SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1995
Commission file number 1-6981
NATIONAL EDUCATION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 95-2774428
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18400 Von Karman Avenue, Irvine, California 92715-1594
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 714/474-9400
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
29,883,007 common stock shares outstanding at August 4, 1995
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
______________________ _______________________
(amounts in thousands, except per share amounts) 1995 1994 1995 1994
________________________________________________ __________ _________ __________ _________
<S> <C> <C> <C> <C>
Tuition and Contract Revenues $ 46,986 $ 43,171 $91,798 $ 83,168
Publishing Revenues 15,278 15,166 26,425 24,641
_________ _________ _________ _________
Total Net Revenues 62,264 58,337 118,223 107,809
Costs and Expenses:
Contract course materials and service costs 20,352 14,279 37,948 28,149
Publishing costs and materials 4,137 4,099 7,493 6,936
Product development 4,870 4,690 9,925 9,384
Selling and promotion 25,593 25,005 55,977 50,438
General and administrative 8,856 7,523 18,167 16,424
Amortization of prior period deferred marketing 159 5,837 1,470 13,206
Amortization of acquired intangible assets 545 427 1,110 853
Interest expense 2,403 1,511 4,380 3,009
Investment income (807) (1,386) (1,216) (1,944)
Other income, net (29) (212) (265) (307)
Unusual items 77,805 -- 77,805 --
_________ _________ _________ _________
Loss Before Tax Benefit, Minority Interest and
Discontinued Operations (81,620) (3,436) (94,571) (18,339)
Tax benefit -- (332) (4,533) (3,983)
_________ _________ _________ _________
Loss Before Minority Interest and Discontinued
Operations (81,620) (3,104) (90,038) (14,356)
Minority interest 350 375 440 497
_________ _________ _________ _________
Loss From Continuing Operations (81,970) (3,479) (90,478) (14,853)
Discontinued operations -- (7,412) -- (9,420)
Disposal of discontinued operations -- (40,032) -- (40,032)
_________ _________ _________ _________
Net Loss $(81,970) $(50,923) $(90,478) $(64,305)
========= ========= ========= =========
Loss Per Share From Continuing Operations $ (2.72) $ (.12) $ (3.03) $ (.50)
========= ========= ========= =========
Loss Per Share $ (2.72) $ (1.72) $ (3.03) $ (2.17)
========= ========= ========= =========
Weighted Average Number of Shares Outstanding 30,111 29,626 29,881 29,641
<FN>
Unaudited
See accompanying notes and management's discussion and analysis.
</FN>
</TABLE>
2
<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
<CAPTION>
June 30, December 31, June 30,
(dollars in thousands) 1995 1994 1994
____________________________________________________________________ _____________ _____________ _____________
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 23,164 $ 17,297 $ 28,330
Investment securities 2,335 10,833 15,217
Receivables, net of allowance of $3,488, $2,787 and $3,721 25,470 45,186 27,894
Inventories and supplies 24,819 23,827 23,355
Prepaid and deferred marketing expenses 7,546 3,223 16,607
Assets held for disposition 21,795 25,867 19,485
Other current assets 19,170 18,006 15,002
_________ __________ _________
Total current assets 124,299 144,239 145,890
Land, Buildings and Equipment, less accumulated depreciation
of $66,406, $63,240 and $60,830 23,687 25,404 23,169
Acquired Intangible Assets, less accumulated amortization of
$12,965, $89,005 and $87,988 9,640 52,703 50,910
Deferred Income Taxes 23,073 28,482 25,793
Other Assets 5,591 8,248 10,922
_________ __________ _________
$ 186,290 $ 259,076 $ 256,684
========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 7,027 $ 7,771 $ 6,029
Accrued expenses 24,831 30,625 28,803
Accrued short-term restructuring charges 9,251 -- --
Accrued salaries and wages 5,639 5,448 5,327
Accrued disposition costs 20,275 25,116 27,100
Deferred contract revenues 9,573 11,905 10,030
Current portion of long-term debt and short-term borrowings 14,821 6,407 7,880
_________ __________ _________
Total current liabilities 91,417 87,272 85,169
_________ __________ _________
Liabilities Payable After One Year
Long-term debt, less current portion 6,370 6,389 5,578
Senior subordinated convertible debentures 20,000 20,000 20,000
Convertible subordinated debentures 57,494 57,494 57,494
Accrued long-term restructuring charges 12,174 -- --
Other noncurrent liabilities 7,967 7,667 8,147
_________ __________ _________
104,005 91,550 91,219
_________ __________ _________
3<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
<CAPTION>
June 30, December 31, June 30,
(dollars in thousands) 1995 1994 1994
____________________________________________________________________ _____________ _____________ _____________
<S> <C> <C> <C>
Minority Interest in Equity of Consolidated Subsidiary 8,566 8,221 8,187
_________ __________ _________
Stockholders' Equity
Preferred stock, $.10 par value; 5,000,000 shares authorized and unissued -- -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
30,581,631 shares, 30,275,831 shares and 30,260,858 shares issued 2,117 2,110 2,109
Additional paid-in capital 134,222 133,043 132,830
Retained (deficit) earnings (140,722) (50,244) (50,624)
Unrealized gain (loss) on available-for-sale securities, net of tax 73 (21) 166
Cumulative foreign exchange translation adjustment (7,301) (7,947) (7,464)
Notes receivable under stock option plans (1,179) -- --
_________ __________ _________
(12,790) 76,941 77,017
Less common stock in treasury 697,556, 697,556 and 697,461 (4,908) (4,908) (4,908)
_________ __________ _________
Total stockholders' equity (17,698) 72,033 72,109
_________ __________ _________
$ 186,290 $ 259,076 $ 256,684
========= ========== =========
<FN>
Unaudited
See accompanying notes and management's discussion and analysis.
</TABLE>
4<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
_________________________ ________________________
(dollars in thousands) 1995 1994 1995 1994
________________________________________________________ __________ _________ _________ _________
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(81,970) $(50,923) $ (90,478) $ (64,305)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Loss on discontinued operations -- 7,412 -- 9,420
Tax benefit from discontinued operations -- -- -- 1,008
Loss on disposal of discontinued operations -- 40,032 -- 40,032
Depreciation and amortization 1,634 1,383 3,006 2,730
Amortization of acquired intangible assets 545 427 1,110 853
Amortization of prior period deferred marketing 159 5,837 1,470 13,206
Provision for doubtful accounts 1,811 157 1,921 301
Write-off of acquired intangible assets 47,509 -- 47,509 --
(Gain)/loss on foreign currency exchange (20) (212) (259) (307)
Change in assets and liabilities:
Receivables, net 4,048 (1,905) 18,261 12,577
Inventories and supplies 798 905 (333) 527
Prepaid and deferred marketing expenses (892) 383 (4,575) (4,927)
Accounts payable and accrued expenses (2,837) (7,066) (7,414) (12,992)
Accrued restructuring charges 29,106 -- 29,106 --
Accrued and deferred income taxes (338) (1,440) (583) (2,809)
Deferred contract revenues (2,881) (845) (2,433) (661)
Other (586) 3,674 (1,567) 2,122
________ ________ _________ _________
Net Cash From Operating Activities (3,914) (2,181) (5,259) (3,225)
________ ________ _________ _________
Cash Flows For Investing Activities:
Additions to land, building and equipment (3,295) (2,102) (5,367) (3,635)
Dispositions of land, buildings and equipment (286) 214 (190) 259
Purchases of investment securities (189) 993 (189) (3,250)
Proceeds from the sale or redemption of securities 154 3,183 8,836 4,585
Acquisition of business, net of cash acquired -- -- -- (3,870)
Discontinued operations (390) (10,004) (769) (12,905)
________ ________ _________ _________
Net Cash For Investing Activities (4,006) (7,716) 2,321 (18,816)
________ ________ _________ _________
Cash Flows From Financing Activities:
Additions to long-term debt 518 3,909 576 3,909
Reductions in long-term debt (370) (177) (595) (263)
Changes in short-term borrowings 5,439 7,308 8,414 7,308
Minority interest in earnings of consolidated subsidiary 350 19 345 141
Common stock, stock options and related tax benefits 1,186 215 1,186 569
Notes receivable under stock option plan (1,179) -- (1,179) --
Purchase of common stock for treasury -- -- -- (53)
________ ________ _________ _________
5<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
_________________________ ________________________
(dollars in thousands) 1995 1994 1995 1994
________________________________________________________ __________ _________ _________ _________
<S> <C> <C> <C> <C>
Net Cash From Financing Activities 5,944 11,274 8,747 11,611
________ ________ _________ _________
Effect of Exchange Rate Changes on Cash (140) 127 58 214
________ ________ _________ _________
Net Change in Cash and Equivalents (2,116) 1,504 5,867 (10,216)
Cash and Equivalents at the Beginning of the Period 25,280 26,826 17,297 38,546
________ ________ _________ _________
Cash and Equivalents at the End of the Period $ 23,164 $ 28,330 $ 23,164 $ 28,330
======== ======== ========= =========
<FN>
Unaudited
See accompanying notes and management's discussion and analysis.
