Laureate Education Inc (LAUR) 2002 Q4 法說會逐字稿

Good day and welcome to the Sylvan Learning Systems fourth quarter 2002 earnings results conference call. This call is being recorded. At this time, for opening remarks and introductions I'd like to turn the call over to the manager of investor relations, Mr. Chris Symanoskie.

Thank you operator. Good morning, everyone and welcome to Sylvan Learning System year end 2002 earnings release conference call. Before introducing management I'd like to remind participants that during the Q&A portion of the call, we ask that each individual try to limit their Q&A session to one or two questions to allow for broader investor participation.

Next I'd like to call your attention to the Safe Harbor language listed in the press release an remind you that both the release and this call may include information that could constitute forward-looking statements, made pursuant to the Safe Harbor provisions of the Private Securities and Litigation Reform Act of 1995. Any such forward-looking statements may involve risks and uncertainties. Political, economic, tax, regulatory, technological, competitive and other factors could actual results to differ materially from those anticipated in the forward-looking statements. Additional information regarding the risk factors is detailed from time to time in the company's filings with the Securities and Exchange Commission, including but not limited to our most recent form 10-K and 10-Q available for viewing our on Web site.

This morning I'm joined by Douglas Becker, Chairman and Chief Executive Officer of Sylvan Learning Systems, Sean Creamer, Sylvan's Chief Financial Officer, Bill Dennis the CFO and Chief Operating Officer of Sylvan International University, Paula Singer, President and CEO of online higher education, and Peter Cohen, President and Chief Operating Officer of Sylvan Learning Systems. Also available for questions on the call today is Chris Hoehn-Saric, Chairman CEO of Sylvan Ventures and Raph Appadoo, President of Sylvan International Universities. Now, at this time, Doug Becker will offer comments and commentary on the strong results for the year 2002 and beyond. Doug?

Thanks a lot, Chris. We were very pleased with our 2002 financial results and they were really driven by strong fourth quarter results. This is really the second year in which the continued progression of seasonalities in our business pointed to a big mountain to scale in the fourth quarter, and we've proven again that the business really does progress that way, and that the fourth quarter is a very, very strong time of year for us. Our highlights for 2002, we generated about a 19 percent increase in the revenues for the total company in what was clearly a very challenging economic environment all over the world. And that drove operating income growth for the whole company of about 24 percent, excluding the nonrecurring charges that I'll describe for the fourth quarter and that have been described in detail for the previous quarters of 2002. As I mentioned, the fourth quarter contributed strongly to these results generating a 20 percent increase in revenues, and a 22 percent increase in operating income for the whole company. Again, excluding nonrecurring charges.

While surprisingly strong performance in our Sylvan Learning Center business did contribute to a great 2002, the year was really most notable for the continued development and performance of our postsecondary businesses. The largest of which is SIU Sylvan International Universities, and the other postsecondary is what we refer to as on line higher education. On line higher education for us is our Canter business which is mostly focused on postgraduate degree programs for teachers, but is increasingly being prepared as we lay the groundwork for the development of Walden which is held within our Sylvan Ventures division and the National Technological University and we continue to see a progression of Walden and NTU towards our overall plan for on line higher education. And we continue to see a progression of on line higher education into a close working relationship with SIU, so that you'll begin to see a fairly seamless postsecondary business for Sylvan overall.

Now, both postsecondary businesses had strong financial results in 2002 driven by strong enrollment gains. And I think the most important thing about this is we are demonstrating the progression from new student enrollments to total student enrollments, because we keep our students for multiple years and in the case of SIU that can be four or five years, so much longer than the U.S. postsecondary companies. It takes longer for new student enrollments to fill the pipeline of total student enrollments, but you see this incredible progression and we announced a great SUI enrollment in the third quarter of last year. I'll talk briefly about some updates about Walden and Canter, though there were not any new SIU enrollments to report in the first quarter.

But in essence, if you look at this progression, what you see is, for example, in 2002, SUI announced a 28 percent increase in new students and that that drove a 17 percent growth in total students. If you look to the previous year in 2001, a 16 percent increase in total students drove a 12 percent increase in - sorry, 16 percent increase in new students drove a 12 percent increase in total new students. So, you can see the total student number is catching up to - oh, actually probably years until it fully catches up, but catching up to and converging with the new student numbers. The higher the new student number are, the better it augers for our 2003 and future financial performance.

On a smaller scale, you can see the same progression in Walden. We announced in the third quarter that Walden had had 196 percent increase in new students. This is excluding the students that are in the Walden-Canter partnership. So I think it's the most conservative way to look at it. At the 196 percent in total new students only drove a 22 percent increase in total students. Well, now we have just announced in the fourth quarter 145 percent increase in new students drives a 39 percent increase in total students. So again, you see this convergence of new students to total students that I think is a very, very good harbinger of things to come for our postsecondary businesses.

Two thousand and two was an especially important year for SUI. I really thought of it as the prove it year for SUI. In the past we have had great results and tremendous growth for SIU, but there were large acquisitions that I think forced us to be able to prove in 2002, a year in which there were no large acquisitions that we could run and grow what we had acquired in the previous two years and continue to grow the enrollments organically and just through the normal process of opening new campuses as well. And that worked extremely well. You will hear Bill Dennis (ph) talk in a little bit how well SIU has done.

In the process of this progress for SIU and OHE (ph), Sylvan has become a very heavily postsecondary business. I think that's probably the most important commentary on 2002 as a full year. In essence, in 2002, 62 percent of our company's revenues came from postsecondary, and 68 percent of our revenues in the fourth quarter came from postsecondary. For the year, 55 percent of our operating income came from postsecondary, and 75 percent of operating income in the fourth quarter. So again, you can see that the most important memory any of us will have about 2002 is it was really the breakout year where Sylvan became a postsecondary company.

Moving on to a few other comments before I turn things over to the other members of management, we think this positions us for continued strong results for the whole company and for postsecondary in '03. We released guidance today that we think will show that continued growth in our company. The guidance is really driven by again, expected strong performance in postsecondary, and what I like the most about that guidance and because that guidance is not predicated upon any acquisitions, it is we think pretty conservative because we invest a lot of money in building our deal pipeline for acquisitions, but on a organic basis, growth of revenues between 12 and 19 percent is sort of the organic range that we see in postsecondary would drive operating income growth between 26 and 43 percent and that's what investors have seen from other postsecondary companies and that's what they should expect to see - that kind of leverage in Sylvan in 2003.

The strong deal pipeline that I referenced for SIU is not only in the area of acquisitions, but also in Greenfields, and we did announce today the opening of what we're calling the South Asia International Institute. This is our first major Greenfield activity. We've been planning it, as many of know - literally for years. This is a new university that's located Hydrabad (ph) in the state of Andrapradesh (ph). Hydrabad (ph) is one of the Silicon Valley regions of India. In order to make this as low risk of a strategy for Sylvan as possible, we're opening a small campus in downtown Hydrabad (ph) in leased space as a pilot campus. But if it does as well as we expect, we have 125 acre parcel that the Andrapradesh (ph) government has allotted to us that would allow us to build a major campus along the lines of what we have done in Mexico and Chile to really go after the India market in the big way. But we'll do that once we have received the accreditation and proven the market receptivity that our market research shows us is surely coming in India.

We have also made great progress in the Greenfield project for China. In China, our approach is going to be pursuing the hotel management arena with an extension of our Les Roches (ph) school in China. China is already the largest market to supply students to go to Les Roches (ph) in Switzerland, so it makes sense to bring Le Roche (ph) to China. As well as I hope we do with the La Roche, that will be a drum beat to bigger and greater activities in the country, so strong deal pipelines for acquisitions and Greenfield activities for SIU.

