FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File Number 1-13722
WHITMAN EDUCATION GROUP, INC.
Florida 22-2246554
- -------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 Biscayne Boulevard, Miami, Florida 33137
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 575-6510
----------------------------------------------------
(Registrant's telephone number, including area code)
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 issuer's classes of
common stock, as of the latest practicable date.
As of November 5, 1999, there were 13,449,681 shares of common stock
outstanding.
1
<PAGE>
WHITMAN EDUCATION GROUP, INC.
FORM 10-Q
SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements............................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 11
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K................... 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
--------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 1,561,949 $ 4,267,110
Accounts receivable, net................ 25,885,088 27,114,533
Inventories............................. 1,242,702 1,450,815
Deferred income taxes................... 3,240,286 2,562,705
Other current assets.................... 1,806,593 1,504,878
--------------- --------------
Total current assets............... 33,736,618 36,900,041
Property and equipment, net.................. 12,375,501 14,002,764
Deposits and other assets, net............... 3,469,399 1,761,220
Goodwill, net................................ 9,754,718 9,915,590
--------------- --------------
Total assets....................... $ 59,336,236 $ 62,579,615
=============== ==============
LIABILITY AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 1,978,384 $ 1,942,740
Accrued expenses........................ 4,477,547 3,049,371
Income taxes payable.................... - 898,664
Current portion of capitalized
lease obligations..................... 1,539,465 1,517,912
Current portion of long-term debt....... - 472,994
Deferred tuition revenue................ 20,533,876 20,575,914
--------------- --------------
Total current liabilities.......... 28,529,272 28,457,595
Other liabilities............................ - 474,842
Capitalized lease obligations................ 3,994,100 3,249,934
Long-term debt............................... 6,189,278 8,772,496
Commitment and contingencies
Stockholders' equity:
Common stock, no par value, authorized
100,000,000 shares issued and
outstanding 13,441,761 at
September 30, 1999 and 13,423,212
shares at March 31, 1999.............. 21,926,921 21,907,546
Additional paid-in capital.............. 674,173 671,536
Accumulated deficit..................... (1,977,508) (954,334)
--------------- --------------
Total stockholders' equity................... 20,623,586 21,624,748
--------------- --------------
$ 59,336,236 $ 62,579,615
=============== ==============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
------------- --------------
<S> <C> <C>
Net revenues................................. $ 18,398,523 $ 18,299,125
Costs and expenses:
Instructional and educational support... 12,756,547 11,580,926
Selling and promotional................. 3,042,999 2,494,137
General and administrative.............. 3,284,185 3,731,624
------------- --------------
Total costs and expenses..................... 19,083,731 17,806,687
------------- --------------
(Loss) income from operations................ (685,208) 492,438
Other (income) and expenses:
Interest expense........................ 309,427 358,390
Interest income......................... (68,241) (54,805)
------------- --------------
(Loss) income before income tax benefit...... (926,394) 188,853
Income tax benefit........................... 369,075 -
------------- --------------
Net (loss) income............................ $ (557,319) $ 188,853
============= ==============
Net (loss) income per share:
Basic and diluted ...................... $ (0.04) 0.01
============= ==============
Weighted average common share outstanding:
Basic................................... 13,438,048 13,205,650
============= ==============
Diluted................................. 13,438,048 13,927,576
============= ==============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net revenues................................. $ 36,407,936 $ 34,067,033
Costs and expenses:
Instructional and educational support... 25,362,019 22,462,275
Selling and promotional................. 5,671,693 5,091,753
General and administrative.............. 6,621,711 6,754,447
------------- -------------
Total costs and expenses..................... 37,655,423 34,308,475
------------- -------------
Loss from operations......................... (1,247,487) (241,442)
Other (income) and expenses:
Interest expense........................ 593,806 676,650
Interest income......................... (140,538) (123,648)
------------- -------------
Loss before income tax benefit............... (1,700,755) (794,444)