</FN>
</TABLE>
6<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
NOTE 1 - Summary of Accounting Policies
_______________________________________
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position, results of operations and cash flows. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these financial
statements be read in conjunction with the financial statements, accounting
policies, and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994. The results of operations
for interim periods are not necessarily indicative of the results of
operations to be expected for the year.
In the second quarter the Company adopted, effective January 1, 1995, the
provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets" (FASB 121). Prior to
January 1, 1995, the Company reviewed the recoverability of its long-lived
assets and intangible assets by comparing projected related cash flows on an
undiscounted basis to the net book value of the assets. In the event the
recoverability of the assets was impaired, the Company would have measured
the impairment by comparing projected operating income and related cash flows
on an undiscounted basis to the net book value of the assets. Under the
provisions of FASB 121, the Company will continue to review the
recoverability of long-lived assets and intangible assets by comparing cash
flows on an undiscounted basis to the net book value of the assets. In the
event the undiscounted cash flows are less than the net book value of the
assets, the carrying value of the assets must be written-down to its fair
value, less cost to sell. In addition, FASB 121 requires that assets to be
disposed of be measured at the lower of cost or fair value, less cost to
sell. Adopting FASB 121 had no effect on the Company's financial statements
except for the write-off of goodwill as described further at Note 3.
In December 1993, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AICPA) issued Statement
of Position No. 93-7 ("SOP"), "Reporting on Advertising Costs". The SOP
generally requires advertising costs, other than direct-response advertising,
to be expensed as incurred. In the fourth quarter of 1994, ICS adopted the
SOP effective January 1, 1994. In adopting the SOP in 1994, ICS' total
advertising, selling and promotion costs were expensed as incurred in 1994
rather than deferred and amortized as in prior periods. Adoption of the SOP
in 1994 resulted in a second quarter charge of $5,800,000. The charge
consists of two components. First, a charge of $5,837,000 resulted from the
amortization of the deferred marketing balance at December 31, 1993 into
1994. Second, a benefit of $37,000 resulted from selling and promotion
spending lower than the amortization that would have been expensed in
accordance with the Company's previous accounting policy. Adoption of the
7<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
NOTE 1 - Summary of Accounting Policies - continued
___________________________________________________
SOP in 1994 resulted in a charge of $19,308,000 for the six months ended June
30, 1994. This charge consists of two components. First a charge of
$13,206,000 resulted from the amortization of the deferred marketing balance
at December 31, 1993 into 1994. Second, a charge of $6,102,000 resulted from
increased selling and promotion spending above the amortization that would
have been expensed in accordance with the Company's previous accounting
policy. At December 31, 1994, a deferred marketing balance of $1,470,000
remained, of which $1,311,000 was amortized in the first quarter of 1995,
with the remaining $159,000 amortized in the second quarter of 1995.
A substantial portion of selling and promotion costs at National Education
Training Group (NETG) and Steck-Vaughn are deferred and fully amortized
within the calendar year to properly match the costs with revenues due to the
seasonal nature of revenue realization. Due to the seasonal nature of NETG's
and Steck-Vaughn's traditional selling cycle, selling and promotion costs are
typically deferred in the first half of the year and amortized in the latter
half of the year.
Certain prior year amounts have been reclassified to conform with the 1995
presentation.
NOTE 2 - Business Disposition
_____________________________
In June 1994, the Company adopted a plan to dispose of its Education Centers
subsidiary. As a result, the Company recorded a second quarter 1994 charge
of $40,032,000 to write-down assets to estimated net realizable value and
provide for estimated costs of disposing of the operation. No tax benefits
were provided on this charge. Based on the current assumptions to close the
transaction, management believes that the amount reserved is adequate and no
further charges are currently anticipated. The Education Centers are being
accounted for as discontinued operations and prior period statements of
operations have been reclassified to reflect this treatment. Revenues for
the Education Centers' 28 open schools were $21,322,000, and $19,587,000 for
the three months ended June 30, 1995 and 1994 respectively and revenues for
the six months ended June 30, 1995 and 1994 were $43,733,000 and $41,888,000,
respectively. Education Centers' negative cash flow of $389,000 for the
three months ended June 30, 1995 improved $9,765,000 from the prior year
period due primarily to improved student starts, and expense reduction and
control at the operation.
On June 30, 1995, Education Centers consummated the sale of five schools to a
company whose principals include former senior management members of
Education Centers. The agreement to sell five schools also includes a
contractual obligation by this company to acquire an additional seven
schools, which is expected to occur before the end of the calendar year.
8<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
NOTE 2 - Business Disposition (continued)
_________________________________________
On July 31, 1995, Education Centers consummated the sale of an aggregate of
five additional schools to three separate buyers. Additionally, Education
Centers has agreements with three other buyers to sell an aggregate of five
schools by September 30, 1995. The Company continues to discuss the sale of
the remaining schools with potential buyers. By the end of the third quarter
of 1995, the Company will have either sold (or have a contract or letter of
intent for sale) or commenced the teach-out of the remaining schools.
For purposes of presenting the statement of cash flows, prior year periods
have been reclassified to reflect the discontinued operations.
NOTE 3 - Write-off of Goodwill
______________________________
NETG has experienced significant operating losses over the past several years
in an environment of substantial changes in the training of information
systems and technology. Due to the many outstanding opportunities in the
training marketplace, especially in information technology, the Company
remained optimistic over the past periods about future sales and earnings,
such that through the first quarter of 1995, management's best estimates of
the future results of NETG's operations supported the recoverability of
recorded goodwill balances. However, given continuing losses through the
second quarter of 1995, management does not believe NETG can return to
profitability in the foreseeable future under its pre-restructuring operating
structure. As a result, the Company has undertaken a reorganization and
downsizing of NETG's current operations commencing in the second quarter.
During the second quarter the Company implemented changes in key management
positions including the Company's Chief Executive Officer, NETG's President
and other NETG senior management positions. In addition, certain product
lines have been discontinued and the subsidiary has reorganized its sales and
marketing effort to enhance its channels of distribution which among other
things, resulted in the restructuring described in Note 4. As a result of
these changes, the Company has revised NETG's financial projections,
consistent with management's best estimate of future results of operations.
Based upon this estimate of the future results of operations, the estimated
net after-tax cash flows over the remaining life of NETG's intangible assets
(goodwill) are less than the net book value of the goodwill at June 30, 1995.
Under the provisions of FASB 121, the Company has estimated the fair value of
its investment in NETG by discounting estimated future net cash flows at a
rate commensurate with the related risk. Based upon this analysis,
management believes NETG to have only a nominal fair value such that, after
considering the estimated costs to sell, the goodwill balance of $42,719,000
related to the Company's 1986 acquisition of what is now NETG was written-off
during the second quarter.
9<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
NOTE 3 - Write-off of Goodwill (continued)
__________________________________________
Additionally, in connection with the restructuring of NETG during the second
quarter, the Company decided to discontinue the operations of Spectrum, a
subsidiary of NETG which provides primarily custom developed training to
businesses. As a result, the Company has recorded the assets and liabilities
of Spectrum at their fair value and written-off goodwill in the amount of
$4,790,000 ($.26 per share) during the second quarter. The acquisition of
Spectrum in 1988 was accounted for as a pooling of interests. The goodwill
was related to an acquisition made by Spectrum prior to 1988. Spectrum's
revenue and operating loss before interest and amortization of intangibles
for the six months ended June 30, 1995 and June 30, 1994 and the twelve
months ended December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended
June 30, December 31,
_________________________ ___________________
(dollars in thousands) 1995 1994 1994
________________________________________________________ __________ _________ ___________________
<S> <C> <C> <C>
Revenues $ 1,343 $ 3,021 $ 5,247
Operating loss before interest and
amortization of intangibles $ (1,436) $ (467) $ (1,126)
</TABLE>
The write-off of goodwill is included within unusual items in the
consolidated statement of operations. As management revised its estimate of
the division's future cash flows as a result of second quarter events, the
adoption of FASB 121 had no effect on the consolidated results of operations
of any prior periods.
NOTE 4 - Restructuring Charges
______________________________
As a result of continued losses at NETG, the Company resolved to
significantly lower the overall cost structure while focusing on specific
training areas to permit NETG to return to profitability. Accordingly, the
Company approved a restructuring plan for NETG in June 1995 which resulted in
a nonrecurring charge of $28,652,000 ($.95 per share). No tax benefits were
provided on this charge. The charge includes severance related payments,
excess facilities costs, the write-down of inventory and fixed assets of
certain discontinued products, and other restructuring related items such as
charges related to canceled contracts and agreements. The following
summarizes these charges, the related write-offs and cash paid in connection
with the restructuring.