Now, for OHE in Canter, their equivalent of Greenfield in a couple of areas. One is the continued growth and development of Walden, and in 2003 is the year where Walden should actually flip from having been a loss maker to a profitable business. We also expect great progress in NTU, although it's earlier in the curve and should still generate losses in 2003. If it follows anywhere near the path we have accomplished with Walden, it will be a real contributor. And I think one very exciting project and we haven't talked about this in the past is the development that Canter is pursuing of a series of nursing degrees, initially a BS in nursing. Nursing is incredibly similar to the teaching profession in every sense, demographics, growth and a serious and severe crisis in shortages of available nurses as there are in teaching, and Canter has done so well pursuing the teaching arena if we can do as well in the nursing arena, we should do very well. That will again though be an investment spend area for 2003, stacking the pipeline for great results, we think in 2004.

Well, great results and a great pipeline of students and a great pipeline of business development activities have certainly positioned us for a very strong 2003. So 2002 as all of you know, was plagued with one-time charges, and recurring losses associated with Sylvan Ventures. I think the best thing that came out of our Q3 financial results and presentation was that investors got the message loud and clear that Sylvan understands that to be a great company we have to eliminate these one-time charges and we have to eliminate the losses that occur from Sylvan Ventures.

We have been working very hard on that. In Q3 we provided detailed guidance on Sylvan Ventures losses and showed how the losses will did min initiate '03 and on their own certainly diminished to zero over time, but we also indicated our commitment to try to find way to eliminate those losses altogether or much more rapidly than otherwise would have been the case. In order to do that we indicated that we were being advised by financial advisers and that we have been looking for new structures for Sylvan Ventures or for Sylvan overall in order to dramatically reduce the losses with Sylvan Ventures and to simply Sylvan's story overall.

We worked incredibly hard for over five months on this process. Management and the board, working hand in hand. This is included in multiyear strategic planning and very deep reflection about what we think would produce the highest quality business with the highest transparency and clarity (ph) for investors. While we're not able to announce the specific plan that we've developed, I am very happy to tell you that we believe that we are nearing an agreement that will allow us to announce those results. We need to reach an agreement with the outside shareholders in Sylvan Ventures, because anything that we do, if we want to address and reduce those losses from Sylvan Ventures require structural changes to Sylvan Ventures that really shouldn't be imposed unilaterally by Sylvan.

And so we are working with the other outside investors in Sylvan Ventures. It's important to note that the largest outside investors in Sylvan Investors is also the largest investor in Sylvan. That's Apollo through their holding of a convertible interest in Sylvan. So again, we believe we are nearing agreement with the outside investors in Sylvan Ventures, and as soon as we have an agreement we will clearly announce it and how that should, if we're successful, reduce the losses of Sylvan Ventures and address structural ways of simplifying Sylvan across the board. So that's important progress and we've been working incredibly, incredibly hard to do that.

Now, as we wrap up 2002, the other thing we wanted to do was to wrap up anything else that we thought might be hanging out there as charges or writeoffs that needed to be taken and other than writeoffs that might occur from any major structural change that we could occur - that we could announce the company going forward in the ordinary course of business, there were two things that needed to be written off. In order to be conservative, we thought it was appropriate to write off our investment in the master franchise for Sylvan learning centers of Spain. That resulted in a $7.9 million after-tax charge in the fourth quarter. Many of you know that we have talked about dramatic crisis in the English language marketplace in Spain. That's why we exited the market with the sale of our Wall Street Spain business last year.

Well, Sylvan Learning Centers Spain which is operated through a master franchise in Spain in which we have an investment is unfortunately while it's different from Wall Street Institute, their main business is still teaching English, albeit to kids. And the crisis that's occurred in Spain, at this point, has resulted in the collapse of just about every single major provider of English language training in the country of Spain - really a breathtaking domino effect started by a company called opening (ph) English.

When they closed, they stranded over 70,000 students that had prepaid for service and created a severe crisis of confidence among consumers. We know that's hurt Wall Street Spain, hence our decision to exit our investment in Wall Street Spain. It has not killed Sylvan learning centers of Spain by any means and we are still hopeful that they will prosper. But we thought to be most conservative and again to enter 2003 in the cleanest and safest way that we would do well to take that charge. We do have another couple million dollars of investment in Sylvan Spain that has not been written off that occurred in the very early part of 2003 and we'll watch that investment, albeit very small and very carefully.

The other writeoff that we took relates to deal charges, but the major reference there is the IPO charges that we have accumulated in our quest to take SIU public. Many of you know in our effort to simplify Sylvan at one point the most favored structural approach for Sylvan was to take SIU public. Now, we have since explored other ways to dramatically simplify Sylvan, but the taking of SIU public resulted in considerable expenses. Now, we are not taking off the table the possibility of taking SIU public, but the gap is very clear that we cannot sit forever on these accumulated charges and then that result after tax-charge of just under three million dollars associated with the SIU IPO charge and one other nonrecurring transaction that relates to it.

So again, we don't think those are big deals but we understand that investors deserve the chance to see how Sylvan performs without lots of one-time charges and without the losses from Sylvan Ventures. We're working on it very hard and we just asked for your continued patience, look for the underlying performance of the business and we think you'll see we have a lot to be proud of. In that regard, I'd like to turn the discussion over to Sean Creamer, our Chief Financial Officer for a more in depth discussion of our financial performance in Q4 and 2002. Thanks, Sean.

Thanks, Doug. I'm pleased to report that the Sylvan financial results for the fourth quarter and the full year. In addition to the charges that Doug referenced that were taken during the quarter, there were other accounting and one-time charges taken throughout this year and in prior years. Most significantly, in accordance with the new rules on goodwill under FAS 142, beginning January 1st of 2002, goodwill no longer subject amortization. In connection with transition which was provided under FAS 142, the company recorded an after-tax charge of roughly $79 million to reflect the cumulative effect of this change in accounting principle and wrote down certain cost method investments to fair market value. That was done in the middle of 2002. For ease of comparison, we have adjusted the 2001 results to add back any goodwill amortization recorded during the year, and in addition, any nonrecurring gains or charges either in 2001 or 2002 have been adjusted out to give a clearer picture of the operating performance of the business.

In our press release, we have include detailed reconciliation of our GAAP results to the pro forma numbers that I'm presenting. In addition, as our management team walks you through their divisionally (ph) specific operating result, they'll be focusing on the core operating results exclusive of the charges. This is particularly relevant when considering the result for SUI, since the IPO costs Doug referenced are reflected in the results. They're clearly nonrecurring in nature and mask a spectacular result.

For the fourth quarter, we reported revenues excluding Sylvan Ventures of 165.5 million, an increase of 20 percent over the 137.4 million generated in the fourth quarter of 2001. Total pro forma and operating income for the fourth quarter of 2002 is 25.8 million, 22 percent higher than the fourth quarter of 2001, operating income of 21.2 million. Sylvan Ventures revenues were 9.2 million for the quarter, 8.1 of that 9.2 million number relates to the operations of the Walden and NTU, and approximately 600,000 relates to e-Sylvan. Pro forma operating income for the quarter was 25.8 million for the quarter, again an increase of over 22 percent. Pro forma net income for the fourth quarter was 15.5 million or 33 cents per share undiluted shares outstanding at 46.9 million. This compares with 13 million or 28 cents per share undiluted shares outstanding of 46.4 million for the same period in 2001 and represents an increase of roughly 19 percent.