Income tax benefit........................... 677,581 343,000
------------- -------------
Net loss..................................... $ (1,023,174) $ (451,444)
============= =============
Net loss per share:
Basic and diluted........................ $ (0.08) $ (0.03)
============= =============
Weighted average common share outstanding:
Basic and diluted........................ 13,432,884 13,202,209
============= =============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss....................................... $ (1,023,174) $ (451,444)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciated and amortization............ 2,221,946 2,004,112
Bad debt expense........................ 1,624,616 1,761,342
Deferred tax benefit.................... (677,581) (343,000)
Changes in operating assets
and liabilities:
Accounts receivable................ (880,229) (6,200,554)
Inventories........................ 99,079 (25,571)
Other current assets............... (438,863) (779,324)
Deposits and other assets.......... (589,695) (70,992)
Accounts payable................... 297,709 1,630,146
Accrued expenses................... 1,427,965 1,394,605
Income taxes payable ............... (898,664) (127,133)
Deferred tuition revenue........... 1,208,384 2,728,657
Other liabilities.................. (474,842) (108,746)
------------- ------------
Net cash provided by operating activities...... 1,896,651 1,412,098
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............. (645,602) (1,247,152)
Investment in Newco............................ (1,167,779) -
------------- ------------
Net cash used in investing activities.......... (1,813,381) (1,247,152)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit
and long-term borrowings and capitalized
lease obligations......................... 23,522,414 18,206,175
Principal payments on revolving line of
credit, long-term borrowings and
other liability........................... (26,332,857) (21,730,249)
Proceeds from exercise of options and
warrants.................................. 22,012 5,750
------------- ------------
Net cash used in financing activities.......... (2,788,431) (3,518,324)
------------- ------------
Decrease in cash and cash equivalents.......... (2,705,161) (3,353,378)
Cash and cash equivalents at beginning
of period................................. 4,267,110 3,384,336
------------- ------------
Cash and cash equivalents at end of period..... $ 1,561,949 $ 30,958
============= ============
Continued on following page.
See accompanying notes to financial statements.
6
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
------------- --------------
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING
ACTIVITIES:
<S> <C> <C>
Equipment acquired under capital leases........ $ 1,643,286 $ 1,537,782
============= ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.................................. $ 596,920 $ 602,915
============= ==============
Income taxes paid.............................. $ 1,335,356 $ 155,200
============= ==============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and, in the
opinion of the management of Whitman, include all adjustments, which are of a
normal recurring nature, necessary for a fair presentation of financial position
and the results of operations and cash flows for the periods presented. However,
the financial statements do not include all information and footnotes required
for a presentation in accordance with generally accepted accounting principles.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included or
incorporated by reference in Whitman's Form 10-K for the fiscal year ended March
31, 1999. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
The accompanying financial statements include the accounts of Whitman
Education Group, Inc., and its wholly-owned subsidiaries, Ultrasound Technical
Services, Inc. ("Ultrasound Diagnostic Schools"), Sanford Brown College, Inc.
("Sanford-Brown College") and MDJB, Inc. ("Colorado Technical University"). All
intercompany accounts and transactions have been eliminated. Hereafter,
reference to "Whitman" shall include collectively Whitman Education Group, Inc.
and its operating subsidiaries, Ultrasound Diagnostic Schools, Sanford-Brown
College and Colorado Technical University.
Whitman experiences seasonality in its quarterly results of operations as a
result of changes in the level of student enrollment. New enrollment in
Whitman's schools tends to be lower in the first and second fiscal quarters
covering the summer months which are traditionally associated with recess from
school. Costs are generally not significantly affected by the seasonable factors
on a quarterly basis. Accordingly, quarterly variations in net revenues will
result in fluctuations in income from operations on a quarterly basis.
2. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the fiscal
2000 presentation. These changes had no effect on previously reported net income
(loss).
