Item 1.    Business

Overview

Our company is a for-profit post-secondary education services corporation. Our mission is to make high quality, post-secondary education achievable and convenient for working adults in today's economy. We work to fulfill this mission by offering a variety of academic programs through our wholly-owned subsidiary Strayer University, Inc., both in traditional classroom courses and through Strayer University Online. Strayer University prides itself on making post-secondary education accessible to working adults who missed or were previously unable to take advantage of higher education opportunities.

Founded in 1892, Strayer University is an institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, and public administration at 32 physical campuses in Pennsylvania, Maryland, Washington, D.C., Virginia, North Carolina, South Carolina, Georgia, Tennessee and, beginning in 2005, Florida. As of December 31, 2004, we had more than 23,000 students enrolled in our programs. Strayer University is accredited by the Middle States Commission on Higher Education ("Middle States"), one of the six regional collegiate accrediting agencies recognized by the U.S. Secretary of Education. Strayer University is committed to providing an education that prepares working adult students for advancement in their careers and professional lives. It attracts students from around the country and throughout the world. As part of its program offering, the University also offers classes via the internet through Strayer University Online, providing its working adult students a more flexible and convenient program offering and allowing students worldwide to take advantage of Strayer University's programs.

We have experienced significant organic growth through new campus openings and geographic expansion over the last several years. Since our initial public offering in 1996, we have grown from eight campuses in one state and Washington, D.C. to 32 campuses in eight states and Washington, D.C. Our goal is to open new campuses every year (with five new campuses currently planned for 2005) by filling out the promising areas in those states in which we currently operate physical campuses and by expanding into contiguous states that exhibit strong demand for adult education in business and computer programs. We have opened 18 of our campuses since the beginning of 2001. At the same time, we have developed a robust online education program. Since receiving regulatory approval to offer our degree programs through Strayer University Online in 1997, our online programs have experienced rapid growth, with 14,347 students enrolled in at least one class through Strayer University Online during the 2004 fall term.

In connection with our recapitalization in May 2001, we hired a new senior management team, made significant investments in information technology infrastructure to support planned growth in our online programs, and embarked on a diligent program to open new campuses. As a result of these efforts, between 2000 and 2004 the rate of growth in our revenues increased to 24% on a compound annual basis, as our revenues increased from $78.2 million in 2000 to $183.2 million in 2004. During the same period, diluted earnings per share grew at a compound annual rate of 18%, as we continued to invest heavily in our growth initiatives. For more information relating to our revenues, profits and total assets, please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements included elsewhere in this annual report.

Industry Background and Outlook

The market for post-secondary education is large, growing and highly fragmented. The U.S. Bureau of Labor Statistics has reported that approximately 60 million working adults in the United States do not have more than a high school education. We believe that the demand for career-oriented, post-secondary education will continue to increase during the next several years as a result of several demographic, economic and social trends, including:

•	an increase in demand by employers for professional and skilled workers;

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•	a projected 18% growth in the annual number of high school graduates from 2.8 million in 2000 to 3.3 million in 2010;

•	our expectation that the number of adults (persons 25 years old and older) enrolling in post-secondary education will increase significantly;

•	the significant and measurable income premium attributable to post-secondary education; and

•	budgetary constraints at traditional colleges and universities.

The adult education market is a significant and growing component of the post-secondary education market. We believe that the market for post-secondary adult education should continue to increase as working adults seek additional education and training to update and improve their skills in order to enhance their earnings potential and to keep pace with the increasing demands of a knowledge-based economy. In addition, we believe that many working adults will seek accredited degree programs that provide flexibility to accommodate the fixed schedules and time commitments associated with their professional, family and personal obligations.

In addition to Strayer, there are currently six other major public companies operating in the post-secondary education market in which we operate. There are also numerous smaller private and some public companies operating in the post-secondary market.

Company Strengths

We have a 113-year operating history and a track record of providing education programs for working adults. We believe the following strengths position us to capitalize on the growing demand for post-secondary education among working adults:

•	Consistent operating history.    We have been in continuous operation since 1892 and have demonstrated an ability to grow consistently and profitably. Our enrollment and revenue have grown each year since our initial public offering in 1996.