10<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
NOTE 4 - Restructuring Charges (continued)
__________________________________________
<TABLE>
<CAPTION>
Severance Excess Fixed Assets
(dollars in thousands) Payments Facilities and Inventory Other Total
_____________________________________________ _________ __________ _____________ _________ _________
<S> <C> <C> <C> <C> <C>
1995 restructuring charges $ 3,250 $ 16,081 $ 4,018 $ 5,303 $ 28,652
Noncash write-off -- -- (4,018) (3,508) (7,526)
Cash paid (392) (68) -- (496) (956)
_________ _________ __________ _________ _________
Accrued restructuring at June 30, 1995 $ 2,858 $ 16,013 $ -- $ 1,299 $ 20,170
========= ========= ========== ========= =========
</TABLE>
Amounts related to severance will cover approximately one hundred employees
involved primarily in sales and marketing, distribution and other
administrative functions at NETG's domestic and European locations. Amounts
related to facilities reflect the cost of leases for excess space arising
from the consolidation of space within the subsidiary's U.S. headquarters and
the subsidiary's domestic and European sales offices. The non-current
portion of the restructuring charges relates primarily to leases on
unutilized space which will require payments through 2004.
Additionally, during the second quarter, an unusual charge was recorded in
the amount of $1,644,000 ($.05 per share) at NEC Corporate primarily for
severance related payments to the former chief executive officer and
corporate expenses related to the restructuring of NETG. The cash paid in
connection with this charge was $257,000 during the period.
NOTE 5 - Earnings (Loss) Per Share
__________________________________
Earnings (loss) per share are computed based on the weighted average number
of common shares outstanding during the respective periods, including
dilutive stock options.
NOTE 6 - Investment Securities
______________________________
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities (SFAS 115), which resulted in a change in the accounting
for debt and equity securities held for investment purposes. In accordance
with SFAS 115, the Company's debt and equity securities are now considered as
either held-to-maturity or available-for-sale. Held-to-maturity securities
represent those securities that the Company has both the positive intent and
ability to hold to maturity and are carried at amortized cost.
11<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
NOTE 6 - Investment Securities (continued)
__________________________________________
Available-for-sale securities represent those securities that do not meet the
classification of held-to-maturity and are not actively traded. Unrealized
gains and losses on these securities are excluded from earnings and are
reported as a separate component of stockholders' equity, net of applicable
taxes, until realized. Since the adoption of this standard, the Company
recorded increases in available-for-sale securities of $115,000 and a related
deferred tax liability of $42,000, resulting in a net increase of $73,000 in
stockholders' equity.
During the six months ended June 30, 1995 and 1994, the Company did not
realize a material gain or loss from the sale of available-for-sale
securities.
NOTE 7 - Statements of Cash Flows Supplementary Information
___________________________________________________________
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
_________________________ ________________________
(dollars in thousands) 1995 1994 1995 1994
________________________________________________________ __________ _________ _________ _________
<S> <C> <C> <C> <C>
Cash Paid During the Period For:
Interest expense $ 2,965 $ 2,028 $ 4,350 $ 3,129
Income taxes, net of income tax refunds $ (199) $ 1,091 $ 50 $ 1,810
Detail of Noncash Investing and Financing Activities:
Sale of land, building and equipment in exchange
for note receivable $ 416 $ -- $ 416 $ --
</TABLE>
12<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Variance Change
________________________________________________________ _________ _________ _________ ________
<S> <C> <C> <C> <C>
Net Revenues:
ICS Learning Systems $ 35,721 $ 29,492 $ 6,229 21.1%
Steck-Vaughn Publishing 15,278 15,166 112 0.7
NETG 10,355 12,992 (2,637) (20.3)
Other 910 687 223 32.5
_________ _________ ________
Total Net Revenues $ 62,264 $ 58,337 $ 3,927 6.7
========= ========= =========
Operating Income (Loss):
ICS Learning Systems before amortization $ 5,411 $ 5,130 $ 281 5.5
Amortization of prior period deferred marketing (159) (5,837) 5,678 97.3
_________ _________ ________
ICS Learning Systems 5,252 (707) 5,959 n/m
Steck-Vaughn Publishing 2,905 3,288 (383) (11.6)
NETG before unusual items (8,868) (4,018) (4,850) (120.7)
Unusual items (76,161) -- (76,161) n/m
_________ _________ ________
NETG (85,029) (4,018) (81,011) n/m
Other 267 (303) 570 n/m
_________ _________ ________
Total Segment Operating Loss (76,605) (1,740) (74,865) n/m
General corporate expenses (1,804) (1,783) (21) (1.2)%
Interest expense (2,403) (1,511) (892) (59.0)
Investment income 807 1,386 (579) (41.8)
Unusual items (1,644) -- (1,644) n/m
Other income 29 212 (183) (86.3)
_________ _________ ________
Loss Before Tax Benefit, Minority
Interest and Discontinued Operations (81,620) (3,436) (78,184) n/m
Tax benefit -- (332) (332) n/m
_________ _________ ________
Loss Before Minority Interest and
Discontinued Operations (81,620) (3,104) (78,516) n/m
Minority interest 350 375 (25) (6.7)
_________ _________ ________
Loss From Continuing Operations (81,970) (3,479) (7,849) n/m
Discontinued operations -- (47,444) 47,444 n/m
_________ _________ ________
Net Loss $ (81,970) $ (50,923) $(31,047) n/m
========= ========= =========
13<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
<FN>
n/m: Not Meaningful
</FN>
</TABLE>
Detailed Segment Operating Results:
<TABLE>
<CAPTION>
(dollars in thousands) Three Months Ended June 30, 1995
_____________________________________________ ______________________________________________________________
ICS Steck-
Learning Vaughn
Total Systems Publishing NETG Other
_________ _________ __________ _________ _________
<S> <C> <C> <C> <C> <C>
Net Revenues $ 62,264 $ 35,721 $ 15,278 $ 10,355 $ 910
Costs and Expenses:
Contract course materials and service costs 20,350 13,247 29 6,564 510
Publishing costs and materials 4,137 -- 4,137 -- --
Product development 4,870 1,048 2,069 1,753 --
Selling and promotion 25,593 13,688 4,684 7,114 107
General and administrative 7,059 2,307 1,269 3,457 26
Amortization of prior period deferred
marketing 159 159 -- -- --
Amortization of acquired intangible assets 540 20 185 335 --
Unusual items 76,161 -- -- 76,161 --
_________ _________ __________ _________ _________
Segment Operating Income (Loss) $ (76,605) $ 5,252 $ 2,905 $ (85,029) $ 267
========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands) Three Months Ended June 30, 1994
_____________________________________________ ______________________________________________________________
ICS Steck-
Learning Vaughn
Total Systems Publishing NETG Other
_________ _________ __________ _________ _________
<S> <C> <C> <C> <C> <C>
Net Revenues $ 58,337 $ 29,492 $ 15,166 $ 12,992 $ 687
Costs and Expenses:
Contract course materials and service costs 14,279 8,751 26 5,069 433
Publishing costs and materials 4,099 -- 4,099 -- --
Product development 4,690 670 2,032 1,988 --
Selling and promotion 25,005 13,112 4,615 6,922 356
General and administrative 5,740 1,820 1,025 2,696 199
Amortization of prior period deferred
marketing 5,837 5,837 -- -- --
Amortization of acquired intangible assets 427 9 81 335 2
_________ _________ __________ _________ _________
Segment Operating Income (Loss) $ (1,740) $ (707) $ 3,288 $ (4,018) $ (303)
========= ========= ========== ========= =========
14<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Three Months Ended June 30, 1995 Compared to Three Months Ended June 30, 1994
_____________________________________________________________________________
Revenues of $62,264,000 for the three months ended June 30, 1994, were
$3,927,000 or 6.7% higher than revenues of $58,337,000 in the prior year.
Loss from continuing operations was $81,970,000 or $2.72 per share compared
to a loss of $3,479,000 or $.12 per share. Net loss for the period was
$81,970,0000 or $2.72 per share compared to a loss of $50,923,000 or $1.72
per share in the prior year. Effective June 30, 1994, the Company adopted a
plan to dispose of its Education Centers subsidiary. The plan resulted in a
second quarter charge of $40,032,000 ($1.35 loss per share) to write-down
assets, provide for estimated gains/losses on the sale of certain schools,
and to provide for the estimated costs of closing and teaching-out certain
schools. Accordingly, the consolidated statements of operations and cash
flows for 1995 have been restated to reflect the Company's Education Centers
subsidiary as a discontinued operation.
ICS Learning Systems:
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Change
______________________________________________ _________ _________ _________
<S> <C> <C> <C>
Revenues:
Traditional Distance Education - Domestic $ 21,187 $ 16,741 26.6%
Traditional Distance Education - International 10,920 10,125 7.9
Industrial and Business 2,049 1,687 21.5
MicroMash 1,565 939 66.7
_________ _________
Total Revenues $ 35,721 $ 29,492 21.1
========= =========
Traditional Business:
____________________
New Enrollments:
Domestic 72,120 60,214 19.8
International 25,667 30,560 (16.0)
_________ _________
Total New Enrollments 97,787 90,774 7.7
========= =========
Gross Enrollment Value (GEV):
Domestic $ 59,072 $ 45,081 31.0
International 16,147 15,846 1.9
_________ _________
Total GEV $ 75,219 $ 60,927 23.5
========= =========
15<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
ICS Learning Systems (continued):
<CAPTION>
Three Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Change
______________________________________________ _________ _________ _________
<S> <C> <C> <C>
Advertising and Promotion Spending:
Domestic $ 8,429 $ 7,842 7.5%
International 3,954 4,366 (9.4)
_________ _________
Total Advertising and Promotion Spending $ 12,383 $ 12,208 1.4
========= =========
Unearned Future Tuition Revenue at June 30 <F1> $ 180,996 $ 153,089 18.2
========= =========
<FN>
<F1> Approximately 45% of unearned future tuition revenue is realized into revenue.
