock-based
compensation expense recorded for the three and nine months ended September 30,
2006 by expense line item (in thousands):

For the three months For the nine months
ended September 30, ended September 30,
--------------------- --------------------
2005 Actual 2005 Actual
(Pro forma) 2006 (Pro forma) 2006
----------- ------ ----------- ------

Instruction and educational support ............ $ 224 $ 149 $ 509 $ 488
Selling and promotion .......................... 149 136 340 409
General and administration ..................... 1,118 1,899 2,547 4,634
------ ------ ------ ------
Stock-based compensation expense included in
operating expense ........................... 1,491 2,184 3,396 5,531
Tax benefit .................................... 570 822 1,297 2,111
------ ------ ------ ------
Stock-based compensation expense, net of tax ... $ 921 $1,362 $2,099 $3,420
====== ====== ====== ======

For options granted during the three and nine months ended September 30, 2005,
the fair value of each option grant was estimated on the date of grant using the
Black-Scholes method with the following weighted-average assumptions:

For the three For the nine
months ended months ended
September 30, September 30,
2005 2005
------------- -------------
Dividend yield (1) ............................. 0.48% 0.48%
Expected volatility (2) ........................ 34.0% 34.0%
Risk-free interest rate (3) .................... 3.99% 3.90%
Expected option term (in years) (4) ............ 6.1 6.1
Weighted average fair value of options granted . $32.50 $39.61

----------
(1) The dividend yield assumption is based on the Company's history and
expectation of dividend payouts.

(2) The Company analyzed historical volatility of the Company's stock to
estimate the expected volatility.

(3) The risk-free interest rate assumption is based on observed interest rates
appropriate for the term of the Company's employee stock options.

(4) The expected option term was determined using the simplified method for
estimating expected option life.

As stock-based compensation expense recognized in the Consolidated Statements of
Income for the three and nine months ended September 30, 2006 is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures. FAS
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 were estimated based on historical experience.

6. INVESTMENTS IN MARKETABLE SECURITIES

Most of the Company's excess cash is 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 September 30, 2006, the Company had a
total of $75.8 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. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
This Interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and

measurement of a tax position taken or expected to be taken in a tax return.
This Interpretation also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. The Interpretation is effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the impact of FIN 48 on
its financial condition and results of operations.

8. LONG-TERM LIABILITIES

Lease Incentives

In conjunction with campus lease agreements, 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, 2005 and September 30, 2006, the Company had deferred lease
incentives of $3,481,000 and $3,591,000, 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, 2005 and September 30, 2006, the Company
had deferred lease obligations of $2,783,000 and $3,522,000, respectively.

Indemnification on the Sale of Student Loans

In 2003, the Company sold substantially all of its student loan portfolio to a
national student loan marketing organization. Under the terms of an
Indemnification Agreement, the Company has indemnified the purchaser of the
student loans for claims that may arise due to loan documentation, regulatory
compliance, and loan servicing for the student loans that were sold. As of
December 31, 2005 and September 30, 2006, the Company had recorded a liability
of $100,000 and $25,000, respectively, for the indemnification.

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 and regional regulatory requirements,
competitive factors, our ability to continue to implement our growth strategy,
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, 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.

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 2006, the Company generated $56.7 million in revenue, an
increase of 20% compared to the same period in 2005, as a result of average
enrollment growth of 15% and a 5% tuition increase at the beginning of 2006.
Income from operations was $9.0 million for the third quarter of 2006, a
decrease of 6% compared to the same period in 2005. In 2006, the Company began
recording stock-based compensation expense for all forms of stock-based
compensation, which amounted to $2.2 million before tax for the third quarter of
2006. Net income was $6.3 million in the third quarter of 2006, a decrease of 2%
compared to the same period in 2005. Diluted earnings per share was $0.44 in the
third quarter of 2006, the same as the comparable period in 2005. Stock-based
compensation expense reduced diluted earnings per share by $0.09 after tax in
the third quarter of 2006.

THREE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2005

Enrollment. Enrollment at Strayer University for the 2006 summer term, which
began June 26, 2006 and ended September 11, 2006, increased 15% to 23,932
students compared to 20,757 for the same term in 2005. Across the Strayer
University campus network, new student enrollments increased 15% and continuing
student enrollments also increased 15%. Campus-based students increased 14%,
with enrollment at new campuses (those in operation three years or less, of
which there were 18) growing at 91% and at mature campuses (those in operation
more than three years, of which there were 23) growing at 4%. Out of Area Online
enrollments increased 24%, while students taking 100% of their classes at
Strayer University Online (including campus-based students) increased 21%. The
total number of students taking any courses online (including students at brick
and mortar campuses taking at least one online course) in the 2006 summer term
increased to 17,015.