8
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER SEPTEMBER
---------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Numerator:
Net (loss) income $ (557,319) $ 188,853 $(1,023,174) $ (451,444)
=========== =========== ============ ===========
Denominator:
Denominator for basic
net (loss)income per
share - weighted
average shares 13,438,048 13,205,650 13,432,884 13,202,209
Effect of dilutive securities:
Employee stock options - 579,613 - -
Warrants - 142,313 - -
----------- ----------- ------------ -----------
Dilutive potential
common shares - 721,926 - -
Denominator for
diluted net(loss)
income per share
- adjusted weighted
average shares and
assumed conversions 13,438,048 13,927,576 13,432,884 13,202,209
=========== =========== ============ ===========
Basic and diluted net (loss)
income per share $ (0.04) $ 0.01 $ (0.08) $ (0.03)
=========== =========== ============ ===========
</TABLE>
4. COMPREHENSIVE LOSS
In fiscal 1999, Whitman adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." Statement 130 establishes new rules
for the reporting and display of comprehensive income and its components.
Statement 130 requires unrealized gains or losses on Whitman's
available-for-sale securities, which prior to its adoption were recorded
separately in stockholders' equity, to be included in "other comprehensive
loss."
For the three months ended September 30, 1999 and 1998, total comprehensive
loss was $557,319 and comprehensive income was $173,853, respectively. For the
six months ended September 30, 1999 and 1998, total comprehensive losses were
$1,023,174 and $451,444, respectively.
5. CONTINGENCIES
In July 1999, in the previously reported case styled, CULLEN, ET AL. V.
WHITMAN EDUCATION GROUP, INC., in the United States District Court for the
Eastern District of Pennsylvania (Civil Action No. 98-CV-4076), the Court
certified a class of all students in the general ultrasound program
who incurred financial obligations (federally guaranteed student loans or
aid) from August 1, 1994 to August 1, 1998 to attend an Ultrasound
9
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
5. CONTINGENCIES - (CONTINUED)
Diagnostic School. The Court, however, rejected the plaintiffs' theories that
the Ultrasound Diagnostic School made misrepresentations to students and to its
accrediting body and allowed the case to proceed as a class action only to the
extent that the plaintiffs could prove that the schools "did not meet even the
most minimal requirements of a vocational program." Management believes that the
lawsuit is without merit and intends to continue to vigorously defend it. While
the outcome cannot be predicted with certainty, if determined adversely to
Whitman, it could have a material adverse effect on its financial position and
results of operations.
6. DIVESTITURE OF HURON UNIVERSITY
On August 27, 1999, Colorado Technical University, Inc., completed the
divestiture of its Huron University campus ("Huron") in Huron, South Dakota to a
newly formed entity ("Newco") capitalized by several investors and members of
Huron's existing management pursuant to an Amended and Restated Contribution
Agreement, dated June 2, 1999, as amended. In connection with the transaction,
Colorado Technical University contributed the operating assets of Huron and
$550,000 to Newco, and Newco issued to Colorado Technical University units of
limited liability company membership interests and assumed certain liabilities
of Huron. Under the terms of the transaction, the units of limited liability
company membership interests equal 19.9% of the total outstanding limited
liability company membership interests in Newco. Additionally, Whitman purchased
for $110,000 a warrant to acquire 20 units of limited liability company
interests in Newco, which would represent approximately 4% of the total
outstanding limited liability company membership interests in Newco upon
exercise. The warrant has a term of five years and has an exercise price of
$10,000 per unit. The effective date of the transactions for accounting, tax and
financial statement purposes was September 1, 1999. The terms of the transaction
were established through an arm's length negotiation. There was no gain or loss
on the transaction.
7. SEGMENT AND RELATED INFORMATION
In fiscal 1999, Whitman adopted the provision of Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise."
Whitman is organized by two reportable segments, the University Degree Division
and the Associate Degree Division through three wholly-owned subsidiaries. The
University Degree Division primarily offers bachelor, master and doctorate
degrees through Colorado Technical University. The Associate Degree Division
offers associate degrees and diplomas or certificates through Sanford-Brown
College and Ultrasound Diagnostic Schools.
10
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
7. SEGMENT AND RELATED INFORMATION - (CONTINUED)
Whitman's revenues are not materially dependent on a single customer or
small group of customers.