For the full year ended December 31, 2002, the company generate total revenues, again excluding ventures of 578.4 million and impressive 19 percent increase over total revenues of 484.8 million reported in the same period for 2001. Ventures revenues for the year were 25.6 million. Again, the large percentage of that, 22.2 million of which relates to the operations of Walden and NTU and approximately 2.7 million relating to the operations of e-Sylvan. Full year pro forma operating income was 71.5 million. This compares to 57.8 million of operating income recorded for the same period in 2001 and represents a 24 percent increase over last year. Pro forma net income for the year ended December 31, 2002 was 43.6 million or 93 cents per share on diluted shares outstanding of 47.1, comparing with 36.6 million or 80 cents per share on diluted shares outstanding of 45.9 for 2001 which represents year over year EPS growth of roughly 16 percent. On a pro forma basis our EBITDA was 33.8 million for the quarter, and 94.2 million for the year.

Quickly moving on to some balance sheet information, we reflect total cash and marketable securities at the end of the year at approximately $130 million while total corporate debt was roughly $70 million, excluding the $95 million convertible divestiture. We have a $100 million credit facility, which as of the end of the year we had not drawing on, so we feel the strength of the balance sheets gives a great deal of confidence and financial flexibility heading into 2003. As of the end of 2002, Sylvan Ventures had made funding commitments of 288 million of which 275 million had been invested to date. So in summary with respect to the actual results we're very pleased with the results and feel it does position us very well as we head into 2003.

I would like to quickly review our guidance for the first quarter and full year, bearing in mind that the statements are based on our current expectations and the statements are forward looking and as a result, the actual results may differ materially. The company anticipates total revenues excluding ventures of 147 to 154 million for the first quarter of 2003, and about between 630 and 670 million for the full year. Operating income excluding ventures is expected to be between 12 and 13 million for the first quarter of 2003 and between 90 and 95 million for the full year. Our G&A expenses are expected to be approximately $5 million in the first quarter of 2003 and between 22 and 23 million for the full year, which reflects the third or fourth consecutive year where our G&A is a percentage of revenue is actually declined.

Moving on to some divisional level detail, our postsecondary educational services business anticipate 400 to $425 million in revenue with operating margins of approximately 16 to 17 percent for 2003. SIU specifically anticipates total revenues of between 82 and $86 million for first quarter of 2003, and between 342 and 362 million for the fiscal year 2003. The division expects operating margins to be approximately 10 percent for first quarter, for fiscal year 2003 and between 16 and 17 percent for the year. OAG, again second part of the postsecondary education is between eight and nine million for the first quarter of 2003 and between 58 and 63 million for the year, and expects break even on right results for first quarter and year-end 2003 approximate margins of 26 to 27 percent.

Moving on the K-12 education services, we expect 230 to $245 million in revenue for the combined learning center, and education solutions businesses with approximately 20 to 21 percent operating margins for 2003. Sylvan learning centers specifically, we expect revenues between 37 and 38 million for first quarter and between is 156 and 166 million for the full year, and we expect operating margins in that business between 22 and 23 percent for the first quarter and creeping up a little bit for the full year between 24 and 25 percent.

Sylvan Education Solutions anticipates revenues of approximately 21 million for the first quarter of this year and between 74 and 78 million for the full year, with operating margins of nine percent for first quarter and between nine and 11 for the balance of the year. For Sylvan Ventures our expectations losses for the full year on an after-tax basis of about 17.5 million. Which on a diluted basis is roughly 37 cents per share. And an improvement of over 32 percent from our fiscal year - a calendar year 2002 results. This is a refinement to the number, downward refinement, the number we previewed on the third quarter call and I think just demonstrates our commitment to continually work to eliminating these losses as quickly as possible.

Just a quick note on the first quarter similar to the last few years our EPS growth in first quarter is generally modest, primarily attibutable to the fact that UDLA our Chilean university and fastest growing university is out of session in first quarter. In addition this is Canter seasonally weakest quarter as well. While the results benefit from the deferral related to our consolidation of Walden than I preferred last year we still project Canter to be break even in first quarter of 2003. That does compare to a loss in 2002. Consistent with prior years, we would expect the second and fourth quarters to remain our strongest in 2003, while approximately 55 percent of our company-wide revenues are generated in second and fourth quarters. It translates into roughly 70 percent of our operating income in those two quarters. That concludes my remarks on the consolidated results. At this point, I'll turn it over to Bill Dennis for his comments on SIU.

Thanks, Sean. From a financial, strategic - pardon me, and organizational development point of view, SIU had its best year ever in 2002. We were able to demonstrate our ability to successfully integrate and manage the businesses that we had previously acquired and we were also able to demonstrate an ability to deliver solid growth with no major acquisitions. Our financial and operating results were very, very strong, and excluding the nonrecurring writeoffs that Sean and Doug have mentioned for the year, revenues exceeded $300 million for SIU an increase of $67 million or 28 percent over the prior year. And in the fourth quarter, our strongest quarter of the year, when all universities are in session, revenues totaled $97 million, up 31 percent over the prior year. These revenue increases were driven in large part by a combination of strong enrollments, particularly in Mexico and Chile and higher tuition price increases of about 10 percent during 2002.

Excluding the nonrecurring charges, SIU operating income increased significantly to $36 million, an improvement of 45 percent over 2001. Over half of this operating income contribution occurred in the fourth quarter, totaling in excess of $18 million. SIU operating margins continue to reflect improve, and again, year over year we saw improvements ranging from 12.9 percent in 2001 to 14.2 percent in 2002. We've mentioned before that much of this improvement is driven by higher enrollments. We now have enrollments amounting to over 60,000 students around the world, an increase of 17 percent versus last year. Importantly, our primary cycle new enrollments in 2002 increased to 28 percent versus 2001, and these new enrollments are of course the key predictors or indicators of future revenue growth.

We are particularly pleased that last year's new enrollment growth rate shows acceleration over the 22 percent per year compounded annual growth rate that we have been experiencing since 2000, and as most you know, our growth strategy is predicated on, first of all, selectively entering new markets and establishing a solid platform for growth, but also by expanding by adding new campuses in these markets and thirdly by entering into additional market segments such as technical, vocational and working adults. Two thousand and two successfully continued this strategy. Our acquisition focus resulted in the purchase of two universities in the hospitality sector, one in Spain and the other in Switzerland, bringing hospitality to 2,700 students an more than $40 million in revenue. Our research indicates the post secondary hospitality segment worldwide exceeds 200,000 students and we believe SIU is well positioned to grow this business to over is $100 million in the next five years.

During 2002, we also opened four new campuses, two in Chile and two in Mexico. All four are off to a promising start and have posted new enrollments in excess of 2,400 students in first year. Two thousand and three3 will continue this very, very positive trend. Our Greenfield efforts in China and India have been announced an discuss to some extent by Doug. As you know, most them are currently planned to begin operation this year. We're very excited about these two new markets, two huge new markets, and expect great success from these 2003 initiatives.

Although 2002 did not include a lot of new acquisitions, our business development efforts, which range from target identification to preliminary negotiations, were very significant in 2002. Our acquisition pipeline which can take as much as two years from market selection to transaction completion is very, very solid, and if all goes well, 2003 should be another exciting year for acquisitions. The key challenge for management where costs are high for Greenfield projects and pipeline development is to make sure that these investments ultimately bear fruit. To date, we believe we have clearly demonstrated this capability and our financial results show it.

Getting ready to be a public company this past year was an excellent process for SIU. It required our division to implement the critical management organizational and financial control processes required of a public company in today's environment. We believe that these critical processes and systems are firmly in place throughout SIU, including our business units located outside the United States. We have instituted comprehensive new performance metrics even down to a campus level. We have developed new tools and models to understand our different markets better and to more effectively manage our continued expansion in those markets. Our organization both within and outside the United States continues to grow with experience and successful educators and general management talent, and should Sylvan call upon SIU to go public, we are ready. And in any structure, we are positioned to be a major contributor to Sylvan's future growth.

