Strayer Annual Report 2012

STRAYER EDUCATION INC . 2 01 2 ANNUAL REPORT Harry E. Johnson, President and CEO, Martin Luther King Jr. National Memorial Project Foundation Inc. addresses the Strayer University Class of 2012, Verizon Center, Washington, D.C. 1 1 2 $ O 1 2 3 4 5 6 5 0 5 0 S 0 0 0 0 0 0 0 p 0 0 0 0 0 t u e r d ’ ’ 0 0 a e 0 t 0 n $30.9 i 12,000 n t ’ ’ 0 0 g E 1 1 I 14,000 $33.5 n n ’ ’ r 0 0 c o 2 2 o $41.2 16,500 l l m m ’ ’ 0 0 e 3 3 e $52.9 * 20,100 n ’ ’ t 0 0 : 4 4 23,500 $65.5 F a ’ ’ 0 0 l 5 l 5 $74.9 27,300 T ’ ’ e 0 0 r 6 6 $79.5 31,400 m ’ ’ 0 0 0 7 7 10 36,100 E $97.6 0 2 4 6 8 ’ ’ a 0 0 r 8 8 ’ n 0 $126.9 44,600 i 0 ’ ’ n 0 $1.41 0 9 g 9 ’ 0 54,300 s $172.4 O 1 ’10 ’11 ’12 ’10 ’11 ’12 $1.55 P e ’ 0 60 ,700 r $215.8 2 U $1.78 S h ’ 0 $179.1 54,200 a 3 R $2.27 r e ’ 0 51,700 $113.6 ( 4 $2.74 d R i ’ l 0 u 5 $3.26 t E e ’ d 0 6 ) $3.61 S 1 1 ’ 1 2 3 4 5 6 R N 0 U 3 6 9 2 5 0 0 0 0 0 0 7 e 0 0 0 0 0 0 e 0 $4.47 0 0 0 0 0 0 v t ’ 0 e L ’ I ’ 0 8 n 0 $5.67 n 0 u 0 c $21.7 T ’ $78.2 e 0 o ’ ’ s 0 9 m 0 $7.60 * 1 1 S $22 .8 e ’10 ’11 ’12 $92.9 * ’ ’ 0 $9.70 0 2 2 ’ $25.8 $116.7 ’ ’ 0 $8.88 0 3 $33.7 3 $147.0 ’ ’ 0 $5.76 0 4 $41.2 4 $183.2 ’ ’ 0 0 5 $48.1 5 $220.5 ’ ’ 0 0 6 6 * $52.3 $263.6 D ’ ’ 0 0 o 7 l 7 l a $64.9 $318.0 r ’ ’ 0 a 0 m 8 $80.8 8 o $396.3 u ’ ’ 0 0 n 9 t 9 s $105.1 $511.9 a ’10 ’11 ’12 ’10 ’11 ’12 r e i $131.3 n $636.7 m i l $106.0 l $627 .4 i o n s $65.9 $562.0 1 OUR BUSINESS MODEL Reprinted from the Strayer Education, Inc. 2001 Letter to Shareholders trayer Education, Inc. is an education services holding com - equal to our depreciation expenses. The investment capital Spany whose primary asset is Strayer University, a 121 year required to fund our growth initiatives is not major. This invest - old institution of higher learning focused on educating working ment capital includes traditional GAAP defined capitalized adults. In this letter, when I use the term “Strayer”, I am refer - expenses, as well as increased spending which runs through our ring to the company, as opposed to the university. Strayer income statement. We are therefore in the enviable position of University, founded in 1892, offers associate, bachelor’s, and generating almost our entire net income as distributable free cash master’s level degree programs in Business Administration, flow, even after investing in our growth. Some of this cash we do Accounting, and Computer Information Systems. Strayer serves distribute back to our shareholders as dividends. The rest of the students at 100 campuses. In addition, Strayer serves students cash we intend to maintain as liquidity to either fund new oppor - in all 50 states and more than 60 foreign countries worldwide tunities, or ultimately return to our shareholders in a tax efficient on the Internet through Strayer University Online. manner. We understand that the redeployment of this cash is cru - cial to creating shareholder value. Strayer’s revenue comes from tuition payments and fees paid by, or on behalf of, Strayer University students. That revenue As both shareholders and management, we are excited by this comes in essentially three forms. Roughly 70% is paid through business model because we believe that the value of a college federally insured student loans by banks, approximately 20% is degree is rising with the transition to a knowledge economy, paid directly to Strayer by corporations or institutions on behalf and that working adult students in search of an accredited col - of their employees who attend Strayer, and the remainder is lege degree are underserved. We know that Strayer’s academic paid by students through their own sources of credit. quality and convenience make it ideally suited to meet this growing demand. We have the right product, at the right time Strayer’s expenses include salaries paid to the faculty at the for a growing market. Our product, a quality college degree, is university who perform the teaching duties, salaries paid to the valued highly both by students and employers. administrative and admissions staff who manage the campuses and enroll the students, and salaries paid to the corporate staff In 2001, we developed and committed to a new strategic plan, who manage the company’s affairs. Expenses also include