Summarized financial information concerning the Whitman reportable segments
is shown in the following table:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- ------------------------
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net revenues:
Associate Degree Division...$14,004,481 $14,359,337 $27,119,929 $26,144,493
University Degree Division.. 4,394,042 3,939,788 9,288,007 7,922,540
Other....................... - - - -
------------ ------------ ------------ ------------
Total ..................$18,398,523 $18,299,125 $36,407,936 $34,067,033
============ ============ ============ ============
(Loss) income before income
tax benefit:
Associate Degree Division...$ (42,897) $ 1,836,217 $ (297,695) $ 2,261,760
University Degree Division.. (322,311) (1,045,410) (221,700) (1,873,060)
Other....................... (561,186) (601,954) (1,181,360) (1,183,144)
------------ ------------ ------------ ------------
Total..................$ (926,394) $ 188,853 $(1,700,755) $ (794,444)
============ ============ ============ ============
SEPTEMBER 30, MARCH 31,
1999 1999
------------ --------------
Total assets:
Associate Degree Division...$46,864,517 $ 48,250,099
University Degree Division.. 9,350,586 13,341,559
Other....................... 3,121,133 987,957
------------ --------------
Total.......................$59,336,236 $ 62,579,615
============ ==============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of Whitman, the related notes to
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in Whitman's Form 10-K
for the year ended March 31, 1999 and the condensed consolidated financial
statements and the related notes to the condensed consolidated financial
statements included in Item 1 of this Quarterly Report on Form 10-Q. Except for
the historical matters contained herein, statements made in this
report are forward looking and are made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. Such statements
11
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WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
may include, but are not limited to our expectations regarding revenues, income,
expenses, and cash flows or other future financial performance, program
introductions, and our financing needs and plans for future operations.
Investors are cautioned that forward looking statements involve risks and
uncertainties, including, but not limited to, regulatory, licensing and
accreditation risks inherent in operating proprietary post- secondary
educational institutions, risks relating to unanticipated attrition or
reductions in student enrollment, risks that marketing efforts may not achieve
anticipated results, risks that new programs may not be implemented on a timely
basis or be successful, and risks relating to our ability to refinance or extend
our line of credit, which may cause our actual results, performance or
achievements to differ materially from the forward looking statements made in
the report or otherwise made by or on our behalf. Other factors that may affect
our future results include the unanticipated operational impact of Year 2000
issues and certain economic, competitive, governmental and other factors
discussed in our filings with the Securities and Exchange Commission. We assume
no responsibility to update forward-looking statements made herein or otherwise.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
statement of operations data to net revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
-------- ------- ------- -------
Net revenues 100.0% 100.0% 100.0% 100.0%
-------- ------- ------- -------
Costs and expenses:
Instructional and
educational support....... 69.3 63.3 69.7 65.9
Selling and promotional..... 16.5 13.6 15.6 14.9
General and administrative.. 17.9 20.4 18.1 19.9
-------- ------- ------- -------
Total costs and expenses..... 103.7 97.3 103.4 100.7
-------- ------- ------- -------
(Loss) income
from operations........... (3.7) 2.7 (3.4) (0.7)
Other (income) expenses:
Interest expense............ 1.7 2.0 1.7 2.0
Interest income............. (0.4) (0.3) (0.4) (0.4)
-------- ------- ------- -------
(Loss) income before income
tax benefit.............. (5.0) 1.0 (4.7) (2.3)
Income tax benefit........... 2.0 - 1.9 1.0
-------- ------- ------- -------
Net (loss) income............ (3.0)% 1.0 % (2.8)% (1.3)%
======== ======= ======= =======
</TABLE>
12
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
RESULTS OF OPERATIONS - (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1998
Net revenues increased by $ 0.1 million or 0.5% to $18.4 million for the
three months ended September 30, 1999 from $18.3 million for the three months
ended September 30, 1998. The increase was primarily due to an increase in
average student enrollment which was partially offset by a decrease in the
revenue earned per student. Average student enrollment increased 5.1% overall
with the University Degree Division experiencing a 7.3% increase and the
Associate Degree Division experiencing a 4.2% increase. The decrease in the
revenue earning rate was primarily due to a decrease in book and fee revenues at
Sanford-Brown College resulting from a decrease in new enrollments, and the
effect of the timing of the class start at Sanford-Brown College in the second
fiscal quarter in comparison to the prior year.
