Shareholders Day
November 15, 2002
Following are transcripts of the presentations made at The Washington Post Company's Shareholders Day on November 15, 2002. The transcripts have been edited and contain clarifications.
The presentations at this Shareholders Day meeting contain certain forward-looking statements that are based largely on the Company's current expectations. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. For more information about these forward-looking statements and related risks, please link to Risk Factors under Shareholder Information on this website and refer to the section titled "Forward-looking Statements" in Part I of the Company's Annual Report on Form 10-K.
QUESTIONS AND ANSWERS
by
MR. GRAHAM and MR. GRAYER
MR. GRAHAM: Jonathan, that was just superb, and it goes unspoken in this presentation, but it's rather unusual, in my experience, that Jonathan made a superb manager of Kaplan when its revenues were $75 million. He's a superb manager of today's Kaplan. He is responsible for turning up working through most or the acquisitions that have made Kaplan bigger, and Kaplan, as Jonathan implied, has a ways to go.
The first question or comment that comes up simply says. Thank you for using the phrase, "Your company to our shareholders," so well that's the right phrase to use. Higher Ed will earn well north of $25 million operating income this year. How much capital have you committed to date to this division?
MR. GRAYER: About $200 million through the acquisition of schools we bought. And it will be well north of $25 million operating income this year.
MR. GRAHAM: How will the move towards standardize testing for K-12 students affect Kaplan Test Prep? Could it mean meaningful percentage growth for that division?
MR. GRAYER: More testing is good for Kaplan, obviously. We have a kind of view of testing that is more muted than you would think. We do not have public positions on more testing is good, an assessment and the importance of it in the public education process. Obviously we are self-interested, and also because an argument can be made that kids are tested too much already. The issue is not more testing. The issue is how those tests are used. And the danger right now that exists is that state testing is becoming, you know, the nullification crisis. States are fighting over their rights to develop the curriculum versus innate federal standards, and that may or may not be good for kids. It will all be good for Kaplan. More to come.
MR. GRAHAM: How will the move away from testing college students affect Kaplan? Could it decrease your test prep revenues?
MR. GRAYER: The California SAT issue. That is actually a very politically charged process that really has to do with affirmative action being illegal in the State of California. Right now it is not a threat. But once again, we really have no voice in that for the obvious reasons. Our fingers are crossed that it's going to play out the way it looks like, which would mean a lot of rhetoric, but not a lot of change to what actually happens at the testing numbers level.
MR. GRAHAM: Given Kaplan's operating margin, is the parent going to boost its budget significantly?, meaning, I think, boost our contribution, you know, try to boost Kaplan's growth significantly, and of course, that is exactly what we have been striving to do.
Jonathan, at what age do SCORE! members tend to leave? What is the average age of members? Do you care?
MR. GRAYER: The issue is not the average age, but the average length of stay. I have two daughters who have both been SCORE! members, and I can tell you from first-hand experience that the number I'm about to give you is extraordinarily true. There is a ten-month life basically of the SCORE! student. And there is early euphoria of how great it is, there is a kind of acceptance period, and then there is what one SCORE! manager called "the straight arm and leg period" when they're going to SCORE! by hook or by crook. That's true of children and it's true of our students.
And we could elongate that by a month. It would be enormously possible. But we have not been successful at doing that, and I was not successful with Annie or Sophie, either.
MR. GRAHAM: SCORE! centers are company-owned. How do you compare the economics for franchising?
MR. GRAYER: Well, the economics for franchising could be very attractive, but with a great price and that price would be control and control of quality. Because our motto is based very much on very recent college grads, it is not viable to franchise to that age group, and we think that the product offering would change enough to make it not conducive to our success. The return can be very attractive, because there's very little capital deployed. But we really feel strongly that we're not going to do that.
MR. GRAHAM: Will there be plans for segments of Kaplan to go international? What are the growth potential overseas for Kaplan, for instance, in South Africa?
MR. GRAYER: The opportunity to grow internationally is real and we're
working hard on it, and hopefully we'll have some developments by the
next time we see you or before, because our business has real applications
to many markets. Kaplan does have an international presence in about 20
countries, through our licensee business and our test prep business and
through our CFA business in Asia. So we are offering products around the
world, but it's about $20-25 million of revenue total. So we have bigger
plans, but it's got to be a careful choice for us.
# # #
