<PAGE>
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 quarter ended: JUNE 30, 1997
Commission File Number 1-1003
NOBEL EDUCATION DYNAMICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2465204
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1400 N. PROVIDENCE ROAD, SUITE 3055, MEDIA, PA 19063
(Address of principal executive offices) (Zip Code)
(610) 891-8200
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all report(s) 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_____
-----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 6,051,565 shares of Common
Stock outstanding at August 3, 1997.
<PAGE>
INDEX TO FORM 10-Q
Nobel Education Dynamics, Inc.
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets,
June 30, 1997 and
December 31, 1996(unaudited)......................................2
Consolidated Statements of Income for the
three months ended June 30, 1997
and 1996 (unaudited)..............................................3
Consolidated Statements of Income for the
six months ended June 30, 1997
and 1996 (unaudited)..............................................4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997
and 1996 (unaudited)..............................................5
Notes to Consolidated Interim Financial Statements................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................9
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company's 1997 outlook and all other statements in this report other than
historical facts are forward-looking statements that involve risks and
uncertainties and are subject to change at any time. The Company derives its
forward-looking statements from its operating budgets and forecasts, which are
based upon detailed assumptions about many important factors such as market
demand, market conditions and competitive activities. While the Company believes
that its assumptions are reasonable, it cautions that there are inherent
difficulties in predicting the impact of certain factors, especially those
affecting the acceptance of the Company's newly developed and converted schools
and performance of recently acquired businesses, which could cause actual
results to differ materially from predicted results.
1
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, 1997 December 31, 1996
- ------ ------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 1,623,110 $ 5,251,555
Accounts receivable, less allowance for
doubtful accounts of $103,009 in 1997
and 1996 1,178,034 779,075
Prepaid rent 527,421 734,463
Prepaid insurance and other 855,152 622,106
Deferred taxes - 890,934
----------- -----------
4,183,717 8,278,133
----------- -----------
Total Current Assets
Property and equipment, net 19,775,669 19,323,110
Property and equipment held for sale, net 564,724 1,111,412
Goodwill, net 33,977,365 25,601,028
Deposits and other assets 4,584,563 2,402,951
Deferred taxes - 116,854
----------- -----------
Total Assets $63,086,038 $56,833,488
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current portion of long-term debt $ 3,257,425 $ 3,448,112
Accounts payable and other current
liabilities 8,058,259 6,181,005
----------- -----------
Total Current Liabilities 11,315,684 9,629,117
----------- -----------
Long Term Debt 11,818,866 11,097,593
Deferred gain on sale/leaseback 43,326 47,321
Minority interest in consolidated
subsidiary 367,813 318,359
Long-term subordinated debt 5,404,431 3,417,657
----------- -----------
Total Liabilities 28,950,120 24,510,047
----------- -----------
Stockholders' Equity:
Preferred stock, $.001 par value;
10,000,000 shares authorized, issued
and outstanding 4,697,542 in 1997 and
1996 4,698 4,698
Common stock, $.001 par value,
50,000,000 shares authorized, issued
and outstanding 6,051,565 shares in
1997 and 5,831,055 in 1996 6,051 5,831
Treasury Stock 36,810 shares (375,000) -
Additional paid-in capital 38,179,893 37,665,713
Accumulated deficit (3,679,724) (5,352,801)
----------- -----------
Total Stockholders' Equity 34,135,918 32,323,441
----------- -----------
Total Liabilities and $63,086,038 $56,833,488
Stockholders' Equity =========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in
Nobel's Annual Report on Form 10-K are an integral part of these financial
statements.
2
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended June 30, 1997 and 1996
-------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues $20,637,145 $14,920,744
Operating Expenses 17,311,285 12,281,920
----------- -----------
School operating profit 3,325,860 2,638,824
General and administrative expenses 1,470,488 1,087,295
----------- -----------
Operating Profit 1,855,372 1,551,529
Interest Expense 473,663 476,664
Other Income (14,433) (134,186)
Minority interest in earnings of consolidated subsidiary 24,391 24,907
----------- -----------
Income before income taxes 1,371,751 1,184,144
Income tax expense 576,277 449,957
----------- -----------
Net income $ 795,474 $ 734,187
=========== ===========
Preferred stock dividends $ 25,500 $ 38,826
----------- -----------
Net income available to common stockholders $ 769,974 $ 695,361
=========== ===========
Primary earnings per share $0.11 $0.10
=========== ===========
Fully diluted earnings per share $0.11 $0.10
=========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in
Nobel's Annual Report on Form 10-K are an integral part of these financial
statements.