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Practical and diversified curricula.    We offer core curricula in stable, high demand areas of education. In order to keep pace with a changing knowledge-based economy, we constantly strive to meet the evolving needs of our students and their employers by regularly refining and updating our existing educational programs. Additionally, we replicate programs that are successful in a given campus at additional locations throughout our network of campuses. Strayer University currently offers 64 different degree, diploma and certificate programs, including emphases and concentrations, to its students.

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Focus on working adults pursuing degree programs.    We focus on helping working adults pursue college degrees in order to advance their career and employment opportunities. We believe this is an attractive market within the post-secondary education sector due to (1) the growing number of adult students enrolling in post-secondary education programs and (2) the highly motivated nature of adult students given the personal sacrifices and time commitments required to attend class while balancing their busy schedules. We consider adult students to be our primary customers, with the various business and government organizations that provide tuition assistance to their employees as our secondary customers. With this focus on the customer, regardless of whether they choose to take classes at a physical campus or online, we have only one reporting segment. In addition, we believe that the structure of our curriculum featuring associate, bachelor's and graduate-level degree programs encourages students to continue their education and results in extended periods of student enrollment which positively impacts the visibility and predictability of our future revenues. Approximately 93% of our students were enrolled in degree programs for the 2004 fall term.

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Flexible program offerings.    We maintain flexible quarterly programs that allow working adult students to attend classes and complete coursework on a convenient evening and weekend schedule throughout the calendar year or asynchronously through Strayer University Online. During the fall 2004 quarter, approximately 90% of the courses we offered were night or weekend courses excluding asynchronous online classes. Additionally, we developed Strayer

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University Online to enable students to pursue a degree entirely online, thereby increasing the convenience, accessibility and flexibility of our educational programs. Approximately 61% of our students enrolled for the 2004 fall term were taking at least one course through Strayer University Online. We believe that these flexible offerings distinguish us from many traditional universities that currently do not effectively address the special requirements of working adults.

•	Attractive and convenient campus locations.    Our campuses are located in growing metropolitan areas in the mid-Atlantic and Southern regions where there are large populations of working adults with demographic characteristics similar to those of our typical students. Strayer University's campuses are attractive and modern, offering conducive learning environments in convenient locations.

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Established brand name and alumni support.    With a 113-year operating history, Strayer University is an established brand name in post-secondary adult education, and our students and graduates work throughout corporate America. Our alumni network fosters additional recruitment opportunities for students. Strayer University was ranked in the Washington Business Journal's 2004 Book of Lists for having the second largest enrollment in graduate business and management programs in the Washington, D.C. metropolitan area.

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Strong owner-oriented management team.    In connection with our May 2001 recapitalization, we developed a new growth strategy and hired a new senior management team in March 2001 to implement this strategy. As described below, under the leadership of Robert S. Silberman, our Chairman and Chief Executive Officer, we have embarked on various initiatives to increase enrollment and expand our campuses. In addition, all of our senior officers have made investments in Strayer through outright share purchases in addition to their option grants.

Company Strategy

Our goal is to be a leading provider of high quality post-secondary education programs for working adults primarily in the areas of business administration, accounting and information technology. We have identified the following factors as key to executing our growth strategy:

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Maintain stable enrollment in our mature markets.    At December 31, 2004, we had 17 mature campuses (those in operation for more than three years) out of a total number of 30 campuses excluding the two campuses to be opened in Florida for 2005 spring term enrollment. Over the last five years, average enrollment at our mature campuses has remained stable, while tuition has increased approximately 5% per year. Our goal is to maintain stable campus enrollments in our mature markets, while increasing revenues through continuing market-based tuition increases.

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Open new campuses.    Our goal is to open new campuses every year (with five new campuses currently planned for 2005) by filling out the promising areas in those states in which we currently operate physical campuses and by expanding into contiguous states that exhibit strong demand for adult education in business and computer programs. We believe this strategy will leverage our existing investment in curriculum, management and marketing infrastructure. Our new campuses have typically turned profitable after five to six quarters of operation.