In closing, I want to reiterate that the SIU global network to which we have referred on many occasions is a reality today, providing student, faculty and product content exchanges around the world. This network is a Sylvan asset which differentiates us in local markets and has led to significant new enrollments, increased local market share and very strong financial results. So at this point, that pretty much summarizes the SIU piece and I want to turn the call over to Paula Singer, who is President of the on line higher education business.

Thank you, Bill. Our on OHT Canter business continues to produce solid results, with significant improvement in top-line performance and even better EBIT growth. Full year performance for OHT Canterresulted in reported revenues of 52.4 million, versus 44.3 million in 2001, an 18 percent increase. When accounting for the revenue recognition change required because of our increased investment in Walden, revenues rose an additional 3.6 million, a 26 percent improvement over 2001. Full year EBIT as reported to 14.4 million versus 9.1 million a year ago. To have a clearer picture of performance it's necessary to adjust for a goodwill reporting changes, and the Walden revenue recognition change. The net result is EBIT of 16.7 million for 2002 versus 12.2 million for 2001, a 37 percent improvement. This EBIT improvement of 37 percent compares very favorably to our 26 percent top line growth.

Clearly, it was a good year. The driver for this growth was our Canter Walden super partnership. As you may recall when we purchased Canter some five years ago, Canter was just beginning its foray into accredited master's degree programs for teachers. St the time, Canter partnered with accredited universities to deliver these degrees a at a distance using video and Copart models. Canter developed and owned the course ware, provided all the marketing recruitment and facility orders for the course materials. Partner universities approved the syllabus, provided the faculty, gave the grades and the credit. The approach required significant and growing numbers of partners. Early on we became interested in finding a super partner, a for profit university where we could invest and would allow us to limit the number of partners, offer national programs, move more quickly to market and realize a larger share of the revenues. Two years ago with Walden we did just that. Last year, I was able to report that the partnership had yielded two new degrees and a thousand new students.

In 2002, our progress has continued. Canter Walden enrollments grew by 2200 students, a 220 percent increase. In addition, we used this partnership to establish a nationwide reach and to develop our on line delivery model. Today, 58 percent of Canter Walden students receive their degree on line. Strong retention rates have always been a Hallmark of the Canter degree program and a real big part of our success. Retention rates have consistently averaged 95 percent, year in and year out. This is something we're very proud of and do not take for granted, so when we made the decision to use on line delivery with Walden, we took great care to ensure that this track record held. We invested in faculty training and established a very effective on line concierge service to ensure effective levels of support. All of those things have yielded an on line degree program that gets rave reviews from our students and has retention rates that remain at our traditionally high levels. We're very pleased with this.

One of the key objectives for partnering with Walden was the ability to move new programs to market at an accelerated rate. To that end, three degree programs have been launched in the last 18 months alone. The realization of speed to market is a very big win for us. Canter does continue to have regional partner, however the partnerships have been reduced significantly from nine partners to four, representing our most productive and long-standing relationships. While these partners will continue to be an important base for us, our growth strategy will emphasize Walden, it's national reach, and our unique relationship. Besides viewing Walden as a Canter super partner, OHT manages the Walden Assets for our ventures organization.

In 2002, we spent a great deal of time and energy in creating the systems that will allow Walden on the scale the student acquisition process. Web marketing has been introduced, recruiters have been upgraded, experienced sales managers have been hire aid way from successful competitors. A new CRM system has been put in place and with support from our academic leadership, admission policy has been streamlined. All of this has allowed us to have increasing enrollment growth in each quarter. As a result this year, Walden university attained new student growth of 145 percent on the tradition programs. These are non-Canter programs. These are the strictly the Ph.D., master programs from Walden. This fueled a 39 percent increase in winter 2003 enrollments.

I should also take a moment to mention NTU, but in order to be brief I will just say this. Our plan is to work with NTU in exactly the same way we have with Canter and Walden to see the same kind of successful results we have seen over the past few years. I'll leave it at that and have more details for you in the next call. Let me end by say that if you take the three post secondary assets together, Canter, Walden and NTU, we have significant reach into the education, health and human services, psychology, business management, IT and engineering verticals. We believe the verticals have excellent potential in terms of the accrediting adult business education market. The combined degree enrollments for the three units is over 15,500 students and it is growing. We are enthusiastic about the opportunity in the sector and confident about our ability to build a meaningful and very competitive offerings for the adult working professional. Let me now pass the baton here to Peter Cohen.

Thanks, Paula I'll keep my comments very brief this morning and just focus on the fourth quarter. The K-12 business consisting of our Sylvan learning center division, our sight based consumer business and Sylvan Education Solutions, our institutional school government contract business has combined revenues for fourth quarter of 53 and a half million which is 19 percent over last year, very strong performance. Total K-12 operating income was up 7.8 - was 7.8 million, which is seven percent over last year's same quarter. Let me just quickly address the results of each of these business units individually.

The learning center business showed very strong gains in the fourth quarter with an overall revenue increase of 28 percent. Among the highlights for the division were royalty growth in what's traditionally a seasonally slow quarter of 12 percent which continued our year-long trend of double digit growth. The sale of new franchises during the quarter doubled from last year, up over 126 percent. Corporate centers also had a very strong quarter, up 15 percent on a same-center basis and 48 percent overall supported by the addition of the 35 centers we acquired during the year, which brings our total corporate centers up to 127 and fulfilled our center acquisition targets for the year.

Our German Schueller (ph) tutor business revenues was up 24 percent for the quarter, supported both by a favorable euro exchange versus last year and better operating revenues. Our marketing and seams programs for 2002 continued to drive very high levels of interest in Sylvan, which when combined with our financing options, allowed consumers to purchase the complete solution for their children's supplemental, reading math, writing and study skills needs. These very impressive top-line results translated into a 42 percent operating profit increase with the most significant improvement coming from our corporate learning centers which were up 286 percent.

Let me move on quickly and address our education solutions business which had $20 million in revenues this quarter which was up modestly five percent over last year. Our newly developed sales force has been meeting with districts to review the supplemental services opportunity that's associated with the No Child Left Behind legislation. In the fourth quarter, we experienced a surge of pre-implementation activity and consequently, we expect to begin to see large-scale programs this spring, Q2. The pipeline for supplemental service programs is growing steadily and we expect a significant increase overall in program activity by the fall of this year which will be Q4. We're currently approved in 23 states to supply services under the act. Operating income for education solutions was 2.3 million, which is 32 percent below last year, and was expected as we reinvested in our sales force and the development of the infrastructure to support No Child Left Behind.

For the full year the K-12 group reported revenues of 215 million which is up 17 percent over last year, supported mainly by very strong performance in the Sylvan learning center franchises and our corporate center performance. Operating income was 42 million, up 19 percent above last year, as we reached the flow-through benefits of the strong sales performance. We're very excited about the outlook coming up for 2003, but the continuation of our strong performance in the learning center division driven by continued success in our marketing programs and the availability of program financing which allows parents to purchase the full solution for their children's education needs. We also expect to report growing traction in the adoption of the supplemental services among school districts throughout 2003. And with those brief remarks, what I'd like to do now is open this up to questions. We have the full management team for all parts of if business here to address those questions. Operator?

Thank you, sir. If you'd like to ask a question today, please press the star key followed by the digit one on your touch-tone phone at this time. Once again, if you'd like to ask a question, please press the star key followed by the digit one. We'll pause a moment to assemble our question roster. We go first to Jerry Herman with Legg Mason.