3
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the six months ended June 30, 1997 and 1996
-----------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues $39,664,386 $29,489,013
Operating Expenses 33,019,088 23,871,757
----------- -----------
School operating profit 6,645,298 5,617,256
General and administrative expenses 2,774,357 2,118,492
----------- -----------
Operating Profit 3,870,941 3,498,764
Interest Expense 853,470 1,107,905
Other Income (4,770) (250,797)
Minority interest in earnings of consolidated subsidiary 49,454 48,772
----------- -----------
Income before income taxes 2,972,787 2,592,884
Income tax expense 1,248,710 992,271
----------- -----------
Net income $ 1,724,077 $ 1,600,613
=========== ===========
Preferred stock dividends $ 51,000 $ 77,652
----------- -----------
Net income available to common stockholders $ 1,673,077 $ 1,522,961
=========== ===========
Primary earnings per share $0.24 $0.23
=========== ===========
Fully diluted earnings per share $0.23 $0.22
=========== ===========
</TABLE>
The accompanying notes and the notes in the financial statements included in
Nobel's Annual Report on Form 10-K are an integral part of these financial
statements.
4
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1997 and 1996
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Cash Provided by Operating Activities $ 4,355,124 $ 1,822,619
Cash flows from Investing Activities:
Capital expenditures (3,588,805) (1,695,655)
Proceeds from the sale of real estate 3,444,882 6,148,490
Payment for acquisitions (7,154,704) (6,041,048)
Cash paid for 19% investment in school (340,000) --
Cash received from note receivable -- 373,237
----------- ------------
Net cash used in investing activities: (7,638,627) (1,214,976)
Cash Flows from Financing Activities:
Issuance of common stock -- 11,497,634
Repayment of long-term debt (1,327,585) (5,851,123)
Repayment of subordinated debt (624,967) (6,000,000)
Cash proceeds from revolving line of credit 4,779,704 1,500,000
Repayment of revolving line of credit (3,225,644) --
Repayment of capital lease obligation (34,850) (23,948)
Payments of dividends on preferred stock (51,000) (77,606)
Proceeds from exercise of stock options 139,400 160,055
Proceeds from the principal debt facility -- 6,000,000
----------- ------------
Net Cash Provided by (Used in) Financing Activities: (344,942) 7,205,012
----------- ------------
Net increase(decrease) in cash and cash equivalents (3,628,445) 7,812,655
Cash and cash equivalents at the beginning of year 5,251,555 3,714,560
----------- ------------
Cash and cash equivalents at end of the period $ 1,623,110 $ 11,527,215
=========== ============
</TABLE>
The accompanying notes and the notes in the financial statements included in
Nobel's Annual Report Form 10-K are an integral part of these consolidated
financial statements.
5
<PAGE>
NOBEL EDUCATION DYNAMICS, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
for the six months ended June 30, 1997 and 1996
(unaudited)
Note 1 - Basis of Presentation
- ------------------------------
The consolidated financial statements have been prepared by Nobel Education
Dynamics, Inc. pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial position and results of operations. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with the generally accepted accounting principals have been condensed
or omitted pursuant to such SEC rules and regulations. It is suggested that
these financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in Nobel's Annual Report on Form
10-K for the year ended December 31, 1996.
Due to the inherent seasonal nature of the education and child care businesses,
annualization of amounts in these interim financial statements may not be
indicative of the actual operating results for the full year.
Note 2 - Earnings Per Share
- ---------------------------
The earnings per share is based upon the weighted average number of common and
common share equivalents outstanding as follows:
<TABLE>
<CAPTION>
6 months ended 6 months ended
June 30, 1997 June 30, 1996
-------------- --------------
<S> <C> <C>
Primary 7,112,856 6,768,932
Fully Diluted 7,446,167 7,145,640
<CAPTION>
3 months ended 3 months ended
June 30, 1997 June 30, 1996
-------------- --------------
<S> <C> <C>
Primary 7,115,669 7,174,674
Fully Diluted 7,448,980 7,551,382
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement no.