Instructional and educational support expenses increased by $1.2 million or
10.2% to $12.8 million for the three months ended September 30, 1999 from $11.6
million for the three months ended September 30, 1998. As a percentage of net
revenues, instructional and educational support expenses increased to 69.3% for
the three months ended September 30, 1999 as compared to 63.3% for the three
months ended September 30, 1998. The increase in instructional and educational
support expenses was primarily due to increases in payroll and related benefits
for faculty and staff to support the increase in enrollment and the offering of
the new Health Information Specialist program at certain of our Ultrasound
Diagnostic Schools, and increases in occupancy and depreciation expenses in the
Associate Degree Division primarily related to the expansion of facilities and
the upgrade of equipment.
Selling and promotional expenses increased by $0.5 million or 22.0% to $3.0
million for the three months ended September 30, 1999 from $2.5 million for the
three months ended September 30, 1998. As a percentage of net revenues, selling
and promotional expenses increased to 16.5% for the three months ended September
30, 1999, as compared to 13.6% for the three months ended September 30, 1998.
These increases in selling and promotional expenses were primarily due to an
increase in advertising expenses and an increase in the admissions staffing in
the Associate Degree Division. We expect selling and promotional expenses to
continue to represent a higher percentage of net revenues than in prior
historical periods as we continue to implement and improve marketing efforts as
a method to increase enrollment.
General and administrative expenses decreased by $0.4 million or 12.0% to
$3.3 million for the three months ended September 30, 1999 from $3.7 million for
the three months ended September 30, 1998. As a percentage of net revenues,
general and administrative expenses were 17.9% and 20.4%, respectively, for the
three months ended September 30, 1999 and September 30, 1998. These decreases in
general and administrative expenses were primarily due to a decrease in
administrative payroll expenses at the University Degree Division due to the
consolidation of certain administrative positions at the corporate office and a
decrease in bad debt expense.
We reported a net loss of $557,000 for the three months ended
September 30, 1999 as compared to net income of $189,000 for the
Three months ended September 30, 1998. The decrease in profitability
was primarily due to a decrease in pre-tax profits of $1.9
million in the Associate Degree Division, partially offset
13
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
RESULTS OF OPERATIONS - (CONTINUED)
by an increase in pre-tax profits of $.7 million in the University Degree
Division. The decrease in profitability in the Associate Degree Division was
primarily due to an increase in instructional and educational support expenses
to support the anticipated increase in student enrollment and the offering of a
new program, and an increase in selling and promotional expenses . Due to a
shortfall in anticipated new student enrollments for the quarter, the revenues
generated in the Associate Degree Division did not offset the increase in
operating expenses.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE
SIX MONTHS ENDED SEPTEMBER 30, 1998
Net revenues increased by $2.3 million or 6.9% to $36.4 million for the six
months ended September 30, 1999 from $34.1 million for the six months ended
September 30, 1998. The increase was primarily due to an increase in average
student enrollment which was partially offset by a decrease in the revenue
earned per student. Average student enrollment increased 7.9% overall with the
University Degree Division experiencing a 9.7% increase and the Associate Degree
Division experiencing a 7.1% increase. The decrease in the revenue earning rate
was primarily due to a decrease in book and fee revenues at Sanford-Brown
College resulting from a decrease in new enrollments, and the effect of the
timing of class starts at Sanford-Brown College in comparison to the prior year.
Instructional and educational support expenses increased by $2.9 million or
12.9% to $25.4 million for the six months ended September 30, 1999 from $22.5
million for the six months ended September 30, 1998. As a percentage of net
revenues, instructional and educational support expenses increased to 69.7% for
the six months ended September 30, 1999 as compared to 65.9% for the six months
ended September 30, 1998. The increase in instructional and educational support
expenses was primarily due to an increase in payroll and related benefits for
faculty and staff to support the increase in enrollment and the offering of the
new Health Information Specialist program at certain of the Ultrasound
Diagnostic Schools, and increases in occupancy and depreciation expenses in the
Associate Degree Division related to the expansion of facilities and the upgrade
of equipment.