Revenues. Revenues increased 20% from $47.1 million in the third quarter of 2005
to $56.7 million in the third quarter of 2006, principally due to a 15% increase
in the average enrollment and a 5% tuition increase in 2006. Revenue per student
increased 4.5% in the third quarter of 2006.

Instruction and educational support expenses. Instruction and educational
support expenses increased $3.5 million, or 20%, from $18.1 million in the third
quarter of 2005 to $21.6 million in the third quarter of 2006. 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 $1.4 million, $0.8 million, and $0.6
million, respectively. The increase is also partly attributable to $0.1 million
of stock-based compensation expense. Instruction and educational support
expenses as a percentage of revenues decreased to 38.1% in the third quarter of
2006 from 38.4% in the third quarter of 2005, largely attributable to
instructional costs growing at a lower rate than tuition revenue.

Selling and promotion expenses. Selling and promotion expenses increased $3.2
million, or 24%, from $13.0 million in the third quarter of 2005 to $16.2
million in the third quarter of 2006. This increase was principally due to the
direct costs required to generate leads for enrollment growth, the addition of
admissions personnel, particularly at new campuses and at Strayer University
Online, the increase in the number of new campuses opened in 2006 compared to
2005 (eight, up from five in 2005) and stock-based compensation expense. Selling
and promotion expenses as a percentage of revenues increased from 27.6% in the
third quarter of 2005 to 28.5% in the third quarter of 2006, largely
attributable to both marketing costs and staffing costs growing faster than
tuition revenue as the Company continues to invest for growth, including the
opening of more new campuses.

General and administration expenses. General and administration expenses
increased $3.5 million, or 54%, from $6.4 million in the third quarter of 2005
to $9.9 million in the third quarter of 2006. The increase is largely
attributable to $1.9 million of stock-based compensation expense. This increase
was also due to increased employee compensation and related expenses, and higher
bad debt expense, which increased $0.6 million and $0.6 million, respectively.
General and administration

expenses as a percentage of revenues increased to 17.5% in the third quarter of
2006 from 13.6% in the third quarter of 2005 primarily due to stock-based
compensation expense.

Income from operations. Income from operations decreased $0.6 million, or 6%,
from $9.6 million in the third quarter of 2005 to $9.0 million in the third
quarter of 2006 due to the aforementioned factors. Income from operations
includes $2.2 million in stock-based compensation expense for the three months
ended September 30, 2006.

Investment and other income. Investment and other income increased $0.5 million,
or 69%, from $0.7 million in the third quarter of 2005 to $1.2 million in the
third quarter of 2006. The increase was mostly attributable to an increase in
investment yields and a higher average cash balance.

Provision for income taxes. Income tax expense was $3.8 million in the third
quarter of 2006, unchanged compared to the same period in 2005, primarily due to
income before income taxes remaining relatively unchanged. The Company's
effective tax rate was 37.6% for the third quarter of 2006, an increase compared
to 37.2% for the third quarter of 2005.

Net income. Net income decreased by $0.1 million, or 2%, from $6.4 million in
the third quarter of 2005 to $6.3 million in the third quarter of 2006 because
of the factors discussed above. Net income includes the effect of stock-based
compensation expense of $1.4 million after tax for the third quarter of 2006.

NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2005

Enrollment. Average enrollment increased 15% to 26,280 students for the nine
months ended September 30, 2006 compared to 22,768 students for the same period
in 2005.

Revenues. Revenues increased 19% from $158.5 million in the nine months ended
September 30, 2005 to $189.3 million in the nine months ended September 30,
2006, principally due to a 15% increase in average student enrollments and a 5%
tuition increase effective for 2006. Although tuition increased 5% in 2006,
revenue per student increased 3.5% due in part to a shift in mix to graduate
students who, on average, take fewer classes than undergraduate students.