Thanks. Good morning, everybody. Doug, I'm wondering if you can address as you did last quarter, the expected losses pertaining to what we might call the strategic assets of Sylvan Ventures, Walden and NTU and e-Sylvan. And separately, what sort of cash flows might be associated with Sylvan Ventures in its entirety for '03 and the final part of that question, as I hook it together here, is the carrying value of Sylvan Ventures in totality.

Thanks, Jerry. I'm going to ask Sean to comment on that.

Yes. Jerry in terms of the projections specific portfolio company by portfolio company, we're projecting on a pretax losses, the e-Sylvan losses to be in the neighborhood of $7.5 million for 2003. I think that's a little bit shy of what we thought - actia;;u. I think we said around $10 million. We've obviously aggressively moved to reduce the cash burn rate there, 7.5 million for the full year expectation. The combined Walden and NTU, we expect a loss in the neighborhood of $4 million. Again, Walden being slightly profitable and NTU expecting as it continues to invest to lose over a little over $4 million. And then I guess in terms of the strategic assets, that's really how we've defined them, so the balance which the $17.5 million after-tax number we quoted translates into roughly $22 million pretax number and I've given you an explanation for the 7.5 and the five, a big chunk of that. The balance would be the non strategic assets.

Great. Cash burn and book value?

Well, in terms of the book value, clearly the nonstrategic assets have been written down largely through the equity method of accounting to virtually nothing. We have a cost method investment on our books. And I believe in the neighborhood of $8 million, and then we consolidate the results of e-Sylvan, Walden and NTU. So in effect we pick up 100 percent of their assets, 100 percent of their liabilities and it's reduced by a minority adjustment. I don't have that number off the top of my head, but could easily track it down and get back to you on it.

OK. Then the cash burn on the full year basis would be the 17.5 in rough terms?

I wouldn't expect a dramatic difference in cash and GAAP. That's not a lot of D&A.

That 17.5 is after tax. So the cash burn going to be more like the 22 million pretax number. Was it 22 or 24?

Twenty two million pretax number, Jerry.

Great. I'll circle back.

I just wanted to make one comment in the very beginning and for first two years of Sylvan Ventures, investors were willing to exclude all the losses from our income statement. Then there was a movement towards excluding none of the losses and then there's some people that say, well, we want to exclude the strategic element of Sylvan Ventures. Our concern is that's why we feel that we want to be out of the losses entirely. Because we just really feel that it's not clear what will be considered strategic and what will in fact become strategic to us. And that's our goal to eliminate the losses in their entirety, not just strategic or non-stategically. That not only includes some of the structural changes we talked about, but also just reducing the burn in the assets themselves and we have been working hard and have made good progress on that.

Operator, next question, please?

We go next to Mark Marostica with US Bancorp Piper Jaffray.

Hey guys, a question just stepping back on the overall results. Revenue clearly came in ahead of your guidance - I think it was 145 to 160, yet EPS and operating income came in at the lower end of the guidance. I wonder if you can take a step back and maybe comment on a few items that accounted for that disparity?

Sean Creamer. In terms of the revenue out performance, when we issue our guidance, we clearly took what I think was a conservative view on revenues because we've just - we weren't sure what currency was going to do. We were going tone a quarter with what was a somewhat volatile peso as an example. I think I alluded on the call if we were conservative in our guidance, it was at the revenue line item, with our expectation that we'd aggressively manage at the bottom line to hit the EPS number. So I think fundamentally, that's really the answer. It's more a question of we took a view of currency and felt the exposure on that was at the top line that we could manage the bottom line

One other question in relation to your write-up of the Sylvan learning center Spain master, does that have any impact whatsoever on the situation and expansion plans in the U.K. and France and tied to that, can you give us an update with regard to the two efforts?

Sure, Mark, it's Doug. They're really not related. In fact, the businesses themselves are different. In Spain, the evolution of that business became very much involved in the teaching of English. That's just what the market wanted. Of course now the market doesn't want that at all. Because they're reeling from this sort of consumer crisis of confidence that I alluded to before. That will clearly get fixed and come back again, but we're just not prepared to take a lot of exposure between now and then. U.K. and France are very different. The businesses are much more driven by tutoring, much like we do in the U.S. and in Germany, and they're also much earlier. We only have right now one center in each country and a few more centers pending, and so it's very, very early days. So I think I would view the U.K. and France as still very early in their development. It's a nice long-term hedge against the day when we run out of territories to expand in the U.S, but it doesn't need to kick in any time soon and it probably won't.

And then last question regarding the one-time charges. Should we expect any additional one-time charges in Q1?

We don't see ...

Or ventures.

We don't see or anticipate one-time charges. I alluded to the fact that we're working on a complete solution that should not only address the concerns about the recurring losses from Sylvan Ventures, but could also really address the - could also really address the structural issues for Sylvan overall. We think we're doing so well and we understand that we cloud our results with one-time charges and the ventures losses. So the only caveat I'd give you is if we are successful in accomplishing a sort of global solution to Sylvan's overall structure, there is undoubtedly charges that would be associated with that. In the ordinary course of business, we don't really see anything that would need to be written down right now. And we've tried very hard to wipe out anything in 2002 that we thought was a substantial loss.

I think Doug alluded to relatively immaterial dollars that were advanced in the early part on Sylvan Spain that we're going to have to monitor, but again the dollars are very insignificant.

We put a couple million dollars more into Sylvan Spain in early part of this year. We do not anticipate putting any more money in and we have not written that down. So that would be one other thing out there if Sylvan Spain were not to recover at all, you might have a couple million associated with that. But we don't think that will happen. Which is why we put the money in. I should also mention that the SIU IPO (ph) cost and the Sylvan Spain risks were all very, very clearly outlined in our Q. So I'm sure that investors have all seen that and are not surprised by that.

Thanks. I'll turn it over.

We go next to Fred McCrea with Thomas Weisel partners.

Good morning everybody.

Hi Fred.

Sean, maybe you can drill down on a follow-up to Mark's question on the operating income line. A little lower than we expected. Perhaps you can give us the highlights and kind of the areas of improvements that we saw in Q4?

In terms of relative guidance we came in - right at or in the low range in operating income. I think the answer is similar to first answer. We have felt and demonstrated throughout this year and in prior years that when there are revenue short falls we can aggressively move the expense line. So we felt like we can be a little bit more aggressive in our expectations at the operating income line. And I think systematically, there was nothing surprising that came through the expense line. It was just we think we set aggressive targets at the operating income level.

At the operating income level. Fred, I would just amplify, I think it has to do with investment spending. If you think of the fourth quarter, we had real ramped up expenses to get ready for the No Child Left Behind expenses and I think they ended up being more extensive than we thought. We've had all sorts of investment in the SIU front in preparation for the India and China projects we talked about. Our feeling is, if we know we're on track from a profits perspective, we're in a position to invest some of the excess into things that we think will allow us to grow into the future. If we thought we weren't on track, we'd ratchet back those kind of investments. So there's nothing in the margins or in the operating income performance of the fourth quarter that I think we look at as a concern at all.

Thanks.

Operator, next question?

We go to Jennifer Childe with Bear Stearns.

Hi, Jennifer.

Good morning. The $49 million investment in ventures during the year, did that relate to the strategic assets only? Could you detail that for us, please?

The - I'm sorry, Jennifer. The 49 million - that just the difference in the committed ones from beginning to end?

Yes.

It was subject to capital calls that I'll defer to Chris to a certain extent, but my guess is largely related to the strategic assets.

I think that the biggest chunks (ph) associated with it - I'm thinking of the timing more than anything else, both the acquisition of NTU which was a substantial portion as well as to going to ...