Since our initial public offering in 1996, we have grown from eight campuses to thirty-two campuses while expanding into eight states plus Washington, D.C. We opened three campuses in 2001, in Baltimore, Maryland and in Chesapeake and Newport News, Virginia. By the spring 2002 quarter, these three new campuses had average enrollments ahead of the growth in average student enrollments we have experienced at new campuses in the past. In July 2002, we began offering classes at three campuses in North Carolina (one in Raleigh-Durham and two in Charlotte). In addition, we opened new campuses in Nashville and Memphis, Tennessee for the 2003 spring term. Due to strong demand at our Raleigh-Durham, North

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Carolina campus, we opened a second campus there for the 2003 summer term. We opened two new campuses in Philadelphia for the 2003 fall term. In 2004, we opened two new campuses for spring term enrollment – one in Greenville, South Carolina and one in Memphis, Tennessee, our second one there. In addition, we opened two new campuses in Atlanta, Georgia for 2004 summer term and one campus in King of Prussia, Pennsylvania for 2004 fall term.

In 2005, we plan to open two new campuses for spring term enrollment in Tampa, Florida. In addition, three new campuses are planned in states in which we currently operate. We have also applied to operate in other states adjacent to our current operating region and expect to pursue approval in those states and open campuses in favorable demographic locations in such states as part of our multi-year expansion plan.

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Expand Strayer University Online.    We actively market Strayer University Online to U.S. students throughout all 50 states and to international students on a global basis. Strayer University Online has demonstrated its success with both asynchronous (on demand) and synchronous (real time) course offerings that are favored by working adult students because of their quality and convenience. We believe that the added flexibility of being able to offer both traditional and online courses allows us to better serve our working adult students. Due to the convenience and flexibility of online teaching, particularly in the asynchronous or "on demand" format, this medium has rapidly grown in acceptance and is expected to continue to enjoy rapid growth. Enrollment at Strayer University Online has grown at a greater than 75% compound annual growth rate since its inception in 1997. Enrollment in markets outside of commuting distance to a Strayer University physical campus has grown at a greater than 61% compound annual growth rate in this period. There were 14,347 students taking at least one online course for the 2004 fall term. We intend to make additional investments in Strayer University Online to support the continued strong growth in this area.

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Develop corporate/institutional alliances.    We believe we are well-positioned to pursue significant opportunities in the large corporate/institutional market. Our convenient evening, weekend and online courses provide an attractive solution for the education and training needs of employers and their employees. We currently have employer agreements or billing arrangements of various types with many corporations and government organizations, including AT&T, FedEx Inc., Lockheed Martin, Northrop Grumman, SAIC, Sodexho USA, UPS, United States Postal Service, Verizon, Verizon Wireless and Wachovia. We are actively working with other corporations and institutions to increase the number of such arrangements and to further develop existing relationships. These relationships, once established, provide an ongoing source of new and continuing students obtained at lower marketing costs.

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Optimize the use of stockholders' capital.    We periodically evaluate opportunities to acquire other providers of post-secondary education. When exploring acquisition opportunities, we seek schools that we believe offer programs with a good strategic fit to our current curricula and that have demonstrated compliance with regulatory requirements and accreditation standards. We also seek out operations that are located in geographic areas that possess attractive demographic characteristics. In addition, we consider other factors such as price, the opportunity to improve operating performance through the implementation of our operating strategies, competitive factors and the availability of financing on acceptable terms. We compare potential acquisitions to other alternative uses of our capital (including but not limited to organic growth alternatives, share repurchases and special or increased dividends) in terms of return on capital and enhancing shareholder value. In 2004, we repurchased shares of our common stock and increased our common stock dividend. We have no current commitments with regard to potential acquisitions.