Instruction and educational support expenses. Instruction and educational
support expenses increased $9.8 million, or 17%, from $56.6 million in the nine
months ended September 30, 2005 to $66.4 million in the nine months ended
September 30, 2006. 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 $3.2
million, $2.1 million, and $2.1 million, respectively. The increase is also
partly attributable to $0.5 million in stock-based compensation expense. These
expenses as a percentage of revenues decreased from 35.7% in the nine months
ended September 30, 2005 to 35.1% in the nine months ended September 30, 2006,
largely attributable to instructional costs growing at a lower rate than tuition
revenue.

Selling and promotion expenses. Selling and promotion expenses increased $7.7
million, or 25%, from $30.3 million in the nine months ended September 30, 2005
to $38.0 million in the nine months ended September 30, 2006. This increase was
principally due to the direct costs required to generate leads for enrollment
growth, the addition of admissions personnel, particularly at new campuses and
at Strayer University Online, the increase in the number of new campuses opened
in 2006 compared to 2005 (eight, up from five in 2005) and stock-based
compensation expense. These expenses as a percentage of revenues increased from
19.1% in the nine months ended September 30, 2005 to 20.1% in the nine months
ended September 30, 2006, largely attributable to both marketing costs and
staffing costs growing faster than tuition revenue as the Company continues to
invest for growth, including the opening of more new campuses.

General and administration expenses. General and administration expenses
increased $9.5 million, or 47%, from $20.0 million in the nine months ended
September 30, 2005 to $29.5 million in the nine months ended September 30, 2006.
The increase is largely attributable to $4.6 million in stock-based compensation
expense. This increase was also due to increased employee compensation and
related expenses, and higher bad debt expense, which increased $2.1 million and
$1.4 million, respectively. General and administration expenses as a percentage
of revenues increased to 15.6% in the nine months ended September 30, 2006 from
12.6% in the nine months ended September 30, 2005 primarily due to stock-based
compensation expense.

Income from operations. Income from operations increased $3.9 million, or 8%,
from $51.6 million in the nine months ended September 30, 2005 to $55.5 million
in the nine months ended September 30, 2006 due to the aforementioned factors.
Income from operations includes $5.5 million in stock-based compensation expense
for the nine months ended September 30, 2006.

Investment and other income. Investment and other income increased $1.2 million,
or 57%, from $2.1 million in the nine months ended September 30, 2005 to $3.3
million in the nine months ended September 30, 2006. The increase was primarily
attributable to an increase in investment yields and a higher average cash
balance.

Provision for income taxes. Income tax expense increased $1.8 million, or 9%,
from $20.6 million in the nine months ended September 30, 2005 to $22.4 million
in the nine months ended September 30, 2006 primarily due to the increase in
income before taxes discussed above. The Company's effective tax rate was 38.2%
for the nine months ended September 30, 2006 compared to 38.4% for the nine
months ended September 30, 2005. The decrease in the Company's effective tax
rate is primarily attributable to the increase in the Company's investment
income from tax-exempt funds.

Net income. Net income increased $3.2 million, or 10%, from $33.1 million in the
nine months ended September 30, 2005 to $36.3 million in the nine months ended
September 30, 2006 because of the factors discussed above. Net income includes
the effect of stock-based compensation expense of $3.4 million after tax for the
nine months ended September 30, 2006.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2006, the Company had cash, cash equivalents and marketable
securities of $122.6 million compared to $119.8 million at December 31, 2005 and
$112.3 million at September 30, 2005. Most of the Company's excess cash is
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, 2006, the Company had a total of $75.8 million invested in the
short-term tax-exempt bond fund, having added $30.0 million to it in the first
quarter of 2006. At September 30, 2006, the 427 issues in this fund had an
average credit rating of AA, an average maturity and an average duration of 1.2
years, as well as an average yield to maturity of 3.7%. The Company had no debt
as of December 31, 2005 or September 30, 2006.

For the nine months ended September 30, 2006, the Company generated $39.4
million net cash from operating activities compared to $34.9 million for the
same period in 2005. Capital expenditures were $8.9 million for the nine months
ended September 30, 2006 compared to $9.7 million for the same period in 2005.
For the nine months ended September 30, 2006, the Company paid $10.8 million in
cash dividends to its common stockholders compared to $5.4 million for the same
period in 2005. Commencing in the fourth quarter of 2006, the Company increased
the annual common stock cash dividend from $1.00 to $1.25 per share, or from
$0.25 to $0.3125 per share quarterly.

