1. “ Wall Street Perspectives on For-Profit EMO’s” sponsored by National Center for the Study of Privatization in Education Columbia University Teacher’s College

2. EMO Panel Agenda Introduction (5 Min.) Education Industry Landscape (10 Min.) For-Profit Postsecondary B-Models (10 Min.) Moderated Discussion of EMOs (20-30 Min.) Open Q&A (35 Min.)

3. Education Services Overview Teachers College, Columbia University May 7, 2002 Teachers College, Columbia University May 7, 2002 Presented by: Brandon Dobell, Senior Analyst Credit Suisse First Boston Brandon Dobell, Senior Analyst Credit Suisse First Boston

4. 4 Agenda Sector Overviews K-12 Post-secondary Corporate Training Sector Overviews K-12 Post-secondary Corporate Training

5. 5 K-12 Education 54 million children in k-12 schools in the US enrollments expected to grow 1-2% per year now thru 2004/5  every kid goes to school this is not just a demographic play  birthrates are key and they are fueling a Tidal Wave in k-12 enrollments $350 billion spent this year federal and state monies = regulation, control, etc. we spend more than any industrialized nation on k-12 education yet our outcomes are among the world’s worst per student spending has grown 5-7% per year 54 million children in k-12 schools in the US enrollments expected to grow 1-2% per year now thru 2004/5  every kid goes to school this is not just a demographic play  birthrates are key and they are fueling a Tidal Wave in k-12 enrollments $350 billion spent this year federal and state monies = regulation, control, etc. we spend more than any industrialized nation on k-12 education yet our outcomes are among the world’s worst per student spending has grown 5-7% per year

6. 6 K-12 Education – Becoming an “Investable” Space Significant focus from Capitol Hill and State Governments School Choice Standards Assessment and TestingTeacher Training Businesses are gaining critical mass - finally More $$ to for-profit vendors - changing the pie technology to better the learning process, make administration more efficient Products and services that help teachers teach better, faster and with more accuracy Capital Markets have provided a filter Participants Edison SchoolsRenaissance LearningScholastic Sylvan LearningRiverdeepMcGraw-Hill Significant focus from Capitol Hill and State Governments School Choice Standards Assessment and TestingTeacher Training Businesses are gaining critical mass - finally More $$ to for-profit vendors - changing the pie technology to better the learning process, make administration more efficient Products and services that help teachers teach better, faster and with more accuracy Capital Markets have provided a filter Participants Edison SchoolsRenaissance LearningScholastic Sylvan LearningRiverdeepMcGraw-Hill

7. 7 Post-secondary 16 million people in college in the US Growing number are working adults, non-traditional students Service economy: Income differential between diploma and degree Flexibility of programs (content), schedules, delivery (classroom, web) $250-270 billion will be spent this year federal and state funds mean rules and regulations $70b in financial aid – “If you want to go, the money is there” Income differential between diploma and degree 16 million people in college in the US Growing number are working adults, non-traditional students Service economy: Income differential between diploma and degree Flexibility of programs (content), schedules, delivery (classroom, web) $250-270 billion will be spent this year federal and state funds mean rules and regulations $70b in financial aid – “If you want to go, the money is there” Income differential between diploma and degree

8. 8 Post-secondary Stocks have outperformed market consistently Multi-term enrollments create visibility and predictability Great cash flows (get the $$ up front, deliver the service) Returns on capital are very high – creating lots of value Consistent Pricing Power (under the umbrella) High Barriers to Entry Participants Apollo Group / University of Phoenix Online Career Education DeVry ITT Education Stocks have outperformed market consistently Multi-term enrollments create visibility and predictability Great cash flows (get the $$ up front, deliver the service) Returns on capital are very high – creating lots of value Consistent Pricing Power (under the umbrella) High Barriers to Entry Participants Apollo Group / University of Phoenix Online Career Education DeVry ITT Education

9. 9 Corporate Training $60 Billion spent each year for corporate/government training Service economy, globalization, pace of technology driving need for training  Keeping pace, driving productivity  Technology, business skills, personnel skills Focus on core competencies Driving Outsourcing Proposition Large majority still done face-to-face but e-learning growing  E-Learning: $2-4B, growing 50-75% per year Aligning the extended enterprise  Employees, Suppliers, Customers $60 Billion spent each year for corporate/government training Service economy, globalization, pace of technology driving need for training  Keeping pace, driving productivity  Technology, business skills, personnel skills Focus on core competencies Driving Outsourcing Proposition Large majority still done face-to-face but e-learning growing  E-Learning: $2-4B, growing 50-75% per year Aligning the extended enterprise  Employees, Suppliers, Customers

10. 10 Corporate Training Stocks have underperformed Training more cyclical than anyone thought  Difficulties of measuring true ROI Overabundance of capital created too many providers  Pricing pressure, minimal differentiation Participants ContentTechnology/ServiceSite-based SmartForceSabaLearningTree SkillSoftDocentNewHorizons DigitalThink Stocks have underperformed Training more cyclical than anyone thought  Difficulties of measuring true ROI Overabundance of capital created too many providers  Pricing pressure, minimal differentiation Participants ContentTechnology/ServiceSite-based SmartForceSabaLearningTree SkillSoftDocentNewHorizons DigitalThink

11. 11 The Economics of For-Profit Postsecondary Education National Center for the Study of Privatization in Education May 7, 2002 Peter P. Appert, CFA Managing Director Deutsche Bank Wall Street Perspective on For-Profit EMO’s

12. 12 Agenda Unit Volume Growth Pricing Power Margin Leverage Stock Performance The Players

13. 13 Unit Growth

14. 14 Unit Growth Economics drive demand for postsecondary education

15. 15 Unit Growth

16. 16 Unit Growth

17. 17 Pricing Power

18. 18 Margin Leverage

19. 19 Conclusion Unit Growth + Pricing Power + Margin Leverage = Superior Financial Performance –20%+ earnings growth rates –High returns on capital –Significant free cash flow –Predictable, counter-cyclical growth

20. 20 Stock Performance

21. 21 The Players