Selling and promotional expenses increased by $0.6 million or 11.4% to $5.7
million for the six months ended September 30, 1999 from $5.1 million for the
six months ended September 30, 1998. As a percentage of net revenues, selling
and promotional expenses increased to 15.6% for the six months ended September
30, 1999 as compared to 14.9% for the six months ended September 30, 1998. The
increase in selling and promotional expenses was primarily due to an increase in
advertising expenses in the Associate Degree Division. We expect selling and
promotional expenses to continue to represent a higher percentage of net
revenues than in prior historical periods as we continue to implement and
improve marketing efforts as a method to increase enrollment.
General and administrative expenses decreased by $0.2 million or 2.0% to
$6.6 million for the six months ended September 30, 1999 from $6.8 million for
the six months ended September 30, 1998. As a percentage of
net revenues, general and administrative expenses decreased to
18.1% for the six months ended September 30, 1999 as compared to
19.9% for the six months ended September 30, 1998. These decreases
in general and administrative expenses were primarily due to a reduction
in administrative payroll expenses at the University Degree Division due to the
14
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WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
RESULTS OF OPERATIONS - (CONTINUED)
consolidation of certain administrative positions at the corporate office and a
decrease in bad debt expense.
We reported a net loss of $1.0 million and $.5 million for the six months
ended September 30, 1999 and 1998, respectively. The increase in the net loss
was primarily due a decrease in pre-tax profits of $2.6 million in the Associate
Degree Division, which was partially offset by an increase in pre-tax profits of
$1.7 million in the University Degree Division. The decrease in profitability in
the Associate Degree Division was primarily due to an increase in instructional
and educational support expenses to support the anticipated increase in student
enrollment and the offering of a new program, and an increase in selling and
promotional expenses. Due to a shortfall in anticipated new student enrollments
for the six months ended September 30, 1999, the revenues generated in the
Associate Degree Division did not offset the increase in operating expenses.
SEASONALITY
We experience seasonality in our quarterly results of operations as a
result of changes in the level of student enrollment. New enrollment in our
schools tends to be lower in the first and second fiscal quarters covering the
summer months which are traditionally associated with recess from school. Costs
are generally not significantly affected by the seasonal factors on a quarterly
basis. Accordingly, quarterly variations in net revenues will result in
fluctuations in income from operations on a quarterly basis.
The operating results of Huron University, which was sold on August 27,
1999, were significantly affected by seasonality. As a more traditional
university, Huron University experienced a significant decline in revenues
during the late spring and summer. The decline in revenues combined with a
relatively constant level of operating expenses resulted in operating losses of
$295,000 and $715,000 at Huron University for the three months ended September
30, 1999 and 1998, respectively, and operating losses of $1.0 million and $1.6
million for the six months ended September 30, 1999 and 1998, respectively.
YEAR 2000 ISSUE
The Year 2000 issue refers to a condition in computer software where a two
digit field rather than a four digit field is used to distinguish a calendar
year. Unless corrected, some information technology hardware and software
systems ("IT systems") and non-information technology systems ("non-IT systems")
could be unable to process information containing dates subsequent to December
31, 1999. As a result, such programs and systems could experience
miscalculations, malfunctions or disruptions.
We have implemented a process for identifying, prioritizing and modifying
or replacing certain computer and other systems and programs that may be
affected by the Year 2000 issue. We have completed the assessment, remediation
and testing of our IT systems and believe that the Year 2000 issue will not pose
significant operational problems to our IT systems. We have also assessed
material non-IT systems that we utilize and we believe that we do not have any
significant Year 2000 issues with respect to such non-IT systems.
15
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
YEAR 2000 ISSUE - (CONTINUED)
We have substantially completed inventory and assessment procedures with
respect to significant suppliers to determine the extent to which we may be
vulnerable in the event that such parties are unable to remediate their own Year
2000 issues. Assessment procedures with respect to such parties, who include,
among others, the Department of Education, accreditation agencies, student loan
guarantee agencies and financial institutions, have consisted primarily of
correspondence with such parties to determine their Year 2000 readiness. While
be believe, based on the procedures performed, that substantially all of such
significant third parties have remediated their Year 2000 issues, we can provide
no assurance that these third parties will not experience business disruption.