And buying 51 percent.

Exactly what I was going to say, the second stage of our investment in Walden where we took our interest up from 40 percent to 51 percent were the single two largest. So there were some smaller, other pieces, but they were in the - they were really frankly in the left material side of the equation. So the bulk of things actually sat within e-Sylvan, and Walden and NTU probably constituted, you know, better than 770 or 80 percent of the total number.

Thanks. I want to be clear on the learning center situation in Spain. Did operating results from these businesses, were they included in the overall results? For the learning centers.

We - Jennifer, it's Doug. We don't consolidate with the Spanish entity. It's a master franchisee. That's another difference, by the way. We now own the master franchises in UK and France, because we realized that once - in a business in this early development stage, we sort of own all the problems but we don't have the equity upside. And so that's why U.K. and France were bought back and now are own and controlled. In the case of Spain as they needed money and they were so - we thought important to our worldwide development, we advanced them money, primarily in the form of loans. So what we've done is we have taken in essence taken down - or taken reserves against the loans we have made to them. The only way that Sylvan Spain shows up in our financial results is royalties that they would pay us and they're not in the financial condition to pay us royalties at this time.

Thanks.

Operator, next question, please.

We go next to Alex Paris with Barrington Research.

Hey guys.

Hey Alex.

Sean, just a quick question. The $10.4 million in after-tax charges, where does that hit on the income statement? I see 12.5 million pretax loss on investment.

Yes. The balance - it really relates to the deal cost we spoke about and show up in the SIU operating expense line on the press release which is why when I started with the comments, I have excluded those numbers from the analysis and when Bill spoke in terms of margins, et cetera it was excluding the charges. But from a GAAP perspective they'll show up in SIU operating expenses.

OK, and that was roughly two and a half million after-tax, what was that pretax?

I think in the neighborhood of 3.5, 3.6.

OK. Just a little addition color on the process that's going on within Sylvan Ventures with the advisers and so on. I know you can't probably say too much, but looks like you need to get - reach an agreement with the outside investors there. What's the sort of time line we should be thinking about for some resolution on that matter?

Alex, it's Doug. We have been agonizing over how to provide the best and most informative update with investors without getting ourselves in any sort of a legal difficulty or really setting expectations that would be disappointing. So when we use the words nearing agreement or we believe we're nearing an agreement that is - that's as much as we can say. We really do think we're making great progress and I think if we're successful, that we have a resolution that would be a very comprehensive solution for Sylvan, not just ventures but really all the things that stand between us and being well valued. But I just can't give any more details on that right now.

OK. Well, then you have at it for five months and you come up with something that your board of directors and you executive management think is a good solution. You just need to generate some consensus here.

I think that's a fair approach.

OK. Fair enough, thanks guys.

We go next to Brandon Dobell with Credit Suisse First Boston.

Good morning, guys. I want to focus on WSI for a second. If you could kind of give the metrics that you give, you know, corporate owned center, franchise owned centers, maybe give us some idea of same-store growth there, as well as an update on how the Asian operations are doing and all. Limit my comments or questions to that. Thanks.

Thank you, Brandon. Again, it's Doug here. We have not provided a lot of information about Wall Street. Wall Street I think as you all know had really been - at one point a real high flier for Sylvan, but really badly damaged by this Spain market crisis that we talked about. And while we sold Spain and excluded - well, it's not considered a discontinued corporation, but excluded from the results of the company at this point, it would be fair to say that up until last June or July, everybody on the Wall Street management team was focused on the issues pertaining to Spain. So really since then we have been focused on rebuilding the rest of the Wall Street organization, so that we can - so that we can begin to show better results. That has meant pairing down our focus, really at this point our main focus in the business is on two primary countries that are company-owned markets for us after and that's Italy and Germany. In those two markets we do I would say about probably 60 or 70 percent of the revenues for Wall Street as a total. Because remember the rest of the world is franchised, so there's not a lot of revenues that come in, although the revenue that does come in is higher margin. So we have done very well in Germany and Italy.

We have smaller business units in company-owned countries in Brazil and in Portugal. And I would say those are smaller and in the case of Brazil, because it's not in Europe is probably something where we may very well refranchise that so that we don't have to spend a lot of our time or attention on it and putting it in the hands of people who can do more than we can. That would allow us to focus on the corporate owned markets in Europe. And that's really it, I would just describe it as a rebuilding, we don't talk about it a lot right now because it needs some time to rebuild. We have put some important new folks into the management team. We have reduced a lot of expenses and we have a real focus and discipline on financial performance in that division I think that is going to bear real fruit for us.

We did show for the full year a 17 percent increase in revenues for Wall Street, and that's with the Spain business taken out of it, but we really did not show any substantial improvement in profitability. If anything, it went from about a break even to - well, actually it was very similar. It was close to a million dollar EBIT loss in both years. So I think we'll show some good improvements this year, but really keying up for big improvements next year, but we'll try very hard not to overpromise anything on that. We really would like to just - we've been so badly burned because of what happened there in Spain that we just want the numbers to speak or the themselves and we'll probably need this year for that that to happen.

You did ask about Asia, and the - Asia has been a great area for Wall Street. We have now seven centers operating in Beijing and Shanghai. Those are operating through a franchisee but we have the option to acquire an ownership stake, and they're doing well and actually enormous revenues really unprecedented outside of Asia. We also have centers doing very well in Taiwan and in Hong Kong, and have just recently opened in Singapore and Thailand or are pending opening in Singapore and Thailand. So, I'd say if I were to guess over the next five years, probably 70 to 80 percent of the growth of Wall Street will probably come from Asia and we're focusing accordingly.

Great. Thanks a lot.

Thank you, Brandon. Operator, next question, please.

We go next the Trace Urdan with Think Equity Partners.

Hey Trace.

Hey, good morning. I wondered first off if you could comment on maybe what, you know, give us a sense of what some of the Greenfield costs for SIU look like and maybe even characterize you know sort of what you think the pay back on India is likely to be. As we - those of us who look at the postsecondary schools in the U.S. are accustomed to thinking about new schools starting up and losing money initially and then getting paid back, and I'm wondering if you can sort of relate how you see the Greenfield operations in India and China in those terms.

I'm going to ask Ralph to address that, but if you'd estimate what we spend on an annual basis to pursue acquisitions like Greenfield. But it's (inaudible) in the nature of the skill set and the carrying costs that we're hit with that should all bear fruit going forward. Do you want to comment roughly on that?

Yes. Let me start with the Greenfield because that was the question, and I will generalize it. The two Greenfields we're doing in China and India, as we mentioned before, we are starting - we are entering India with in the fashion that allows us to minimize the down side, minimize our risk that will be will always be our approach on Greenfield. For the two Greenfields to give you a ballpark number, we don't expect to be spending more - much more than $2 million. We're doing it in a fashion that allows us to be comfortable and we'll assess as we go. So that's for Greenfield.

In general pipeline we absorb costs every year on developing pipeline, and this - for 2002, that's that cost that could be as close as - close to one million dollars. We obviously we tried to get - to get the best return on it. So the pipeline development is an important piece of our business. We manage the cost, a lot of the costs are already in our payroll. We do most of our research and we - when we do incur a significant cost it will be associated with deal costs such as broker fees and accounting and other consultants. We have people working on business development all the time. Their costs are already reflected in our operating expenses and therefore you'd have travel expenses as being the incremental piece to that.

So it's highly manageable is what we're saying. We believe we have a very strong pipeline, and both Greenfield and pipeline development totally manageable and have done it over the past three years and we have had significant results. As you know, the returns are phenomenal. You spend a million dollars if you have two or three good acquisitions, you have significantly changed the face of the business.

