Washington Post 2009 Annual Report Download - page 40

million. The requirement to post additional letters of credit or the imposition of other sanctions by the Department of
Education would increase Kaplan’s regulatory compliance costs and could have a materially adverse effect on its results
of operations.
• Failure to Demonstrate “Financial Responsibility” Could Result in a Requirement to Submit Letters of Credit to the U.S.
Department of Education, Loss of Eligibility to Participate in Title IV Programs, or Other Sanctions
An institution participating in the Title IV programs must comply with certain measures of financial responsibility under
the Federal Higher Education Act and under Department of Education regulations. Among other things, the applicable
regulations require an institution to achieve a composite score of at least 1.5 as calculated under Department of
Education regulations based on data in annual financial statements submitted to the Department of Education. If an
institution fails to achieve a composite score of 1.5, or fails to comply with other financial responsibility standards, the
Department of Education may place conditions on the institution’s participation in the Title IV programs and may require
the institution to submit to the Department of Education a letter of credit in an amount of at least 10% to 50% of the
institution’s annual Title IV participation for its most recent fiscal year. The Department of Education has measured the
compliance of Kaplan’s Higher Education division’s schools based on the composite score of the division. If one or more
of the institutions in Kaplan’s Higher Education division fails to meet the composite score standard, or any of the other
financial responsibility standards, those institutions may be required to post a letter of credit in favor of the Department
of Education and possibly may be subject to other sanctions, including limitation or termination of its participation in
Title IV programs. A requirement to post a letter of credit or the imposition of any one or more other sanctions by the
Department of Education could have a material adverse effect on Kaplan’s results of operations.
• Failure to Demonstrate “Administrative Capability” Could Result in Loss of Eligibility to Participate in Title IV Programs
or Other Sanctions
Department of Education regulations specify extensive criteria an institution must satisfy to establish that it has the required
“administrative capability” to participate in Title IV programs. These criteria include, but are not limited to, requirements
relating to the institution’s compliance with all applicable Title IV requirements, the institution’s administration of Title IV
programs, the institution’s compliance with certain reporting, disclosure, and record keeping obligations, and maintaining
cohort default rates below prescribed thresholds. Failure to comply with these criteria could result in the loss or limitation of
the eligibility of one or more of the schools in Kaplan’s Higher Education division to participate in the Title IV programs, a
requirement to pay fines or to repay Title IV program funds, a denial or refusal by the Department of Education to consider
a school’s application for renewal of its certification to participate in the Title IV programs, civil or criminal penalties, or
other sanctions. Any one or more of these actions by the Department of Education could have a material adverse effect on
Kaplan’s results of operations.
• Changes in the Extent to Which Standardized Tests Are Used in the Admissions Process by Colleges or Graduate
Schools
A substantial portion of Kaplan’s operating income is generated by Kaplan Text Preparation. The source of this income
is fees charged for courses that prepare students for a broad range of admissions examinations that are required for
admission to colleges and graduate schools. Historically, colleges and graduate schools have required standardized tests
as part of the admissions process. There has been some movement away from this historical reliance on standardized
admissions tests among a small number of colleges that have adopted “test-optional” admissions policies. Any significant
reduction in the use of standardized tests in the college or graduate school admissions process could have an adverse
effect on Kaplan’s operating results.
• Changes in the Extent to Which Licensing and Proficiency Examinations Are Used to Qualify Individuals to Pursue
Certain Careers
A substantial portion of Kaplan Test Preparation’s and Kaplan International’s revenue comes from preparing individuals for
licensing or technical proficiency examinations in various fields. Any significant relaxation or elimination of licensing or
technical proficiency requirements in those fields served by Kaplan Test Preparation’s and Kaplan International’s
businesses could negatively impact Kaplan’s operating results.
• Failure to Successfully Assimilate Acquired Businesses
The Company’s Kaplan subsidiary has historically been an active acquirer of businesses that provide educational
services. Consistent with this historical trend, during 2009 Kaplan completed two acquisitions. Acquisitions involve
various inherent risks and uncertainties, including difficulties in efficiently integrating the service offerings, accounting and
other administrative systems of an acquired business; the challenges of assimilating and retaining key personnel; the
consequences of diverting the attention of senior management from existing operations; the possibility that an acquired
26 THE WASHINGTON POST COMPANY