</FN>
</TABLE>
ICS revenues increased 21.1% during the quarter due primarily to a strong
performance in the domestic operation. Increased traditional revenues at
the domestic operation resulted primarily from a higher carry-in of active
domestic students into 1995 as compared to the carry-in of students into
1994 (437,100 in 1995 versus 357,500 in 1994) and new enrollment increases
of 19.8% during the quarter. The domestic new enrollment increase
resulted from the expanded telesales efforts, which represented 51.2% of
total domestic new enrollments in the second quarter of 1995 as compared
to 35.2% in the prior year period. MicroMash revenues increased $626,000
due primarily to two new large customers, as well as continued growth in
all product lines.
International revenues increased 7.9% during the quarter with revenue
increases in Canada, Australia/New Zealand, International Mail Sales (IMS)
and Singapore, partially offset by revenue decreases in the United
Kingdom. Despite the 16.0% decline in international new enrollments,
revenues increased 7.9%. This increase was due primarily to the product
mix and a higher average enrollment value which resulted from increased
enrollments in the higher priced courses (i.e., computer courses).
16<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
ICS Learning Systems (continued):
ICS operating income improved $5,959,000 during the quarter due to the
reduction in amortization of prior year deferred marketing of $5,678,000.
Barring the effects of the amortization of prior year deferred marketing,
ICS operating income increased $281,000. The increase in operating income
is due primarily to increased revenues of $6,229,000, partially offset by
increases in operating costs. Course service costs increased $4,496,000
primarily due to computers shipped as part of the computer related
courses. Selling and promotion expenses increased primarily in the
traditional domestic operations resulting in unearned future tuition
revenue increases during the second quarter of $4,802,000, or 2.7%. Based
on historical experience, approximately 45% will be realized to revenue.
Total advertising and promotion spending for traditional business
increased 1.4% over prior year as compared to the increase in gross
enrollment value (GEV) of 23.5% and new enrollments of 7.7% over the prior
year. GEV represents the number of students multiplied by the total
contract price of their course programs. The GEV does not account for
cancellations of students after enrolling in the course programs. The
increase in GEV (23.5%) and enrollments (7.7%) relative to the increase in
advertising and promotional expense (1.4%) is attributable to the
increased student enrollments in computer related programs which has a
significantly higher course contract price due to the bundling of a
desktop computer in the program.
Steck-Vaughn Publishing:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Change
______________________________________________ _________ _________ _________
<S> <C> <C> <C>
Revenues:
Elementary/High School $ 8,744 $ 8,812 (0.8)%
Adult Education 3,698 3,840 (3.7)
Library 2,836 2,514 12.8
_________ _________
Total Revenues $ 15,278 $ 15,166 0.7
========= =========
</TABLE>
17<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Steck-Vaughn Publishing (continued):
Steck-Vaughn revenues increased $112,000, or 0.7%, over the prior year
period due primarily to the addition of the Berrent Publications product
line and the addition of the Larousse Kingfisher Chambers, Inc. product
line. The Library revenues experienced a 12.8% increase over prior year
due to the Larousse Kingfisher Chambers, Inc. products, as well as the
increased number of newer titles offered. El/Hi and Adult sales for the
quarter were adversely affected by Federal funding. In previous years,
Federal funding could not be carried over from its fiscal year-end of June
30 to a future period. Currently, this funding can be carried over to the
Fall, which had a negative impact on the spending for instructional
material during the second quarter. Additionally, sales were lower due to
the ability of schools to divert funds previously designated for
instructional materials to other needs, funding reductions in California
which significantly reduced sales from the state, and a delay in the
Florida adoption process which resulted in deferring sales to future
periods. Partially offsetting these effects, sales of the new Berrent
line added revenues of $474,000 and $14,000 to both the El/Hi and adult
markets, respectively.
Steck-Vaughn operating income decreased $383,000, or 11.6%, as compared to
the prior year primarily due to an increase in general and administrative
expenses. This increase resulted from a nonrecurring insurance credit
received in 1994, higher staffing costs and additional MIS expenses.
Additionally, amortization expense increased due to the Berrent
Publications acquisition in December 1994.
NETG:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Change
______________________________________________ _________ _________ _________
<S> <C> <C> <C>
Revenues:
Domestic without Spectrum $ 4,616 $ 6,855 (32.7)%
Spectrum 593 1,388 (57.3)
International 5,146 4,749 8.4
_________ _________
Total Revenues $ 10,355 $ 12,992 (20.3)
========= =========
</TABLE>
18<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
NETG (continued):
NETG revenues decreased $2,637,000 during the quarter as a sole result of
lower revenues in the domestic operations, which were partially offset by
increased international revenues. The decrease in domestic revenues is
due in part to the disruption in the sales force caused in anticipation of
a significant restructuring which was announced in June and the continuing
decline in contract renewals coupled with disappointing new customer
orders. The restructuring plan included changes in NETG senior management
(e.g., new President and Vice President of Sales and Marketing). The
increase in international revenues is due primarily to more focused and
innovative sales and marketing strategies, implemented prior to 1995, by
an experienced international management team.
NETG operating loss of $85,029,000 increased $81,011,000 as compared to
the prior year period primarily as a result of the restructuring charge of
$28,652,000 and the write-off of goodwill in the amount of $47,509,000.
The effects of the restructuring charge, excluding Spectrum, are
anticipated to result in reduced annualized payroll related expenses of
approximately $5 million, reduced annual facilities expenses of
approximately $4 million and annual other savings in excess of $5 million
which includes depreciation from write-off of assets and other operating
related expenses. NETG operating loss before unusual items of $8,868,000
in the period increased $4,850,000 over the prior year period primarily as
a result of the decrease in revenues and one-time additional operating
charges of approximately $3 million resulting primarily from increases to
the provision for bad debt and accrued expenses such as accrued legal
expenses.
See Notes 3 and 4 to the Notes of Consolidated Financial Statements for a
further discussion of the restructuring and write-off of goodwill.
Operating results of ICS and NETG foreign operations by geographic region are
discussed above. The second quarter foreign currency exchange gains,
recorded to other income, were $29,000 compared to gains of $212,000 in the
prior year.
19<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Variance Change
______________________________________________ _________ _________ _________ ________
<S> <C> <C> <C> <C>
Net Revenues
ICS Learning Systems $ 69,665 $ 57,777 11,888 20.6%
Steck-Vaughn Publishing 26,425 24,641 1,784 7.2
NETG 20,371 24,031 (3,660) (15.2)
Other 1,762 1,360 402 29.6
_________ _________ ________
Total Net Revenues $ 118,223 $ 107,809 $ 10,414 9.7
========= ========= =========
Operating Income (Loss):
ICS Learning Systems before amortization $ 1,052 $ 4,065 $ (3,013) (74.1)%
Amortization of prior period deferred
marketing (1,470) (13,206) 11,73688.9
_________ _________ ________
ICS Learning Systems (418) (9,141) 8,723 95.4
Steck-Vaughn Publishing 3,551 4,333 (782) (16.9)
NETG before unusual items (13,862) (8,566) (5,296) (61.8)
Unusual items (76,161) -- (76,161) n/m
_________ _________ ________
NETG (90,023) (8,566) (81,457) n/m
Other 433 (571) 1,004 n/m
_________ _________ ________
Total Segment Operating Loss (86,457) (13,945) (72,512) n/m
General corporate expenses (3,571) (3,636) 65 n/m
Interest expense (4,380) (3,009) (1,371) (45.6)
Investment income 1,216 1,944 (728) (37.4)
Unusual items (1,644) -- (1,644) n/m
Other income 265 307 (42) (13.7)
_________ _________ ________
Loss Before Tax Benefit, Minority
Interest and Discontinued Operations (94,571) (18,339) (76,232) n/m
Tax benefit (4,533) (3,983) (550) (13.8)
_________ _________ ________
Loss Before Minority Interest and
Discontinued Operations (90,038) (14,356) (75,682) n/m
Minority interest 440 497 (57) (11.5)
_________ _________ ________
20<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Detailed Segment Operating Results:
<CAPTION>
Six Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Variance Change
______________________________________________ _________ _________ _________ ________
<S> <C> <C> <C> <C>
Loss From Continuing Operations (90,478) (14,853) (75,625) n/m
Discontinued operations -- (49,452) 49,452 n/m
_________ _________ ________
Net Loss $ (90,478) $ (64,305) $(26,173) n/m
========= ========= =========
<FN>
n/m: Not Meaningful
</FN>
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands) Six Months Ended June 30, 1995
_____________________________________________ ______________________________________________________________
ICS Steck-
Learning Vaughn
Total Systems Publishing NETG Other
_________ _________ __________ _________ _________
<S> <C> <C> <C> <C> <C>
Net Revenues $ 118,223 $ 69,665 $ 26,425 $ 20,371 $ 1,762
Costs and Expenses:
Contract course materials and service costs 37,946 25,820 49 11,088 989
Publishing costs and materials 7,493 -- 7,493 -- --
Product development 9,925 1,656 4,375 3,894 --
Selling and promotion 55,977 36,133 8,104 11,491 249
General and administrative 14,608 4,942 2,484 7,091 91
Amortization of prior period deferred
marketing 1,470 1,470 -- -- --
Amortization of acquired intangible assets 1,100 62 369 669 --
Unusual items 76,161 -- -- 76,161 --
_________ _________ __________ _________ _________
Segment Operating Income (Loss) $ (86,457) $ (418) $ 3,551 $ (90,023) $ 433
========= ========= ========== ========= =========
</TABLE>
21<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
<TABLE>
<CAPTION>
(dollars in thousands) Six Months Ended June 30, 1994
_____________________________________________ ______________________________________________________________
ICS Steck-
Learning Vaughn
Total Systems Publishing NETG Other
_________ _________ __________ _________ _________
<S> <C> <C> <C> <C> <C>
Net Revenues $ 107,809 $ 57,777 $ 24,641 $ 24,031 $ 1,360
Costs and Expenses:
Contract course materials and service costs 28,149 17,217 41 9,840 1,051
Publishing costs and materials 6,936 -- 6,936 -- --
Product development 9,384 1,412 3,635 4,337 --
Selling and promotion 50,438 31,121 7,426 11,405 486
General and administrative 12,788 3,945 2,109 6,346 388
Amortization of prior period deferred
marketing 13,206 13,206 -- -- --
Amortization of acquired intangible assets 853 17 161 669 6
_________ _________ __________ _________ _________
Segment Operating Income (Loss) $ (13,945) $ (9,141) $ 4,333 $ (8,566) $ (571)
========= ========= ========== ========= =========
</TABLE>
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1994
_________________________________________________________________________
Revenues of $118,223,000 for the six months ended June 30, 1994, were
$10,414,000 or 9.7% higher than revenues of $107,809,000 in the prior year.