You asked about India and the development of that. You used to - U.S. postsecondary companies opening a new branch and the returns on that are obvious close to immediate and very high. We have those same kind of returns when we open a new branch in an existing country like Mexico or Chile. When we're opening for first time in a country like India, it is a longer-term investment. But I think the way I'd describe India, you look at our business in Mexico which is now 35,000 plus students, it is a huge business. We see India having the kind of potential that Mexico has, but it will be years before we get to anything of that scale. That's why we better plant the seed now and get working on it.

Hey, Doug, does the strategic review process that you're engaged in right now preclude you from making any acquisitions in SIU for the time being?

That's good question. I don't think so. I don't think so. Indirectly it could in that it certainly is hard to use our stock as currency. In this period of time, for a lot of reasons. But we haven't really used stock for years, so we mostly have been cash buyers. I don't really think that's the case. I think we're being - as long as - our financial results have been so strong that we've been able to be incredibly disciplined about acquisitions. If we don't like the price, if we're concern about the country risk or anything, we have been prepared to sit back and wait. Generally that has worked very well for us. So I don't think the strategic review process for Sylvan is really impinging upon our strategic development. It does preclude us from buying back our own stock which obviously we announced, you know months and months ago that we have an authorized program do so. I think that's been frustrating for us, but it is what it is.

OK. I'll let you move on. Thanks.

Thanks.

We go next to Brady Enwright with Capital Research.

Hi, Brady.

Hi. Can you give us a little more information on how things were in the quarter on the cash basis? Give us a sense of what cash from operations was, how much you spent in capex? And what kind of the major chunks in and out of the balance sheet were.

Yes. We have the EBITDA numbers again at the time of the press release and particularly for the East Coast, I'm sure you can appreciate the blizzard put us a little bit behind at the expense of the balance sheet analysis. I'm going to use EBITDA as a surrogate and I can give you some color on capex. I mean, again the EBITDA on a pro forma basis for the year was in the neighborhood of 90 - I think it was 93 or $94 million. Capex for the year was approximately #65 million roughly 80 to 85 percent of that is within SIU which obviously is a more capital-intensive business. But a business that has very leverageable assets, and I think provides an opportunity going forward for us to inject a degree of leverage that can enhance returns of equity. We expect going forward from a cash perspective that SIU will be able to finance most of its capex with its own cash flow. We end the year at a roughly 130 million cash balance. We don't expect significant decline in the cash balance based on our forecasts throughout this year.

Specific to your question on the quarter, there was a - I think I announced last quarter the resolution of an earn out with our - our largest franchisee and buying back the U.K. and France in a package deal. That was done in - and the agreement was reached in the third quarter the cash actually went out the first or second day of October, which was in the neighborhood of 15 or $16 million if memory serves me. That would be sort of the only out of the ordinary cash outflow during the quarter. And our expectation going forward is we will continue to be able to finance our business out of existing cash flow.

Brady, Doug, I just want to add when we talk of large amounts of can ex, 60 million of capex, almost all is designed to increase capacity so that we can increase enrollments. So it's really not a high maintenance capex component to our business. We would estimate that maybe 25 percent or less of the capex that we spend in SIU for example is what we would consider to be sort of mandatory, nondiscretionary annual capex and 75 percent is things that either will allow us to increase prices like new amenities for the students or increase enrollments like new classrooms or new campus.

OK. I guess in the quarter then how much - what was the EBITDA in the quarter again? I think you mentioned it ...

Yes. For the quarter is 33.8. Again on the pro forma basis. But that adjusts out - the deal costs which actually weren't cash outflows in the quarter necessarily but had been balance sheet items for a number of quarters in a row. So 33.8 capex for the quarter was in the neighborhood of 20, 21, $22 million.

Then you had the outflow for the acquisition.

Exactly.

Thanks.

Thank you.

We go next to Richard Close with SunTrust Robinson Humphrey.

Excuse me. Yes. A question maybe for Peter on the K through 12. You know, the margins I think came in a little bit below what we were looking for and you said I think you mentioned the No Child Left Behind and ramping up for that. If you can give us a little bit more clarity on those expenses.

Sure, I'll be happy to. I think the overall margins were very strong in the learning center group and offset by weaker margins in the education solutions business. The education solutions business had two sort of negative impacts both of which we mentioned before. One is the development of the sales force which is fully deployed and fully staffed and in the fourth quarter of that probably accounted for in neighborhood of half a million dollars of additional expenses versus the prior year. About the same number was expended over the last four months of the year in the No Child Left Behind area in order to build an infrastructure which is management folks and product line in order to take advantage of the No Child Left Behind act, filing for all the 23 states and putting in place regional teams or the beginning of regional teams in order to deliver services.

We think going forward in 2003 probably in the first half of the year during the school year we'll deliver maybe to 1,500 students in that business. Then we expect that to begin ramping up really in the fall as more schools are identified as needing the services and put in place the procedures to allow vendors to start delivering those services. It's been a very slow ramp for the school districts and states to understand the law, and actually implement the law. But we think we've spent - the precursor money required in order to get there. So I'd say between the two items that's probably a million dollars that affected the education solutions division.

That million is in fourth quarter, correct?

Yes.

OK. And do you feel pretty confident in obtaining the goals in that business for 2003?

Yes. I mean, we've actually got fairly modest goals for education solutions in 2003, but most of those goals are really driven around increases in revenue from No Child Left Behind. That's two sources of income from that. One clearly is providing the after-school supplemental tutoring required by law. The other is trying to help those school districts that don't want to get in the position of being required to deliver those services. So they're in their school improvement program of not having made the adequate yearly progress that's required, we want to get to them before they hit the third year and have to provide supplemental tutoring.

One final on the learning centers, obviously last career was a great year and you'll be lapping that this year. With respect to the marketing and the financing program, you think that still has legs going into 2003?

Richard, it's Doug. I think our feeling - we are in the third quarter that the results that we were seeing last year were just spectacular and not really in the sustainable ordinary course of this business. This business is a great, steady grower and it just had some spectacular growth because of the implementation of the new financing programs. We've taken that into account in the guidance that we have produced for this year. So what you see this year is the K-12 business returning to a more ordinary level of growth and we certainly don't see any reason to believe that we can't accomplish that.

OK. Great. Thank you.

Thanks, in the interest of time we're probably going to take three or more questions and we thank all you for your patience in listening so long. Operator, next question.

We go to Howard Block with Banc of America.

Hi, Howard.

Good morning, everybody. Quick housekeeping question. Maybe it's just my model but I thought the fourth quarter of '01 was a 24 cent number not 28. Is it just an error in my model?

What we did is we adjusted back out the effect of goodwill amortization to put it on an apples to apples basis.

OK. Then in terms of the - I guess this would be for Peter, but just in terms of the pilot programs it sounds like a very exciting opportunity. I guess if I were trying to model it though, if I look at the guidance for your division, our education solutions next year, can we think that maybe there's $10 million of growth in there for these programs? In other words, sort of it was a flat to modestly down year and now we're looking at 10 million of growth. You have 12 to 15 percent is I think the range. How much of that growth is attributable to the implementation of NCLB?

Howard, just briefly let's remember that the states have been very slow in implementing this and we don't get much revenue until the fourth quarter of the year. So, we don't expect a dramatic amount of the growth to be reflected in the numbers for 2003. We think it's great long-term opportunity, but not a significant contributor. Not a significant contributor to 2003.

So that the guidance - the growth guidance your division for '03 is what you would think would be normalized organic growth?

Yes.

OK. Any metrics that you can share that might help us model the contracts that are in place let's say right now?

We have about 800 contracts in place.

