UBS Warburg Conference

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UBS Warburg Conference New York City December 10,
2002
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(No Transcript)
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• December 1998 4.2 bn Simon Schuster
  acquisition

September 2000 2.5 bn NCS acquisition
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December 1998 4.2 bn Simon Schuster
acquisition

• 1 in educational publishing (school college)
• Sustained market leadership
• Benefits of scale
• Integrated benefits delivered now working across
  book publishing
• Cash generative
• Consistent cash conversion scope on working
  capital
• Value creation
• Earning our cost of capital

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September 2000 2.5 bn NCS acquisition

• 1 in Assessment Training
• All major contracts renewed new business won
• 1 in Enterprise Curriculum software
• Strong competitive position new products
  launched
• Benefits of scale
• In products and markets
• Good cash profile
• Lite working capital
• Value creation
• 15 CAGR in Revenues 20 CAGR in operating
  income

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2002 breadth depth of products and customers
Federal 18
Professional 11
College 29
School ELT 42
Products
Customers
Note Estimate of 02 revenue breakdown
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• What is Government solutions?
• How fast can educational publishing grow?
• Does Integrated Learning still apply?

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What is Government Solutions?

• What do we do?
• Is it a good business to be in?
• How does it change the revenue/margin/cash mix?

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• Government Solutions What do we do?

• We do for federal agencies what we do for state
  education boards and local school districts
• Manage data
• Score applications/tests
• Enable them to share information
• Support education and training
• and
• Deal with public inquiries

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Government Solutions Is it a good business to
be in?
Government may make private nearly half of its
civilian jobs

• President Bush has laid out a plan to transfer
  as many as 850,000 government jobs nearly half
  the federal civilian workforce to private
  companies as a way to save money and improve
  performance.

The New York Times, November 15, 2002
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Government Solutions the revenue/margin/cash
mix?

• Strong revenue growth
• Can come in spurts
• Broader contract portfolio being built
• 12 margins
• Scope for improvement
• Cash
• Modest capital investment
• A good customer

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• What is Government solutions?
• How fast can educational publishing grow?
• Does Integrated Learning still apply?

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• How fast can educational publishing grow?

School Increased federal funding or lower state
and local tax revenues? College Market-wide
growth or Pearson-specific? School
College 1990s growth levels sustainable in the
2000s?
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School Increased federal funding or lower state
local tax revenues?
2002

• No benefit from new federal funding
• A quieter adoption year
• Open territory spending down on 01

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School Increased federal funding or lower state
local tax revenues?
2003 - 2004

• Pearson competing for more adoption dollars
• 65 in 02 85 in 03-04
• School spending lags recession
• Reading First
• What gets tested, gets taught, gets bought

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College market-wide or Pearson-specific?

• Strong market-wide growth
• Demographics
• Jobs market
• And Pearson out-performance
• Full benefits of integration
• Addison Wesley matching Prentice Hall performance
• Technology and Custom Publishing leadership

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School College 1990s growth levels
sustainable in 2000s?

• Some cyclicality in K-12 markets
• Adoptions schedules
• State and local budgets
• For 20 years, K-16 markets have grown faster
  than
• Enrollments
• GDP
• Overall education spending
• This trend should continue
• Standards-based learning
• No Child Left Behind
• Economic value of a degree

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• What is Government solutions?
• How fast can educational publishing grow?
• Does Integrated Learning still apply?

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• Does Integrated Learning still apply?
• Will schools pay for online content services?
• Is there demand for integrated learning

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Will customers pay for online content and
services?

• 140m in curriculum software sales
• 100m in enterprise software sales

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Is there a demand for integrated learning?

• No Child Left Behind creates the demand
• Test
• Report
• Remediate
• E-rate funding has created the platform

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Where students, parents, teachers, and
administrators harmonize their efforts for
maximum student achievement.

• A comprehensive, integrated family of Web-based
  applications that
• Revolutionizes K-12 education with a new category
  of technology the online education community
• Meets NCLB requirements with integrated
  standards-aligned content, assessment, student
  performance management, and parent communication
• Helps all members of the education
  community?students, parents, teachers, and
  administrators?achieve success

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(No Transcript)
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What is Government solutions? How fast can
educational publishing grow? Does Integrated
Learning still apply?
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• We like working for the federal government
• The future of educational publishing still looks
  pretty bright
• Integrated Learning is coming fairly soon to a
  school near you