Loss from continuing operations was $90,478,000, or $3.03 per share, compared
to a loss of $14,853,000 or $.50 per share. Net loss for the period was
$90,478,000 or $3.03 per share compared to a loss of $64,305,000 or $2.17 per
share in the prior year.
ICS Learning Systems:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Change
______________________________________________ _________ _________ _________
<S> <C> <C> <C>
Revenues:
Traditional Distance Education - Domestic $ 41,332 $ 32,242 28.2%
Traditional Distance Education - International 21,417 19,963 7.3
Industrial and Business 4,097 3,592 14.1
MicroMash 2,819 1,980 42.4
_________ _________
Total Revenues $ 69,665 $ 57,777 20.6
========= =========
22<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
ICS Learning Systems (continued):
<CAPTION>
Six Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Change
______________________________________________ _________ _________ _________
<S> <C> <C> <C>
Traditional Business:
____________________
New Enrollments:
Domestic 151,846 124,118 22.3
International 62,299 64,208 (3.0)
_________ _________
Total New Enrollments 214,145 188,326 13.7
========= =========
Gross Enrollment Value (GEV):
Domestic $ 120,764 $ 91,158 32.5
International 38,729 35,179 10.1
_________ _________
Total GEV $ 159,493 $ 126,337 26.2
========= =========
Advertising and Promotion Spending:
Domestic $ 22,928 $ 19,491 17.6
International 10,584 9,731 8.8
_________ _________
Total Advertising and Promotion Spending $ 33,512 $ 29,222 14.7
========= =========
</TABLE>
ICS experienced similar changes in revenues and operating results as occurred
for the three month period previously discussed.
Steck-Vaughn Publishing:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Change
______________________________________________ _________ _________ _________
<S> <C> <C> <C>
Revenues:
Elementary/High School $ 14,564 $ 13,746 6.0%
Adult Education 6,563 6,294 4.3
Library 5,298 4,601 15.1
_________ _________
Total Revenues $ 26,425 $ 24,641 7.2
========= =========
</TABLE>
23<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Steck-Vaughn Publishing (continued):
Publishing revenues of $26,425,000 for the six months ended June 30, 1995
increased $1,784,000, or 7.2%, from revenues of $24,641,000 in the prior
year. All product lines experienced increases over the prior year, with
sales of the Larousse Kingfisher Chambers, Inc. and Berrent products
making strong contributions. Operating results for the six months
experienced similar changes as occurred during the quarter.
NETG:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
_____________________ Percent
(dollars in thousands) 1995 1994 Change
______________________________________________ _________ _________ _________
<S> <C> <C> <C>
Revenues:
Domestic without Spectrum $ 9,235 $ 13,097 (29.5)%
Spectrum 1,343 3,021 (55.5)
International 9,793 7,913 23.8
_________ _________
Total Revenues $ 20,371 $ 24,031 (15.2)
========= =========
</TABLE>
NETG experienced similar changes in revenues and operating results as
occurred for the three month period previously discussed.
ICS and NETG foreign operations by geographic region experienced similar
changes in revenues and income as discussed above. Foreign currency exchange
gains of $265,000 were recorded during the period as compared to gains of
$307,000 in the prior year.
Liquidity and Capital Resources
_______________________________
The Company's primary sources of liquidity are cash, investment securities
and cash provided from operations. At June 30, 1995, the Company had
$25,499,000 in cash and investment securities of which $15,053,000 was held
in the account of Steck-Vaughn. As of June 30, 1995, the Company had a
revolving bank credit agreement in the amount of $13,500,000. During the six
month period ending June 30, 1995, the Company increased borrowings under the
credit facility by $8,500,000 to $13,500,000. The Company also has an
intercompany credit facility with Steck-Vaughn in the amount of $10,000,000
of which $2,000,000 was outstanding as of June 30, 1995.
24<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
___________________________________________
For the six months ended June 30, 1995, net change in cash increased
$5,867,000 due to increases in short-term borrowings of $8,414,000 and net
proceeds from the sale/purchase of securities in the amount of $8,647,000.
These increases were offset by the negative cash from operating activities
and additions to building and equipment.
For the six months ended June 30, 1995, negative cash flow from operating
activities of $6,064,000 was $2,839,000 higher than the prior year period due
primarily to increases in other current assets at ICS which represent
computers shipped to students, higher operating losses at NETG and total
restructuring payments of $1,213,000. For the six months ended June 30, 1995,
cash flow for investing activities of $3,126,000 improved $21,942,000 over
the prior year period due to favorable cash flow variances from 1) Education
Centers (discontinued operations) of $12,136,000, 2) increased net proceeds
from the sale of securities of $7,312,000 and 3) the acquisition of MicroMash
in the amount of $3,870,000 in 1994. These favorable variances were offset by
increased capital expenditures of $1,732,000, primarily attributable to the
increases at ICS for building improvements and renovations.
The Company expects that cash, investment securities, bank and Steck-Vaughn
credit facilities, cash provided from operations and the timely disposition
of schools, will be sufficient to provide for planned working capital
requirements, debt service, restructuring payments at NETG and capital
expenditures for the foreseeable future.
25<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders
A regular annual meeting of the stockholders of the Company was held on June
27, 1995. Four directors were elected for terms that will continue until the
Company's annual meeting of stockholders in 1998, or until each director's
successor has been elected and qualified. The vote was as follows:
<TABLE>
<CAPTION>
Number of Shares
_________________________
Authority
Name For Withheld
____________________________ __________ _________
<S> <C> <C>
Richard C. Blum 26,651,401 413,884
David C. Jones 25,616,162 1,449,123
Paul B. MacCready 26,119,125 946,160
Sam Yau 26,793,892 271,393
</TABLE>
The stockholders approved the amended and restated 1991 Directors' Stock
Option and Award Plan. The vote was as follows:
<TABLE>
<CAPTION>
Number of Shares
___________________________________
For Against Abstain
__________ _______ _________
<S> <C> <C>
19,732,072 667,717 1,035,100
</TABLE>
The stockholders also voted approval of the amended and restated 1990 Stock
Option and Incentive Plan. The vote was as follows:
<TABLE>
<CAPTION>
Number of Shares
___________________________________
For Against Abstain
__________ _________ _________
<S> <C> <C>
17,419,305 2,976,361 1,039,223
</TABLE>
26<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders (continued)
The stockholders also ratified the appointment of Price Waterhouse as
Independent Public Accountants. The vote was as follows:
<TABLE>
<CAPTION>
Number of Shares
___________________________________
For Against Abstain
__________ _______ _______
<S> <C> <C>
26,247,502 729,946 87,837
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
a) See Exhibit Index following this Form 10-Q.
b) No reports on Form 8-K were filed for the period for which this report
is filed.