128, "Earnings per Share," which establishes new standards for computations of
earnings per share. The Statement will be effective for periods ending after
December 15, 1997, with prior periods restated at that time to comply with the
new standards. If the Statement had been effective for the periods ended June
30, 1997 and 1996, there would have been no significant change in fully diluted
earnings per share as
6
<PAGE>
presented in the accompanying Consolidated Statements of Income. However, the
calculation of the basic earnings per share under the FAS 128 equals $0.13 for
the three months ended both June 30, 1997 and 1996 compared to primary earnings
per share of $0.11 and $0.10 for the same periods respectively. For the six
months ended June 30, 1997 and 1996, basic earnings per share equaled $0.29 and
$0.30 respectively as compared to primary earnings per share of $0.24 and $0.23
for the same periods in 1997 and 1996.
Note 3 - Acquisitions
- ---------------------
ACQUISITION OF ANOTHER GENERATION ENTERPRISES INC.
On January 7, 1997, the Company purchased Another Generation Enterprises Inc.
and certain related corporations, which owned six preschools located in Broward
County and Palm Beach County, Florida with a capacity of 1,200 children and
annual aggregate revenues of approximately $5,600,000. The aggregate purchase
price for the stock totaled $4,543,000, with $3,643,000 in cash, $750,000 in
notes and approximately $150,000 in assumed liabilities. The acquisition was
accounted for using the purchase method of accounting in accordance with APB 16.
Also on January 7, 1997, the company purchased a 19.99% interest in the Sagemont
School located in Weston, Florida from the principal owners of Another
Generation Enterprises Inc. The Sagemont School is an elementary school with a
capacity of 340 which opened in the Fall of 1996. The Company also formed a
joint venture with such persons to develop five additional elementary schools in
Florida, each of which the company will own 80%.
ACQUISITION OF RAINBOW BRIDGE INC.
On April 1, 1997 the Company acquired the Rainbow Bridge schools located in San
Jose, California. Rainbow Bridge schools are private elementary and preschool
operations with five schools, two of which are elementary and middle schools and
three of which are preschools with combined annual revenues of $5,600,000 and
licensed capacity of 950. The acquisition was accounted for using the purchase
method of accounting in accordance with APB 16. The purchase price of the
acquisition totaled $5,500,000, $3,700,000 paid in cash and $1,800,000 paid by
delivery of a note. The asset purchase agreement provides for payment of an
additional "earn-out" payment if the operators achieve certain earnings targets.
Note 4 - Commitments and Contingencies
- ---------------------------------------
The Company is engaged in legal actions arising in the ordinary course of its
business. The Company believes that the ultimate outcome of all such matters
above will not have a material adverse effect on the Company's consolidated
financial position. The significance of these matters on the Company's future
operating results and cash flows depends on the level of future results of
operations and cash flows as well as on the timing and amounts, if any, of the
ultimate outcome.
The Company carries fire and other casualty insurance on its centers and
liability insurance in amounts which management believes are adequate for its
operations. As is the case with other entities in the
7
<PAGE>
education and preschool industry, the Company cannot effectively insure itself
against certain risks inherent in its operations. Some forms of child abuse have
sublimits per claim in the general liability coverage.
Note 5 - Debt
- -------------
LOAN AMENDMENT
On May 8, 1997, the Company entered into the Sixth Amendment of its Loan and
Security Agreement with its primary lender, which increases the Revolving Line
of Credit from $10,000,000 to $13,800,000 and extends its maturity from
September 1, 1999 to May 1, 2000. The Company is also given the right to
convert outstanding loans under the revolver into fixed rate term loans with a
term of five years. The Loan Amendment also changes the interest rate of the
term loans from fixed rates to floating rates (currently lower). The Amendment
increases the principal debt facilities from $21,200,000 to $25,000,000.
8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the six month period ended June 30, 1997 compared to June 30, 1996:
- ----------------------------------------------------------------------
Revenues increased $10,175,373 or 35% to $39,664,386 for the six month period
ended June 30, 1997. The increase in revenues was due primarily to the
combination of 1) the acquisition of 16 schools and 2) the opening of seven new
schools all subsequent to the second quarter of 1996. Of the $10,175,373
increase $7,491,197 was related to acquisitions and $1,792,125 was related to
the opening of new schools subsequent to June 30, 1996. The increase in
revenues in the remaining schools which totaled $892,051 was the result of a
combination of several factors. Revenues in the Eastern Division increased due
to the maturing of new schools opened in early 1996, but were offset by a
combination of 1) the closing in August 1996 of six non-performing schools
located in South Carolina upon expiration of leases ,2) a modest revenue
decrease in Merryhill schools located in California and 3) a slight revenue
decrease in the Educo schools (a 1995 acquisition).