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Strayer University

Curriculum

Strayer University offers information technology and business-oriented curricula to equip students with specialized and practical knowledge and skills for careers in business, industry and government. Our Academic Curriculum Committee periodically reviews and revises the University's course offerings to improve the educational programs and respond to competitive changes in job markets. In 1993, Strayer University formed a Curriculum Advisory Board. The composition of the Curriculum Advisory Board varies over time, but typically consists of Strayer University faculty and representatives from private and government employers. The Curriculum Advisory Board supports the program evaluation process. Strayer University uses advice from the Curriculum Advisory Board to make decisions about curriculum development, resource allocation and faculty appointments. We regularly evaluate new programs and degrees to ensure that we stay current with the needs of our students and their employers. In 2004, we commenced offering three new Master's degree programs (Master of Education, Master of Health Services Administration and Master of Public Administration) in Maryland, Virginia and Washington, D.C. and plan to seek approval for and offer these new programs at our other locations over time.

Strayer University offers programs in the following areas:

Graduate Programs				Undergraduate Programs
•  Master of Business Administration     (M.B.A.) Degree      •  Master of Education (M.Ed.) Degree      •  Master of Health Services Administration     (M.H.S.A.) Degree      •  Master of Public Administration (M.P.A.)     Degree				•  Bachelor of Science (B.S.) Degree         Accounting         Business Administration*         Computer Information Systems         Computer Networking         Database Technology         Economics         International Business         Internetworking Technology
•  Master of Science (M.S.) Degree         Communications Technology         Information Systems         Management Information Systems         Professional Accounting				•  Associate in Arts (A.A.) Degree         Accounting         Acquisition and Contract Management         Business Administration         Computer Information Systems         Computer Networking         Database Technology         Economics         General Studies         Internetworking Technology         Marketing
•  Executive Graduate Certificate Programs         Business Administration         Computer Information Systems         Professional Accounting				•  Diploma Programs         Accounting         Acquisition and Contract Management         Computer Information Systems         Internetworking Technology         Network Security         Web Development

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Graduate Programs				Undergraduate Programs
				•  Undergraduate Certificate Programs         Accounting         Business Administration         Computer Information Systems

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In 2004, Strayer University was authorized to change the name of the degree from Bachelor of Science in Business Administration (BSBA) to Bachelor of Business Administration (BBA). This name change becomes effective throughout the University in Winter 2005. However, to ensure a smooth transition from BSBA to BBA, all students that completed their BSBA requirements beginning Fall 2004 will receive BBA degrees.

Each undergraduate degree program includes courses in oral and written communication skills as well as mathematics and various disciplines in the humanities and social sciences. In addition to our degree, diploma and certificate programs, we offer classes to non-degree and non-program students wishing to take courses for personal or professional enrichment.

Although all of our programs are generally offered at each campus, the University adapts its course offerings to the preferences of the student population at each location. Strayer University students may enroll in courses at more than one campus and take courses online.

Strayer University structures its curricula to allow students to advance sequentially from one learning level to another by applying credits earned in one program toward attainment of a more advanced degree. For example, a student originally pursuing a diploma in computer information systems can extend his or her original educational objective by taking additional courses leading to an A.A. degree in computer information systems, a B.S. degree in computer information systems, and ultimately a M.S. degree in information systems. This curriculum design provides students a level of competency and a measure of attainment in the event they interrupt their education or choose to work in their field of concentration prior to obtaining their final degree.

Strayer University Online

In August 1997, we began operating Strayer University Online. Through Strayer University Online, the University offers courses and degree programs via the Internet using both synchronous (real time) and asynchronous (on demand) approaches to online learning. The asynchronous format was first introduced by the University in the summer 2001 quarter and has grown rapidly due to increasing demand. Students may take all of their courses solely through Strayer University Online or may take online courses as a supplement to traditional, site-based courses. A student taking classes through Strayer University Online has the same admission and financial aid requirements, policies and procedures and receives the same student services as other Strayer University students. Tuition for Strayer University Online courses is the same as for campus courses. During the fall 2004 quarter, Strayer University had 14,347 students participating in its online programs, 11,669 of whom took classes solely through Strayer University Online.