27<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL EDUCATION CORPORATION
Date: August 10, 1995
By /s/ Keith K. Ogata
___________________________
Keith K. Ogata
Vice President, Chief Financial Officer
and Treasurer
28<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
(Item 6(a))
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
_______ ___________ ____________
<S> <C> <C>
3.1 Restated Certificate of Incorporation of
the Company <F3> . . . . . . . . . . . . . . . . . . . <F1>
3.2 By-Laws of the Company, as amended <F4>. . . . . . . . <F1>
10.1<F2> National Education Corporation Retirement Plan
(Restated as of January 1, 1989 and as Amended
through January 1, 1992) <F5>. . . . . . . . . . . . . <F1>
10.2 National Education Corporation Retirement Plan
Trust <F6> . . . . . . . . . . . . . . . . . . . . . . <F1>
10.3<F2> Advanced Systems, Incorporated 1984 Stock
Option and Stock Appreciation Rights Plan <F7> . . . . <F1>
10.4<F2> 1986 Stock Option and Incentive Plan, as
amended <F8> . . . . . . . . . . . . . . . . . . . . . <F1>
10.5<F2> Amended and Restated 1990 Stock Option and
Incentive Plan <F9>. . . . . . . . . . . . . . . . . . <F1>
10.6<F2> Amended and Restated 1991 Directors' Stock
Option and Award Plan <F10>. . . . . . . . . . . . . . <F1>
10.7 Rights Agreement, dated October 29, 1986,
between National Education Corporation and
Bank of America National Trust and Savings
Association, Rights Agent (including exhibits
thereto) <F11> . . . . . . . . . . . . . . . . . . . . <F1>
10.8 Addendum No. 1 to Rights Agreement, dated
August 5, 1991 <F12> . . . . . . . . . . . . . . . . . <F1>
10.9 Indenture, dated as of May 15, 1986, between
National Education Corporation and Continental
Illinois National Bank and Trust Company of
Chicago, as Trustee <F13>. . . . . . . . . . . . . . . <F1>
29<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
_______ ___________ ____________
<S> <C> <C>
10.10 Tripartite Agreement, dated as of May 31, 1990,
among National Education Corporation, Conti-
nental Bank as Resigning Trustee, and IBJ
Schroder Bank & Trust Company as Successor
Trustee <F14>. . . . . . . . . . . . . . . . . . . . . <F1>
10.11 National Education Corporation Purchase Agree-
ment, Senior Subordinated Convertible Deben-
tures, dated as of February 15, 1991 <F15> . . . . . . <F1>
10.12<F2> National Education Corporation Supplemental
Executive Retirement Plan, as amended <F16>. . . . . . <F1>
10.13<F2> Supplemental Benefit Plan for Non-Employee
Directors <F17>. . . . . . . . . . . . . . . . . . . . <F1>
10.14 Intercompany Agreement between National
Education Corporation and Steck-Vaughn
Publishing Corporation, dated June 30, 1993 <F18>. . . <F1>
10.15 Tax Sharing Agreement between National
Education Corporation and Its Direct and
Indirect Corporate Subsidiaries, dated
January 1, 1993 <F19>. . . . . . . . . . . . . . . . . <F1>
10.16 Asset Purchase Agreement between Steck-Vaughn
Company and Creative Edge Inc., dated as of
April 26, 1993 <F20> . . . . . . . . . . . . . . . . . <F1>
10.17 $13,500,000 Amended and Restated Credit Agreement
among National Education Corporation, the Banks
named therein and Bankers Trust Company as Agent,
dated February 28, 1995 (the "Credit Agreement")
(Confidential treatment under Rule 24b-2 has been
granted for portions of this exhibit) <F21>. . . . . . <F1>
10.18 First Amendment to Intercompany Agreement,
dated June 10, 1994, between National Education
Corporation and Steck-Vaughn Publishing
Corporation <F22>. . . . . . . . . . . . . . . . . . . <F1>
10.19 $10,000,000 Credit Agreement between Steck-Vaughn
Company and NationsBank of Texas, dated as of
June 10, 1994 <F23>. . . . . . . . . . . . . . . . . . <F1>
30<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
_______ ___________ ____________
<S> <C> <C>
10.20 Revolving Line of Credit Note and Option
Agreement between National Education Corporation and
Steck-Vaughn Publishing Corporation, dated
February 28, 1995 <F24>. . . . . . . . . . . . . . . . <F1>
10.21<F2> Executive Employment Agreement between National
Education Corporation and Sam Yau <F25>. . . . . . . . <F1>
10.22 First Amendment and Limited Waiver to Credit Agreement
among National Education Corporation, the Banks
named therein and Bankers Trust Company as Agent,
dated July 31, 1995 <F26>. . . . . . . . . . . . . . .
11.1 Calculation of Primary Earnings Per Share <F26>. . . .
11.2 Calculation of Fully Diluted Earnings Per Share <F26>.
27.1 Financial Data Schedule <F26>. . . . . . . . . . . . .
<FN>
________________________________
<F1> incorporated by reference from a previously filed document
<F2> denotes management contract or compensatory plan or arrangement
<F3> Incorporated by reference to Exhibit 19-2 filed with Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1987.
<F4> Incorporated by reference to Exhibit 10 filed with Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1990.
<F5> Incorporated by reference to Exhibit 10.1 filed with Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992, filed
March 22, 1993.
<F6> Incorporated by reference to Exhibit 10(b) filed with Registrant's
Registration Statement on Form S-8 (No. 2-86904), filed October 3,
1983.
<F7> Incorporated by reference to Exhibit 10.15 filed with Registrant's
Annual Report on Form 10-K for the year ended December 31, 1987,
filed March 30, 1988.
31<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
<F8> Incorporated by reference to Exhibit 10.17 filed with Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990, filed
April 1, 1991.
<F9> Incorporated by reference to Exhibit A in the Registrant's Proxy
Statement furnished in connection with the Annual Meeting of
Stockholders held June 27, 1995, filed May 22, 1995.
<F10> Incorporated by reference to Exhibit B in the Registrant's Proxy
Statement furnished in connection with the Annual Meeting of
Stockholders held June 27, 1995, filed May 22, 1995.
<F11> Incorporated by reference to Exhibit 4.1 filed with Registrant's
Current Report on Form 8-K, dated October 29, 1986, filed October 30,
1986.
<F12> Incorporated by reference to Exhibit 10.19 filed with Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991, filed
April 1, 1992.
<F13> Incorporated by reference to Exhibit 4.2 filed with Amendment No. 1 to
Registrant's Registration Statement on Form S-3 (No. 33-5552), filed
May 16, 1986.
<F14> Incorporated by reference to Exhibit 4 filed with Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1990.
<F15> Incorporated by reference to Exhibit 4 filed with Registrant's Current
Report on Form 8-K, dated February 20, 1991, filed February 27, 1991.
<F16> Incorporated by reference to Exhibit 10.17 filed with Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991, filed
April 1, 1992.
<F17> Incorporated by reference to Exhibit 10.18 filed with Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991, filed
April 1, 1992.
<F18> Incorporated by reference to Exhibit 10.8 filed with Amendment No. 1
to Steck-Vaughn Publishing Corporation's Registration Statement on
Form S-1, File No. 33-62334, filed June 17, 1993.
<F19> Incorporated by reference to Exhibit 10.9 filed with Amendment No. 1
to Steck-Vaughn Publishing Corporation's Registration Statement on
Form S-1, File No. 33-62334, filed June 17, 1993.
<F20> Incorporated by reference to Exhibit 10.13 filed with Steck-Vaughn
Publishing Corporation's Registration Statement on Form S-1, File No.
33-62334, filed May 7, 1993.
<F21> Incorporated by reference to Exhibit 10.18 filed with Registrant's
Annual Report on Form 10-K for the year ended December 13, 1994, filed
March 30, 1995.
32<PAGE>
<PAGE>
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
<F22> Incorporated by reference to Exhibit 10.23 filed with Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994,
filed on August 11, 1994.
<F23> Incorporated by reference to Exhibit 10.14 filed with Steck-Vaughn
Publishing Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, filed on August 11, 1994.
<F24> Incorporated by reference to Exhibit 10.12 filed with Steck-Vaughn
Publishing Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994, filed March 29, 1995.
<F25> Incorporated by reference to Exhibit 10.21 filed with Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995,
filed on May 11, 1995.
<F26> Filed herewith.
</FN>
</TABLE>
33
<PAGE>
<PAGE>
EXHIBIT 10.24
FIRST AMENDMENT AND LIMITED WAIVER
TO CREDIT AGREEMENT
This FIRST AMENDMENT AND LIMITED WAIVER TO CREDIT AGREEMENT (this
"Amendment") is dated as of August 4, 1995 and entered into by and among
National Education Corporation, a Delaware corporation (the "Borrower"), the
Bank listed on the signature pages hereof (the "Bank"), and Bankers Trust
Company, as agent for the Bank (the "Agent") and, for purposes of Sections 3
and 4 hereof, the Subsidiaries of the Borrower listed on the signature pages
hereof, and is made with reference to that certain Amended and Restated
Credit Agreement dated as of February 28, 1995 by and among the Borrower, the
Bank and the Agent (the "Credit Agreement"). Capitalized terms used herein
without definition shall have the same meanings herein as set forth in the
Credit Agreement.