lease geared to expanding beyond our current regional focus to serve payments for the campus buildings we lease and depreciation for unmet nationwide demand for working adult post-secondary the campus buildings we own, as well as advertising and market - education. This plan consists of five elements: ing costs which serve to attract prospective students to Strayer. Finally, our expenses include supplies; such as books, desks, chairs — Maintaining enrollment in our mature campuses. and computers necessary to support the educational process. Some of the furniture and electronic equipment is capitalized on — Accelerating the addition of new campuses, particularly our balance sheet and the expense is recorded as amortization beyond our current geographic scope. over the period we expect the equipment to last, in accordance with generally accepted accounting principles. — Investing in our online university. The difference between the revenue we take in and the expenses — Maintaining strong alliances and outreach to the major we pay out is used to first pay taxes and is then added to the employers of our students. after-tax income generated by our financial assets (cash and mar - ketable securities on our balance sheet) to make up our reported — Carefully screening opportunities to redeploy capital back net income on a fully diluted basis. into the business or return it to owners. Two of the attractive attributes of our business are that it gener - ates significant after-tax free cash flow from operations, and that it has a high return on invested capital. The required capital expenditures to keep our existing assets functioning are roughly Note: Numbers that appear in italics are updated to reflect current information. 2 LETTER TO SHAREHOLDERS R OBERT S. S ILBERMAN C HAIRMAN AND C HIEF E XECUTIVE O FFICER S TRAYER E DUCATION , I NC . Dear Fellow Shareholder: In 2012, total student enrollment at Strayer University of our students. I have (our Company’s main asset) declined by 9%. Total included on pages 10 – 11 student enrollment drives our Company’s revenue, of this annual report brief operating income and net income, all of which descriptions of some of consequently declined in 2012 by 10%, 36%, and 37% our alumni, but even that respectively. To put it mildly, these 2012 financial results just skims the surface. As are not stellar. However, in 2012 Strayer University did shareholders, we own a increase its new student enrollment by 4%, that is 4% business which has a more new students matriculated at Strayer University in unique characteristic, to 2012 as had in 2011. Our university’s new student wit, the value of our enrollment in a given year has always been a good enterprise is determined leading indicator of our total student enrollment (and by the quality of our therefore our overall financial results) 12 to 24 months customer. To prosper long in the future. So while the winter of Strayer Education’s term, we must continue to be worthy of the types of financial discontent was not yet made glorious summer students on pages 10 – 11, who decided to make Strayer in 2012, there were at least some signs of a spring thaw. University their academic home. In this letter I will discuss some of our important The strength of our reputation attracts some students to academic initiatives at Strayer University over the last Strayer who have the ambition and desire to attend year, provide more detail on our company’s operating university, but perhaps not the core knowledge and results in 2012, explore how these results affect our preparation. These students have all graduated from understanding of Strayer Education’s business model, high school, but it may have been a long time ago, and address some broad questions regarding the value of they have not yet earned any college credit. The odds post-secondary education, and finally, share our plans for against these most vulnerable students are long, whether stewarding your capital in 2013. First, however, at our institution or any other. As I discussed in last reprinted on the facing page is an excerpt from my year’s Letter to Shareholders, at Strayer University we original Letter to Shareholders, written in 2001.

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