The decrease in revenues in the Merryhill Schools was principally caused by an
unforeseen turnover of teachers during the 1996-1997 school year which led to a
decrease in enrollment. In California a mandate was issued by the public
schools to reduce class sizes which caused a higher demand for teachers. Public
schools looked to private schools to fill their teacher ranks by offering
significantly higher salaries. This created an approximate 3% decline in the
revenues of the Merryhill schools. Management is very focused and attempting to
turn the situation around, taking aggressive steps to attract and retain quality
teachers and quality standards. The Company also has increased marketing
efforts in Merryhill emphasizing its quality curriculum and reputation in order
to increase enrollment.
As of June 30, 1997, the Company operated 121 schools. From the period June 30,
1996 to June 30, 1997, the Company built nine new schools (replacing two),
closed six schools whose leases expired and acquired sixteen schools.
School operating profit increased 18.30% or $1,028,042 in the first six months
of 1997 compared to 1996. The increase in the operating profit was the result
of several factors. Operating profit related to acquisitions which occurred
subsequent to the second quarter of 1996 totaled $1,338,357. This increase was
reduced by 1) the absorption of start-up losses of new schools opened subsequent
to the second quarter of 1996 totaling $248,520, 2) a decrease in the remaining
schools of $67,683 and 3) $5,888 of an increase relating to closing South
Carolina schools. The decrease in the remaining schools was the result of 1) an
increase in rent expense of $200,000 because the Company sold five previously
owned properties in May of 1996 and concurrently leased the properties back, 2)
higher personnel costs, 3) lower revenues in the Merryhill and Educo schools, as
described above and 4) a small loss incurred by the nine schools located in
Indianapolis. The results of the Indianapolis schools have improved slightly
from January to June.
School operating profit margins decreased 2.3% from 19.0% for the six months
ended June 30, 1996 to 16.7% for the six months ended June 30, 1997. The
decrease in margins was due to 1) initial
9
<PAGE>
absorption of start-up losses in the new schools, 2) lower margins in the
acquired schools as compared to baseline schools due to the amortization of
goodwill and 3) lower margins in the remaining baseline schools as a result of
declines in the operating profits in the Merryhill schools. Margins in the
schools acquired in 1995 were particularly effected by two factors: 1) the
Indianapolis schools currently are operating at a small loss for the six months
ended June 30, 1997 and 2) the Educo schools operating profit margins decreased
because of a slight drop in enrollment and higher costs. The Company has
implemented a plan of action to increase enrollments and decrease operating
expenses in the Indianapolis and Educo schools.
General and administrative expenses increased $655,865 or 31% to $2,774,357 for
the six months ended June 30, 1997 compared to the same period in 1996. As a
percentage of revenues general and administrative expenses decreased 0.2% from
7.2% in 1996 to 7.0% in 1997. The increase in dollars was primarily
attributable to the increase in the Company's infrastructure necessary to
support its revenue growth. In 1997 the Company added a Chief Financial
Officer, Vice President of Eastern U.S. Operations, Vice President of Marketing,
several District Managers, a Human Resource Manager and several other support
staff. In addition, the Company selected and launched an Education Advisory
Board to oversee and assist in curriculum development.
Interest expense decreased $254,435 or 23% to $853,470 for the six months ended
June 30, 1997 as compared to the same period in 1996. The decrease is the result
of 1) the Company's refinancing in May 1996 $6,000,000 of subordinated debt
which accrued interest at 14% with a term loan from its principal Bank which
accrues interest at a floating interest rate, 2) generally lower interest rates
(7.125% vs. 8.25%) on the Company's principal credit facility as a result of the
Sixth Amendment of the Loan and Security Agreement entered into on May 8, 1997,
and 3) the Company selling five properties and subsequently repaying the related
debt facility.
Other income decreased $246,027 for the six months ended June 30, 1997 compared
to the same period in 1996. In 1996 the Company earned interest on proceeds
from an $11,700,000 private placement of common stock which was subsequently
used for acquisitions in the fourth quarter of 1996 and early 1997.
Pretax income increased $379,903 or 15% to $2,972,787 for the six months ended
June 30, 1997 compared to the same period the prior year. The increase is
primarily attributed to the increase in operating profit as a result of
acquisitions.
