For‑Profit Education Market Growth and Charter School Expansion Overview

education providers. According to Harris Nesbitt Research, industry experts estimate that the $21.8 billion in revenues generated by for-profit education providers in 2004 will increase to over $29.7 billion in 2010, 5.3% annual growth. 7° However, these estimates reflect only spending by institutions on educational material and do not reflect the growing segment of direct to consumer educational materials, which represented roughly an additional $20 billion in 2004. For-Profit K-12 Education (2004 — 2010E $30 $25 $20 $15 $10 $5 $0 (in billions) 2004 2005 2006E 2007E 2008E 2009E 2010E = Professional Development & Print Publishing © Supplemental Services © Technology = Assessment = School Management Source: Harris Nesbitt estinates based on Eduventures’ “The Education Industry: Learning Markets and Opportunities 2004” report (December 2004). Standards and Accountability. Due to the unsatisfactory performance of American students in grades K- 12, parents and lawmakers are demanding increased standards and accountability in schools. This demand has focused on establishing guidelines for every school and every subgroup of students and then holding the school (and its staff) accountable to students’ performance relative to those standards. The Company expects continued focus on academic standards, assessments, and accountability in the near future. Despite this increased attention on standards and accountability, many parents continue to remain concerned with the overall effectiveness of the public school system and are increasingly relying on for-profit education providers. Charter Schools and Virtual Academies. There has also been a significant rise in the number of charter schools in the U.S. in the past decade. Since Minnesota first enacted legislation in 1991, 40 states and the District of Columbia have passed charter school legislation. Under the typical charter school statute, an identified entity, such as the state, a state university or local school district board of education, is authorized to grant a specified number of charters to community groups or non-profit entities to create a public charter school. A growing number of charter boards, in turn, contract with private sector organizations to manage the schools. In return for a large measure of autonomy from normal public school regulation, the charter school is accountable for student academic performance. Currently, the Company estimates that there were nearly 2,700 charter schools in operation nationwide, as of January 2003, with an estimated enrollment of over 685,000 students. Moreover, the federal No Child Left Behind Act (“NCLB”) recognizes charter schools as a viable alternative for students who want to transfer from neighborhood schools that are failing. To capitalize upon the increasing number of parents who are willing to educate their children at home and still want to be part of the public system, there are a growing number of virtual schools, where much of the learning is home-based. Most current charter school legislation either explicitly authorizes virtual public schools or does not directly prohibit them. Because virtual schools usually offer a comprehensive curriculum, easy-to-use learning and performance evaluation technology assistance and instructional materials, the Company believes that a growing number of families will pursue virtual public schools as an attractive alternative to traditional schools and a more cost-effective, better organized approach to home schooling. The large and scalable platform that exists at k12 is designed to capitalize on this trend as the number of charter schools has grown on average nearly 13% annually, while charter school enrollment *8 Source: Harris Nesbitt, Education and Training, September 2005. 68 HOUSE_OVERSIGHT_024501