Faculty

Strayer University seeks to appoint faculty who hold appropriate academic credentials, are dedicated, active professionals in their field and are enthusiastic and committed to teaching working adults. In accordance with our educational mission, the University faculty focuses its efforts on teaching. The normal course load for a full-time faculty member is four courses per quarter for each of three quarters, or 12 courses per academic year. With the approval of the campus deans, faculty members may teach a fifth course per quarter and extra courses during the summer quarter for additional compensation. Strayer University requires full-time faculty members to hold student counseling hours at least two hours per week for each course they teach.

We provide financial support for faculty members seeking to update their skills and knowledge. Strayer University maintains a tuition plan that typically reimburses instructors enrolled in advanced degree programs for 50% of the tuition for one new course per term when taken at institutions other than Strayer. Full-time faculty receive a 90% discount for all Strayer courses. The University also conducts annual in-house faculty workshops in each discipline. We believe that our dedicated and capable faculty is one of the keys to our success.

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Organization of Strayer University

Strayer University organizes its academic programs and administrative operations on a regional and campus basis. The University's annual financial budget and overall academic and business decisions are directed by its Board of Trustees. The Board of Trustees consists of Dr. J. Chris Toe, the University President, as well as nine independent non-management members. The current Board of Trustees members are listed below:

Board of Trustees

Mr. Scott W. Steffey				Mr. Steffey is the Chairman of the University Board of Trustees. He previously served as Strayer's Executive Vice President and Chief Operating Officer for three years after serving as an Executive in Residence at New Mountain Capital, LLC for one year. Prior to that, he served for four years as Vice Chancellor of the State University of New York. Previously, Mr. Steffey held senior management positions at NYNEX Corporation and American Express Company. Mr. Steffey holds a bachelor's degree in philosophy from Skidmore College.
Dr. Donald R. Stoddard				Dr. Stoddard is the Vice Chairman of the Board of Trustees. He served as President of Strayer University from 1997 to 2002 and has served as a member of the Board of Trustees since 1996. His background includes university teaching, higher education administration, and a Fulbright Lectureship in Romania. Dr. Stoddard holds a bachelor's degree in business administration and a master's degree in English, both from Northeastern University. He also holds a doctorate in English from the University of Pennsylvania.
Dr. Charlotte F. Beason				Dr. Beason has been a member of Board of Trustees since 1996. She has extensive experience in education, distance learning, and the accreditation of education programs. (See Directors and Executive Officers in Item 10 below for additional biographical information.)
Mr. Roland Carey				Mr. Carey has served as member of the Board of Trustees since 1990. He served 23 years as a U.S. Army Officer in the specialties of Air Defense Missile Evaluation and Military Education and retired in 1986 as a Lieutenant Colonel. Mr. Carey served 11 years as a mathematics instructor and as an Intervention Program Coordinator with Fairfax County Public Schools. Mr. Carey holds a bachelor's degree in mathematics from Florida A&M University and a master's degree in educational leadership from George Mason University.
Dr. Eliot A. Cohen				Dr. Cohen has been a member of the Board of Trustees since 2003. He is a Professor and Director of the Strategic Studies Program at the Paul H. Nitze School of Advanced International Studies at The Johns Hopkins University. Dr. Cohen formerly served as Assistant Professor and Assistant Dean at Harvard University, was a member of the Strategy Department of the United States Naval War College, and a member of the Policy Planning Staff of the Office of the Secretary of Defense. He has authored several books and articles on military strategy and foreign affairs and is a member of the Defense Policy Board. Dr. Cohen holds a bachelor's degree and a doctorate in government, both from Harvard University.