Income tax expense increased $256,439 or 26% to $1,248,710 for the six months
ended June 30, 1997 compared to 1996 as the result of a higher effective tax
rate of 42% in 1997 as compared to 38% for the same period in 1996 and also a
higher profit level. The effective tax rate increased as a result of an
increase in non-deductible goodwill amortization expense.
Net income increased $123,464 or 7.7% to $1,724,077 for the six months ended
June 30, 1997 as compared to the same period in 1996. The net increase is
attributable to the additional profits from acquisitions, a net decrease in
interest expense offset by increases in general and administrative expenses.
10
<PAGE>
Primary earnings per share for the six months ended June 30, 1997 equaled $0.24
on common share equivalents of 7,112,856 as compared to $0.23 on common share
equivalents of 6,768,932 for the same period in 1996. Fully diluted earnings per
share equaled $0.23 on 7,446,167 share equivalents as compared to $0.22 on
7,145,640 share equivalents for the same period in 1996.
For the three months ended June 30, 1997 compared to June 30, 1996:
- ------------------------------------------------------------------
Revenues for the second quarter of 1997 increased $5,716,401 or 38% to
$20,637,145 compared to the second quarter of 1996. The increase is primarily
attributed to revenues related to acquisitions and new school openings which
occurred in the second half of 1996 and early 1997. Acquisitions accounted for
$4,425,486 of the increase in revenues and new school development accounted for
$1,268,078 of the increase. Baseline school revenues increased slightly or
$22,837. This slight increase is related to several factors: 1) a decrease in
revenues of $345,405 related to the closing of several schools whose leases
expired in South Carolina, 2) a modest decrease in the revenue of the Merryhill
schools, 3) a slight decrease in revenues of the Educo schools offset by 4) an
increase in revenues from the maturing of new schools opened in early 1996 in
the Eastern region.
School operating profit increased $687,036 or 26% to $3,325,860 for the second
quarter of 1997 as compared to 1996. The increase in school operating profit
related to the acquisitions totaled $714,867 and the increase in operating
profit relating to new schools built in 1996 totaled $263,443. These increases
were offset by several factors which include 1) the absorption of operating
losses related to new schools in 1997 totaling $152,534 and 2) a decrease in the
baseline schools totaling $138,740 which was related primarily to a 2.5% margin
decline in the results of the Merryhill schools and to a lesser extent, a slight
decline in the results of the Educo schools, as described above in the six month
analysis.
Operating profit margins decreased 1.57% from 17.69% in the second quarter of
1996 to 16.12% in the second quarter of 1997. The decrease in the margin is the
result of overall performance of the baseline schools due primarily to the
decline in the Merryhill schools as described above in the six month analysis,
coupled with losses from opening new schools and lower margins in the
acquisitions because of goodwill amortization.
General and Administrative expense increased $383,193 or 35% to $1,470,488 for
the second quarter of 1997 as compared to 1996. As a percentage of revenues,
general and administrative remained constant at 7.1% for the second quarter of
1997. The dollar increase is related to the addition of management needed to
build the infrastructure of the company as described above in the six month
analysis.
Interest expense decreased slightly to $473,663 as a result of lower interest
rates, as described above in the six months analysis.
Other income decreased $119,753 to $14,433. In 1996, excess cash proceeds from
private placement were invested in short term securities whereas in 1997 the
Company used the cash for acquisitions.
Income taxes totaled $576,277 for the second quarter of 1997 compared to
$449,957 in 1996. Taxes were accrued at 42% effective tax rate compared to 38%
in 1996.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Management is currently pursuing a three-pronged growth strategy to expand the
Company which includes (1) internal growth of existing schools through the
expansion of certain facilities and increased enrollments, (2) new school
development in both existing and new markets and (3) consolidation through
strategic acquisitions. During 1997, the Company intends to fund its growth
strategy and its cash needs through (1) the $13,800,000 available balance of its
revolving line of credit, (2) the use of site developers to build schools and
lease them to the Company and (3) issuance of subordinated indebtedness or
shares of common stock to sellers in acquisition transactions. If the need
arises, the Company may also effect additional debt or equity financings. The
Company anticipates that its existing available principal credit facilities,
cash generated from operations, continued support of site developers to build
and lease schools will be sufficient to satisfy the working capital needs of the
Company and the building of new schools in the near term future. The Company is
continuing to look for quality acquisition candidates. Depending on the size of
future acquisitions, the Company may need to seek funds from additional debt or
equity placements.