We are highly dependent on student funding provided through Title IV
programs. Processing of student applications for this funding and actual
disbursement of a significant portion of these funds are accomplished through
the Department of Education's computer systems. Should the Department of
Education experience Year 2000 related disruptions, it could result in
interruption of funding for our students. Any prolonged interruption would have
a material adverse impact on our business, results of operations, liquidity and
financial condition. In April 1999, the Department of Education announced that
all of its 175 data systems, including its 14 mission-critical systems, are Year
2000 compliant.
Based on the assessment performed to date, costs of addressing potential
problems are not expected to have a material adverse impact on our financial
position, results of operations or cash flows in future periods. Nevertheless,
our Year 2000 efforts are ongoing and our overall procedures, as well as the
need for continency planning, will continue to evolve as new information becomes
available.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 1999 and March 31, 1998 were
$1.6 and $4.3 million, respectively. The decrease in cash and cash equivalents
was primarily due to the net repayment of debt of $1.9 million and the payment
of income tax liabilities of $1.3 million for the six months ended September 30,
1999. Our working capital totaled $5.2 million at September 30, 1999 and $8.4
million at March 31, 1999.
We experienced a decline in cash flow in the first and second quarters due
to the seasonal effect of lower enrollment during the summer months. We believe
that cash flow will strengthen in the third and fourth quarters since these
periods have historically represented the periods of highest revenues and net
income within a fiscal year.
Net cash of $1.9 million and $1.4 million were provided by operating
activities for the six months ended September 30, 1999 and 1998, respectively.
The increase of $0.5 million was primarily due to the benefit of operating cash
flow from a decrease in accounts receivable, partially offset by decreases in
accounts payable and deferred tuition revenue.
16
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES - (CONTINUED)
Net cash of $1.8 million and $1.2 million were used for investing
activities for the six months ended September 30, 1999 and 1998, respectively.
The increase of $0.6 million was primarily due to a capital contribution of $1.2
million paid to Newco in connection with the acquisition of our 19.9% interest,
which was partially offset by a $0.6 million reduction in net cash used for
capital expenditures.
Net cash of $2.8 million was used in financing activities for the six
months ended September 30, 1999, compared to net cash of $3.5 million used in
financing activities for the six months ended September 30, 1998. The decrease
in cash used was due to a decrease in net payments on long-term borrowings.
We have an $8.5 million line of credit which expires on June 30, 2000. At
September 30, 1999, we had $6.1 million outstanding under this facility and
letters of credit outstanding of $956,000 which reduced the amount available for
borrowing. The amounts borrowed under this facility for the six months ended
September 30, 1999 were primarily used for operations, repayment of debt and
capital expenditures. We intend to refinance or extend our line of credit
facility on a long-term basis prior to June 30, 2000.
Our primary source of operating liquidity is the cash received from
payments of tuition and fees. Most students attending our schools receive some
form of financial aid under Title IV Programs. We receive approximately 71% of
our funding from the Title IV Programs. Disbursements under each program are
subject to disallowance and repayment by the schools.
On November 5, 1999, our Board of Directors authorized the repurchase of up
to $1.0 million of our common stock. The repurchases will be made from time to
time in the open market or through privately negotiated transactions. We
anticipate that the repurchase of shares will be funded through cash from
operations.
We believe that with our working capital, our cash flow from operations,
our working capital facilities and our expected increased financings under
capital lease obligations to fund capital expenditures, we will have adequate
resources to meet our anticipated operating requirements for the foreseeable
future.
17
<PAGE>
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Whitman filed a report on Form 8-K on September 2, 1999
relating to the sale of Huron University.
SIGNATURES
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.
WHITMAN EDUCATION GROUP, INC.
(Registrant)
By: /s/ FERNANDO L. FERNANDEZ
----------------------------------
Fernando L. Fernandez
Vice President - Finance,
Chief Financial Officer and
Treasurer
Date: November 9, 1999
----------------
18
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<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
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