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Mr. Todd A. Milano				Mr. Milano has served on the Board of Trustees since 1992 and has over 25 years of experience in post-secondary education. Since 1989 he has served as President of Central Pennsylvania College near Harrisburg, Pennsylvania. (See Directors and Executive Officers in Item 10 below for additional biographical information.)
Dr. Peter D. Salins				Dr. Salins has served on the Board of Trustees since 2002. As Provost and Vice Chancellor for Academic Affairs, he is the chief academic officer for the State University of New York system. Appointed in January 1997, Dr. Salins also serves on the Board of Directors of the Research Foundation of the State University of New York, a support organization for sponsored programs conducted by SUNY faculty and staff. Dr. Salins holds a bachelor's degree in architecture and a doctorate in regional planning, both from Syracuse University.
Dr. Jennie Seaton				Dr. Seaton has been a member of the Board of Trustees since 1990. Dr. Seaton was a faculty member at Virginia Commonwealth University and held a variety of administrative posts from 1974 until her retirement in 1994.
Dr. J. Chris Toe				Dr. Toe is President of the University and has served on the Board of Trustees since June 2003. He is an academician and administrator with experience in education and business. (See Directors and Executive Officers in Item 10 below for additional biographical information.)
Mr. G. Thomas Waite, III				Mr. Waite has been a member of the Board of Trustees since July 1996. Mr. Waite is the Treasurer and Chief Financial Officer of the Humane Society of the United States. (See Directors and Executive Officers in Item 10 below for additional biographical information.)

Within the parameters of the academic and financial direction set by its Board of Trustees, Strayer University is managed on a day-to-day basis by the University President as to all academic matters, as well as by the Vice President of Campus Operations and the Vice President of Strayer University Online who are, together with the University President, responsible for implementing the Board of Trustees' overall policy and meeting commercial and budgetary goals for their respective areas. In addition, there is one Dean of Student Affairs who is responsible for ensuring the University is meeting the non-academic needs of students in all regions, one Dean of Academic Development and Training and additional Regional Academic Deans who oversee delivery of academic programs throughout the University's network of campuses. Other key University administration officials are the Director of Financial Aid and Title IV Compliance, Director of Libraries, Director of Facilities, Director of Academic Records, Director of Human Resources, Dean of Institutional Research and Assessment, Director of Business Development and Director of Internal Audit. The University's current senior academic and commercial managers are listed below:

University Senior Management

Dr. J. Chris Toe – University President

Pamela S. Bell – Vice President – Strayer University Online

James F. McCoy – Vice President – Campus Operations

Patricia Ardoline-Pellicci – Regional Director – North Carolina, South Carolina and Florida

Marjorie Arrington – Director of Financial Aid and Title IV Compliance

Ann P. Berger – Director of Business Development

Zelphia A. Brown – Regional Academic Dean – Tennessee and Georgia

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Gregory Ferenbach – Deputy General Counsel

Eric F. Grosse, Jr. – Dean of Academic Development and Training

Kristin Jones – Director of New Campus Openings

Randall T. Jones – Regional Director – Tennessee and Georgia

Suk J. Lee – Regional Academic Dean – Maryland, Pennsylvania and Washington, D.C.

Joyce A. Mayfield – Regional Academic Dean – North Carolina, South Carolina and Florida

David A. Moulton – Director of Libraries

Stan L. Petree – Regional Academic Dean – Virginia

Reginald Rainey – Regional Director – Virginia

Randi S. Reich – Regional Director – Maryland, Pennsylvania and Washington, D.C.

Geoffrey D. Roth – Director of Facilities

Betty G. Shuford – Dean of Student Affairs

Marcos C. Tigre – Director of Internal Audit

Cyndi L. Wastler – Director of Academic Records

Edward L. Yost – Director of Human Resources

Biographical information regarding the above senior members of University management is set forth in Item 10 below.

Similarly, at the campus level, the day-to-day business operations are managed by a campus director and the academic functions are overseen by a campus dean. Each campus is staffed with personnel performing instructional, admissions, academic advising, financial aid, student services and career development functions. A learning resource center at each campus supports the University's instructional programs. Each learning resource center contains a library and computer laboratories and is operated by a full-time manager and support staff who assist students in the use of research resources.

Strayer Education, Inc. Executive Officers

For a description of Strayer Education, Inc.'s senior management, see the biographical information set forth in Item 10 below.

Marketing

To generate interest among potential students, we engage in a broad range of activities to inform the working adult public and their employers about the programs we offer. These activities include: direct mail; internet marketing; marketing to our existing students; print and broadcast advertising; student referrals and corporate and government outreach activities. Direct response methods (direct mail and