RECITALS
WHEREAS, the Borrower and the Bank have agreed, upon the terms and
conditions set forth herein, that certain terms and conditions of the Credit
Agreement should be amended; and
WHEREAS, each of the Subsidiaries of the Borrower party to the
Subsidiary Guaranty ("Subsidiary Guarantors") or the Subordination Agreement
("Subordinated Subsidiaries") desires to acknowledge and consent to this
Amendment and to reaffirm the continuing effectiveness of the Subsidiary
Guaranty or the Subordination Agreement, as the case may be;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as
follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendment to Section 1.01: Defined Terms.
Section 1.01 of the Credit Agreement is hereby amended by adding
thereto the following defined terms in the appropriate alphabetical order:
"`1995 Charges' shall mean the charges, in an aggregate amount not
exceeding $77,820,000 to be taken by the Borrower against its income in
its 1995 fiscal year as the result of the restructuring of the
operations of NETG and Borrower (National Education Corporation
corporate), which shall result in charges not exceeding $30,300,000, and
certain write-offs of goodwill in an amount not exceeding $47,520,000.
1995 Charges shall not, however, include any Second Quarter Charges."
1<PAGE>
<PAGE>
"`Second Quarter Charges' shall mean operating charges in an
aggregate amount not exceeding $3,100,000 to be taken by the Borrower
against its income in the second quarter of its 1995 fiscal year in
relation to the operations of NETG and its Subsidiaries."
1.2 Amendments to Section 8.09: Ratio of Liabilities to Net
Worth. Section 8.09 of the Credit Agreement is hereby amended by deleting
the proviso therefrom in its entirety and substituting the following proviso
therefor:
"provided that, for purposes of this Section, (a) any addition to
the equity capital of the Borrower resulting from the conversion of
the Convertible Notes shall be deemed to constitute Indebtedness
for the purposes of determining Consolidated Liabilities and
Adjusted Consolidated Net Worth, (b) all liabilities that are
attributable only to Ed Centers Discontinued Operations shall be
disregarded in determining Consolidated Liabilities, (c) all
additions to (or deductions from) Adjusted Consolidated Net Worth
that would result from any net income (or net loss, other than the
Ed Centers Charge) accruing on or after April 1, 1994, that is
attributable solely to Ed Centers Discontinued Operations shall be
disregarded in determining Adjusted Consolidated Net Worth, and (d)
to the extent Adjusted Consolidated Net Worth would be reduced by
any amount as the result of the 1995 Charges or any Second Quarter
Charges, the amount of such reduction shall be disregarded in
determining Adjusted Consolidated Net Worth"
1.3 Amendments to Section 8.10(a): Minimum Consolidated EBITDA.
Section 8.10(a) of the Credit Agreement is hereby amended by deleting the
proviso therefrom in its entirety and substituting the following proviso
therefor:
"provided that, for purposes of this Section, (a) all income,
interest expense, depreciation expense, tax expense, amortization
expense, non-cash gains or losses, minority interests, and income
(or losses) accruing on or after April 1, 1994, that are
attributable only to Ed Centers Discontinued Operations shall be
disregarded in determining Consolidated EBITDA, (b) all 1995
Charges shall be disregarded in determining Consolidated EBITDA,
and (c) all Second Quarter Charges shall be disregarded in
determining EBITDA for the four quarter period ending as of the
last day of the second quarter of the Borrower's 1995 fiscal year"
1.4 Amendments to Section 8.11: Minimum Consolidated Net Worth.
Section 8.11 of the Credit Agreement is hereby amended by deleting the
proviso therefrom and substituting the following proviso therefor:
2<PAGE>
<PAGE>
"provided that, for purposes of this Section, (a) any addition to
the equity capital of the Borrower resulting from the conversion of
the Convertible Notes shall be deemed to constitute Indebtedness
for the purposes of determining Adjusted Consolidated Net Worth,
(b) any addition to (or deduction from) Adjusted Consolidated Net
Worth that would result from any net income (or net loss, other
than the Ed Centers Charge) accruing on or after April 1, 1994,
that is attributable only to Ed Centers Discontinued Operations
shall be disregarded in determining Adjusted Consolidated Net
Worth, and (c) to the extent Adjusted Consolidated Net Worth would
be reduced by any amount as the result of the 1995 Charges or
Second Quarter Charges, the amount of such reduction shall be
disregarded in determining Adjusted Consolidated Net Worth"
1.5 Amendments to Section 8.12: Fixed Charge Coverage Ratio.
Section 8.12 of the Credit Agreement is hereby amended by deleting the
proviso therefrom and substituting the following proviso therefor:
"provided that for the purposes of this Section, (a) all income,
interest expense, depreciation expense, tax expense, depreciation
expense, amortization expense, non-cash gains or losses, minority
interests, and income (or losses) accruing on or after April 1,
1994, that are attributable only to Ed Centers Discontinued
Operations shall be disregarded in determining Consolidated EBITDA
of the Borrower and its Subsidiaries, (b) all 1995 Charges shall be
disregarded in determining Consolidated EBITDA of the Borrower and
its Subsidiaries, (c) all Second Quarter Charges shall be
disregarded in determining Consolidated EBITDA of the Borrower and
its Subsidiaries for the four quarter period ending on the last day
of the second quarter of the Borrower's 1995 fiscal year, (d) all
lease payments made on or after April 1, 1994, that are
attributable only to Ed Centers Discontinued Operations shall be
disregarded in determining lease payments of the Borrower and its
Subsidiaries, and (e) all Consolidated Fixed Charges accruing on or
after April 1, 1994, that are attributable only to Ed Centers
Discontinued Operations shall be disregarded in determining
Consolidated Fixed Charges of the Borrower and its Subsidiaries"
1.6 Amendments to Schedule II: Material Adverse Changes.
Schedule II to the Credit Agreement is hereby amended by adding the following
paragraph at the bottom thereof:
"The Borrower may take a charges not exceeding $80,920,000 in the
aggregate in its 1995 fiscal year in connection with the
restructuring of NETG and the Borrower (National Education
Corporation corporate), the write-off of certain good will shown on
the books of the Borrower and certain operational charges arising
from the operations of NETG."
3<PAGE>
<PAGE>
Section 2. LIMITED WAIVER OF SECTION 4.01(c) THE CREDIT AGREEMENT
Agent and the Bank hereby waive the Borrower's compliance with
Section 4.01(c) of the Credit Agreement to the extent and only the extent
necessary to permit the Borrower to delay prepaying the Loans with any Cash
Proceeds received from Career Education Corp. in partial payment of the
purchase price for two schools being sold by the Borrower until the earlier
of the date such sale is completed or October 31, 1995.
The foregoing waiver shall be limited exactly as written, and,
without limiting the generality of the foregoing, such waiver shall not be
construed or deemed a waiver of the Borrower's compliance with any other
Section of the Credit Agreement or of the Borrower's compliance with Section
4.01(c) with respect to any other Asset Sale.
Section 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Amendment and to
amend the provisions of the Credit Agreement in the manner provided herein,
the Borrower, and each Subsidiary party to the Subsidiary Guaranty and/or the
Subordination Agreement with respect to itself only, represents and warrants
to the Bank that the following statements are true, correct and complete:
A. Corporate Power and Authority. The Borrower has all requisite
corporate power and authority to enter into this Amendment and to carry out
the transactions contemplated by, and perform its obligations under, the
Credit Agreement as amended by this Amendment (the "Amended Agreement").
Each such Subsidiary has all requisite corporate power and authority to enter
into this Amendment and to be bound hereby.
B. Authorization of Agreements. The execution and delivery of
this Amendment by the Borrower and each such Subsidiary and the performance
of the Amended Agreement by the Borrower have been duly authorized by all
necessary corporate action by the Borrower and each such Subsidiary, as the
case may be.
C. No Conflict. The execution and delivery by the Borrower and
each such Subsidiary of this Amendment and the performance by the Borrower of
the Amended Agreement do not and will not (i) violate any provision of any
law, rule or regulation applicable to the Borrower or any of its
Subsidiaries, the Certificate of Incorporation or Bylaws of the Borrower or
any of its Subsidiaries or any order, judgment or decree of any court or
other agency of government binding on the Borrower or any of its
Subsidiaries, (ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under, or require the consent
of any Person under, any mortgage, deed of trust, credit agreement, loan
agreement or any other agreement contract or instrument to which the Borrower
or any of its Subsidiaries is a party or by which it or any of its property
or assets is bound or to which it may be subject or (iii) result in or
require the creation or imposition of any Lien upon any of their properties
or assets.
4<PAGE>
<PAGE>
D. Governmental Consents. The execution and delivery by the
Borrower and each such Subsidiary of this Amendment and the performance by
the Borrower of the Amended Agreement do not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any Federal, state or other governmental authority or regulatory
body or other Person.
E. Binding Obligation. This Amendment and, in the case of the
Borrower, the Amended Agreement, are the legally valid and binding
obligation(s) of the Borrower and each such Subsidiary, enforceable against
the Borrower or such Subsidiary in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability.
F. Incorporation of Representations and Warranties From Credit
Agreement. The representations and warranties contained in Section 6 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date hereof to the same extent as though made on
and as of that date, except to the extent that such representations and
warranties specifically relate to an earlier date, in which case they are
true, correct and complete in all material respects as of such earlier date.