How many are the larger public schools versus if private?

With the majority of the revenue actually come from contracts with public school districts, but for the delivery of service to nonpublic - to private schools. So that's - I think we would want to be thoughtful about what kind of metrics we put out on the business. Howard, this is Doug. But what I would say is we do anticipate that by the end of next year on a run rate basis, of new revenues acquired, half of the new revenues acquired will come from No Child Left Behind. So that shows you that that business will become in long term very important to SES.

But it's also assuming some decline in the normal contracts that we would win because we think some districts are going to shift money from the way they used to spend with us to the way that the law requires them to spend with us. So we're still very excited about No Child Left Behind in the long term. We think the this is a transitional year and we're also very comfortable with our place in the market. There's nobody winning more business or doing better in No Child Left Behind than we are. But the districts are just moving at a slow pace and we want to set people's expectations modestly. If the Department of Education at the federal level begins to crack down and force the districts to move more quickly, you will see more motion in our favor.

OK. And Peter, did you tell us what the franchise same store growth was?

For which period, for the full year ...

Fourth quarter.

Twelve percent.

Same as the royalty growth?

Yes.

And then in terms of the new loan program and - what percentage would you say of new customers actually employ the Sally Mae program?

Well, it's different between the franchise and corporate centers. The corporate centers have adopted it more strongly than the franchise centers, but I'm going to estimate it's probably in the range of a third to 40 percent.

For which?

... for above centers in aggregate.

Of the new customer?

Yes. Between 25 to 30 percent for franchisees and 40 percent for corporate centers.

In the last call I thought you explained some adverse effect that adoption of the program may be having on was it the corporate share of the franchise centers in terms of less use of your tuition financing program? I was wondering if you could revisit that and maybe just help us remember that explanation.

Howard, it's Doug. We used to have our own tuition program, and this business showed profits for the company, but it did not charge us for cost of capital. And so while it appeared to improve our operating profits and to contribute to operating profits, when you attached (ph) it a real cost of capital it was not good business for us to be in. So by switching over to Sally Mae, we got out of that business and as a result that entire profit stream came out of our numbers and that's why - that was the negative impact we were talking about.

OK. Is that still on going was the fourth quarters for the end of that difficult comparison?

Yes. We actually still have a negative comparison in the fourth quarter where it cost us money to sort of have a tail on that tuition financing program. So that actual that negative tail is built into the fairly strong positive results overall.

Last question is - on the SIU deal cost, what are those costs exactly?

Well, ordinary deals, because we're in the deal business are always just charged off against operating expenses on a, you know, quarter in and quarter out basis. The majority of the - there really are two transactions that are entailed in that cost. By far the majority of it were costs associated with the SIU IPO. Then there was one other transformational transaction that we had considered in the strategic planning work that our board has been doing that we decided not to do. But what is not in that charge and I think this is very important for people to understand, is the sort of day in day out broken deal costs for looking at deals and things like that. Because that is something that we eat in our operating statements, you know, quarter in and quarter out.

OK. And when - we can file the 10-K ...

We have to take another question. I'm sorry.

Thank you.

Thank you. Operator next question, please?

We go next to Gary Bisby (ph) with Lehman Brothers.

Hi, guys, this is Michael Lasser (inaudible) Gary Bisby (ph). With respect to the new campus in India, how close or how long should it take to get Deans university status and can you enroll students without such status?

I missed the second half of that question. I'm sorry.

Can you - how long should it take to get Dean university status and how long - can you enroll students without that status?

We can enroll students without that status because we're applied and pending and because we think we have a very strong application. And it should - we believe it should be wheresome where between six and nine months to get an answer on the application.

Six to nine months from when you applied?

That's correct.

And when did you apply?

Just now.

When do you expect to begin enrolling students in China?

This April. Which would be on a sort of a corporate client basis and then if - the actual school year ends in the summer. So we'll get a big intake we expect in September.

Thank you very much.

But we start in April.

Thank you.

Operator, next question, please.

We go next to Jeff Silber with Gerard Klauer.

Caller: Good morning. I know it's late. You have spoken earlier of the collapse in the English language instruction business first in Spain, first in WSI and then in your learning centers. And then the learning centers. I was just wondering if you saw any impact there as well?

Jeff, it is Doug. We really don't see any crossover between those issues. The way people pay for English in Spain has a loot to do with this, which is they traditionally taken out bank loans and then prepaid for their entire service. That's not the way people have to pay for tuitions in universities. There's never - the good news is there's been almost no --there's been no cross contamination of those issues. We do have other things that have kept our growth rate down in Spain, but not pertaining --not really pertaining to that issue.

Maybe you can elaborate on the other things?

Yes. We have at least - as we said before, we have a fairly big pool of students that normally would choose a private university. They are people who fail what is (inaudible) in Spain. You may have heard that term. It's equivalent to an SAT or a college entrance exam. That's highly, pretty selective. So we have a pool of almost 20,000 students that are in the past years allowed to go to universities, today the government - two years ago the government changed the law. This is the second year we expect that law to be reversed. So that's where some of our softness is coming from. We expect another year or so. And therefore, we will see resumption of the strong growth, we anticipate.

Let me ask one out of left field, sort of - are you seeing any type of anti-American backlash with everything going on in Europe? Has that had any impact on your business?

Not at that level ...

... and especially because in the international businesses we don't have very many Americans.

Right.

But our brands, although Wall Street is a very American-style brand, but it's a good question. We have seen none of that and cross our fingers that there wouldn't be. In the university business, I don't think there would be, because the brands is local, the history is local. I think we're in pretty good shape in that regard.

One more quick one. This is for Sean. Do you have the after-tax costs of the losses from ventures in the quarter?

Sean stepped out, but we're going to look that up. We'll take one more question and come back an answer that.

I appreciate it.

Thanks, Jeff. If we can take one last question.

We take our final question from John Ajay from Oppenheimer.

Hi. I was wondering if you could be more explicit on how some of the costs on the Greenfield expansion are going to hit the P&L in '03, and maybe talk a little bit about how the costs and other costs are kind of imbedded in your guidance so that you've got maybe greater underlying operating profit growth, you know, that's being offset by investments in the business?

Yes. Thank you, John. I think that's exactly the point. In essence when we give guidance for example, we spend millions of dollars on staff and travel pursuing acquisitions, for example, but in the year end guidance those expenses are budgeted but there's not any acquisitions budgeted. Because we don't want to put out guidance that's predicated upon a deal. We don't want to be under that kind of pressure to do a deal if we think market dynamics or pricing would make that the wrong decision.

The same thing - actually worse for Greenfield where we have the expenses to pursue Greenfield, but the Greenfields themselves are expected to lose money, albeit modest amounts in first year, and so we really - I think that's exactly right. I think this business is performing substantially better than it would appear as we incur these sort of costs for future development. But we realize that's the nature of the business. That if we want to present a business that has many-year run ahead of it for growth that we have to make the investments year in and year out to accomplish that growth.

Great. I'll follow up later with you some more detailed questions on exactly how the costs are going to hit you in '03. Thanks.

OK. Thank you. I wanted to just circle back before we got off to line to Jeff Silber's question. Asked what the after-tax venture losses were in fourth quarter, and if I'm reading this number right it looks like 8.1 million. Again, Sean stepped out for a second. It figures when he stepped out is when that question was asked. Is that the year number? For the full year, the after-tax losses for ventures would have been 33.6 million. So Jeff, that one is for you. For everyone else, thank you for the patience. We're sorry for such a long call but we hope it was informative and we hope that all of this disclosure that we provide is useful to investors. Thank you very much for your time and patience. If you need us, we're here.

That concludes today's conference call. Thank you for your participation.