During the nine months ended September 30, 2006, the Company repurchased 276,766
shares of common stock at a cost of $27.0 million and an average price of $97.70
per share as part of a previously announced common stock repurchase
authorization. The Company's remaining authorization for common stock
repurchases was $5 million at September 30, 2006. On October 24, 2006, the
Company's Board of Directors amended the share repurchase program to authorize
the repurchase of an additional $35 million in value of the Company's common
stock over the next 14 months. As a result, the total remaining amount
authorized for share repurchases under the program was $40 million as of October
24, 2006.

In the third quarter of 2006, bad debt expense as a percentage of revenue was
3.2% compared to 2.5% for the same period in 2005. Days sales outstanding,
adjusted to exclude tuition receivable related to future quarters, was 10 days
at the end of the third quarter of 2006, compared to eight days in the same
period in 2005.

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, cash equivalents, and marketable securities, 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 September 30, 2006. Although they have historically been paid by
the Company, common stock dividend payments are not a contractual commitment
and, therefore, have been excluded from this table.

Payments due by period (in thousands)
-----------------------------------------------------------
2-3 4-5 After 5
Total Within 1 Year Years Years Years
----- ------------- ----- ----- -----
Operating leases $112,333 $13,441 $29,258 $27,437 $42,197

NEW CAMPUSES

The Company opened two new campuses for the 2006 fall term - in Birmingham,
Alabama, its first campus in that state, and the other in Charleston, South
Carolina, its third campus in that state. These new campuses increased the total
number of Strayer University campuses to 43, with eight opened in 2006. The
Company intends to open eight new campuses in 2007.

Subject to completion of regulatory approvals, the first two campuses, in
Louisville and Lexington, Kentucky, are currently scheduled for a winter term
2007 start of classes. Kentucky will be a new state for the University. The
Company intends to continue to open new campuses to the extent feasible subject
to regulatory and staffing constraints and consistent with maintaining high
academic quality.

BUISNESS OUTLOOK

Based on enrollment growth for the 2006 fall term and the planned investments in
opening new campuses, the Company estimates fourth quarter 2006 diluted earnings
per share will be in the range of $1.06 - $1.08, or $1.17 - $1.19 excluding
approximately $0.11 per share after tax of stock-based compensation expense as a
result of adopting FAS 123(R). Based on its fourth quarter 2006 estimates, the
Company expects its full year 2006 diluted earnings per share will be in the
range of $3.56 to $3.58, or $3.90 to $3.92 excluding the impact of FAS 123(R).

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 September 30, 2006, 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 September 30, 2006.
Based upon such review, the Chief Executive Officer and Chief Financial
Officer have concluded that the Company has in place, as of September 30,
2006, 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 September 30, 2006 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.

None

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, 2005.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the three months ended September 30, 2006, the Company used $5.4
million to repurchase shares of common stock under its repurchase
program(1). The Company's remaining authorization for common stock
repurchases was approximately $5 million at September 30, 2006. On October
24, 2006, the Company's Board of Directors amended the share repurchase
program to authorize the repurchase of an additional $35 million in value
of the Company's common stock over the next 14 months. As a result, the
total remaining amount authorized for share repurchases under the program
was $40 million as of October 24, 2006. A summary of the Company's share
repurchases during the quarter is set forth below:

Total Average Total number of Approximate dollar
number price shares purchased value of shares that
of paid as part of publicly may yet be purchased
shares per announced plans under the plans or
purchased share or programs programs ($ mil)
--------- ------- ------------------- --------------------

Beginning Balance
(at 6/30/06) $10.3
July -- -- -- --
August -- -- -- --
September 52,514 $103.05 52,514 (5.4)
------ ------- ------ -----
Total (at 9/30/06) 52,514 $103.05 52,514 $ 4.9
====== ======= ====== =====

----------
(1) The Company's repurchase program was announced on November 3, 2003 for
repurchases up to an aggregate amount of $15 million in value of common
stock through December 31, 2004. The Board of Directors amended the program
on various dates increasing the amount authorized and extending the
expiration date. Since inception, the Board of Directors has authorized up
to an aggregate amount of $145 million in value of common stock repurchases
inclusive of the amendment to the program on October 24, 2006.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.

None

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.

STRAYER EDUCATION, INC.

By: /s/ Mark C. Brown
-----------------------------------------
Mark C. Brown
Senior Vice President and Chief Financial
Officer

Date: October 31, 2006

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.