G. Absence of Default. No event has occurred and is continuing
or will result from the consummation of the transactions contemplated by this
Amendment which would constitute an Event of Default or a Default.
Section 4. ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned Subsidiaries of the Borrower acknowledges
that it has reviewed the terms and provisions of the Credit Agreement and
this Amendment and consents to the amendment of the Credit Agreement effected
pursuant to this Amendment. Each of the undersigned Subsidiary Guarantors
hereby confirms that the Subsidiary Guaranty will continue to guaranty to the
fullest extent possible the payment and performance of all Guarantied
Obligations (as defined in the Subsidiary Guaranty), including, without
limitation, the payment and performance of all Obligations of the Borrower
now or hereafter existing under or in respect of the Amended Agreement. Each
of the undersigned Subordinated Subsidiaries hereby confirms that the
Subordination Agreement will continue to subordinate the Subordinated Debt
(as defined in the Subordination Agreement) to Senior Obligations (as defined
in the Subordination Agreement), including, without limitation, all
obligations of the Borrower now or hereafter existing to make payments under
or in respect of the Amended Agreement.
5<PAGE>
<PAGE>
Each Subsidiary Guarantor acknowledges and agrees that the
Subsidiary Guaranty shall continue in full force and effect and that all of
its obligations thereunder shall be valid and enforceable and shall not be
impaired or affected by the execution or effectiveness of this Amendment.
Each Subsidiary Guarantor represents and warrants that all representations
and warranties contained in the Subsidiary Guaranty are true, correct and
complete in all material respects on and as of the date hereof to the same
extent as though made on and as of that date except to the extent that such
representations and warranties specifically relate to an earlier date, in
which case they are true, correct and complete in all material respects as of
such earlier date.
Each Subordinated Subsidiary acknowledges and agrees that the
Subordination Agreement shall continue in full force and effect and that all
of its obligations thereunder shall be valid and enforceable and shall not be
impaired or affected by the execution or effectiveness of this Amendment.
Each Subordinated Subsidiary represents and warrants that all representations
and warranties contained in the Subordination Agreement are true, correct and
complete in all material respects on and as of the date hereof to the same
extent as though made on and as of that date except to the extent that such
representations and warranties specifically relate to an earlier date, in
which case they are true, correct and complete in all material respects as of
such earlier date.
Each of the undersigned Subsidiaries of the Borrower acknowledges
and agrees that (i) notwithstanding the conditions to effectiveness set forth
in this Amendment, such Subsidiary is not required by the terms of the Credit
Agreement or any other Credit Document to consent to the amendments to the
Credit Agreement effected pursuant to this Amendment and (ii) nothing in the
Credit Agreement, this Amendment or any other Credit Document shall be deemed
to require the consent of any such Subsidiary to any future amendments to the
Credit Agreement.
Section 5. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other
Credit Documents.
(i) On and after the date hereof, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each
reference in the other Credit Documents to the "Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement as
amended by this Amendment.
(ii) Except as specifically amended or modified by this
Amendment, the Credit Agreement and the other Credit Documents shall
remain in full force and effect and are hereby ratified and confirmed.
6<PAGE>
<PAGE>
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of
any provision of, or operate as a waiver of any right, power or remedy
of the Agent or any Bank under, the Credit Agreement or any of the other
Credit Documents.
B. Fees and Expenses. The Borrower acknowledges that all costs,
fees and expenses as described in subsection 11.01 of the Credit Agreement
incurred by the Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of
the Borrower.
C. Execution in Counterparts; Effectiveness. This Amendment may
be executed in any number of counterparts, and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts taken together shall constitute
but one and the same instrument.
D. Effectiveness. This Amendment shall become effective as of the
date hereof upon the execution of a counterpart hereof by the Borrower, each
Subsidiary of the Borrower party to the Subsidiary Guaranty or the
Subordination Agreement and the Bank and the delivery of such counterparts to
the Agent.
E. Headings. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
F. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE
UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
[Remainder of Page Intentionally Left Blank]
7<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed as of the date first above written by their respective
officers thereunto duly authorized.
NATIONAL EDUCATION CORPORATION
By: __________________________
Title: _______________________
NETG HOLDING, INC.
NATIONAL EDUCATION TRAINING
GROUP, INC.,
SPECTRUM INTERACTIVE
INCORPORATED
NATIONAL EDUCATION CENTERS, INC.
ICS LEARNING SYSTEMS, INC.
INTERNATIONAL CORRESPONDENCE
SCHOOLS, INC.,
as the Subsidiary Guarantors
By: __________________________
Title: _______________________
NATIONAL EDUCATION INTERNATIONAL
CORP.
NATIONAL EDUCATION CREDIT
CORPORATION
NATIONAL EDUCATION FOREIGN SALES
CORP.
NATIONAL EDUCATION PAYROLL CORP.
NATIONAL EDUCATION CENTERS, INC.
ICS LEARNING SYSTEMS, INC.
NETG HOLDING, INC.,
as the Subordinated Subsidiaries
By: __________________________
Title: _______________________
BANKERS TRUST COMPANY, as the Bank and as the Agent
By: ___________________________
Title: ________________________
1<PAGE>
<PAGE>
<PAGE>
EXHIBIT 11.1
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CALCULATION OF PRIMARY EARNINGS PER SHARE
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
______________________ _______________________
1995 1994 1995 1994
__________ _________ _________ _________
<S> <C> <C> <C> <C>
LOSS FROM CONTINUING OPERATIONS $ (81,970) $ (3,479) $(90,478) $(14,853)
_________ ________ ________ ________
NET LOSS $ (81,970) $((50,923) $(90,478) $(64,305)
========= ======== ======== ========
COMMON STOCK:
Shares outstanding from beginning of period 29,578 29,506 29,578 29,405
Pro rata shares:
Stock options exercised 289 10 164 93
Shares purchased for treasury, from date of purchase -- (8) -- (6)
Assumed exercise of stock options, using treasury
stock method 244 118 139 149
_________ ________ ________ ________
Weighted average number of shares outstanding 30,111 29,626 29,881 29,641
LOSS PER SHARE FROM CONTINUING OPERATIONS $ (2.72) $ (0.12) $ (3.03) $ (0.50)
========= ======== ======== ========
LOSS PER SHARE $ (2.72) $ (0.12) $ (3.03) $ (2.17)
========= ======== ======== ========
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 11.2
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES
CALCULATION OF FULLY DILUTED EARNINGS PER SHARE
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
______________________ _______________________
1995 1994 1995 1994
__________ _________ _________ _________
<S> <C> <C> <C> <C>
NET LOSS $ (81,970) $(50,923) $(90,478) $(64,305)
Add back senior debenture interest 300 241 600 482
Add back junior debenture interest 570 570 1,140 1,140
________ ________ ________ ________
NET LOSS FOR FULLY DILUTED COMPUTATION $(81,100) $(50,112) $(88,738) $(62,683)
======== ======== ======== ========
COMMON STOCK:
Shares outstanding from beginning of period 29,578 29,506 29,578 29,405
Stock options exercised 289 10 164 93
Shares purchased for treasury, from date of purchase -- (8) -- (6)
Assumed exercise of stock options,
using treasury stock method 554 119 375 149
Assumed conversion of senior subordinated debentures,
from the latter of the beginning of the period
or the date of issue 5,000 5,000 5,000 5,000
Assumed conversion of junior subordinated debentures,
from the latter of the beginning of the period
or the date of issue 2,300 2,300 2,300 2,300
_________ ________ ________ ________
Weighted average number of shares outstanding $ 37,721 $ 36,927 $ 37,417 $ 36,941
========= ======== ======== ========
FULLY DILUTED LOSS PER SHARE FROM
CONTINUING OPERATIONS $ (2.15) $ (0.12) $ (2.37) $ (0.50)
========= ======== ======== ========
FULLY DILUTED LOSS PER SHARE $ (2.15) $ (1.72) $ (2.37) $ (2.17)
========= ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited consolidated financial statements included in the
Company's quarterly report on Form 10-Q for the quarter ended June 30, 1995,
and is qualified in its entirety by reference to such unaudited consolidated
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 23,164
<SECURITIES> 2,335
<RECEIVABLES> 28,958
<ALLOWANCES> 3,488
<INVENTORY> 24,819
<CURRENT-ASSETS> 124,299
<PP&E> 90,093
<DEPRECIATION> 66,406
<TOTAL-ASSETS> 186,290
<CURRENT-LIABILITIES> 91,417
<BONDS> 104,005
<COMMON> 2,117
0
0
<OTHER-SE> 19,815
<TOTAL-LIABILITY-AND-EQUITY> 186,290
<SALES> 62,264
<TOTAL-REVENUES> 62,264
<CGS> 24,489
<TOTAL-COSTS> 142,317
<OTHER-EXPENSES> 1,567
<LOSS-PROVISION> 1,811
<INTEREST-EXPENSE> 2,403
<INCOME-PRETAX> (81,620)
<INCOME-TAX> 0
<INCOME-CONTINUING> (81,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,970)
<EPS-PRIMARY> (2.72)
<EPS-DILUTED> (2.72)
</TABLE>