At May 8, 1997, the Company's loans from its senior lender consisted of: a
$6,200,000 loan ("Term Loan I"), a $5,040,000 term loan ("Term Loan II"), and, a
$13,800,000 revolving line of credit, of which $3,730,000 was outstanding. The
Term Loan I bears interest at a LIBOR based performance rate and requires
quarterly principal payments as follows: $250,000 each quarter through September
1, 1999; and $300,000 each quarter from December 1, 1999 through September 1,
2001. The Term Loan II, bears interest at a LIBOR based performance rate and
requires quarterly principal payments as follows: $280,000 each quarter through
September 1, 1999; $350,000 each quarter through June 1, 2001, with the
remaining balance due on September 1, 2001. The revolving line of credit bears
interest at a LIBOR based performance rate and matures May 1, 2000. The current
loan agreement with the Bank gives the Company flexibility in implementing its
accelerated new school development program and its acquisition strategy.
In 1997, the Company is in the process of converting six of its child care
centers to Chesterbrook Academy schools. When a conversion takes place, the
Company upgrades the curriculum and equipment, retrains the teachers and changes
signage. The Company estimates the capitalized cost of a conversion to be
$30,000 to $40,000 per location. The Company anticipates that cash generated
from operations and its line of credit will be sufficient to fund the cost of
the conversions.
Additionally in 1997, the Company will begin to upgrade its management
information system to link the schools to the corporate office as well as to
other schools. Management anticipates that the process will take several years
and has projected that it may spend approximately $700,000 on this project in
1997 and approximately $1,000,000 in 1998.
Cash flow from operations increased $2,532,505 from $1,822,619 for the six
months ended June 30, 1996 to $4,355,124 for the six months ended June 30, 1997.
The increase is the result of 1) an increase in depreciation and amortization of
goodwill totaling $483,000, and 2) an increase in accounts payable and accrued
expenses totaling $2,197,000.
12
<PAGE>
During the six months ended June 30, 1997 cash decreased $3,628,445 compared to
a net increase of $7,812,655 for the same period in 1996. In the first half of
1996 the Company raised $11,600,000 in cash through a private placement of
common stock. Additionally, in May of 1996 the Company sold real estate related
to the Carefree schools for a total of $6,100,000. During the first six months
of 1997 the Company completed the acquisition of Another Generation, Inc. and
Rainbow Bridge, Inc. and paid $7,154,704 in cash for the acquisitions. In 1997
the Company spent $3,100,000 in capital expenditures for both equipment and the
building of new schools.
The Company's working capital deficit increased $5,780,983 from a deficit of
$1,350,984 at December 31, 1996 to $7,131,967 at June 30, 1997 primarily as a
result of a decrease in cash totaling $3,628,445 and an increase in accounts
payable and other current liabilities totaling $1,877,254.
TRENDS
During the first half of 1997, the Company experienced a setback with a slight
decrease in enrollment in its Merryhill schools, located in California. As
discussed herein, this decrease is primarily due to the effect of California
public schools' initiative to decrease student/teacher class size ratios in
Kindergarten to second grade classes. This initiative affected Merryhill in
several ways: 1) teacher turnover increased, 2) enrollment decreased slightly,
and 3) with efforts to attract replacement teachers and retain existing
teachers, average teacher salaries increased. In addition to the effect of the
public school initiative, rent expense in some of the Merryhill schools is
increasing because of recently built replacement schools which expanded
capacity. Current results for Fall enrollment in the upcoming 1997-1998 school
year are down slightly from the previous year.
The Company sees the continuation of major reforms taking place in the education
market. The Company plans to capitalize on the growing need for improved quality
education. In 1996 and 1997, the Company built new elementary and middle schools
which incur higher initial losses in the first year as compared to newly
constructed preschools. The Company plans to open five newly constructed
elementary schools in 1997, and continue development in 1998.
13
<PAGE>
Part II
-------
Other Information
Exhibit
Number Description of Exhibit
11 Statement re: computation of per share earnings.
27 Financial Data Schedule
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Nobel has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
NOBEL EDUCATION DYNAMICS, INC.
Dated: August 14, 1997 By: /s/ Brian C. Zwaan
-----------------------------------
Brian C. Zwaan
Executive Vice President/CFO
(duly authorized officer and
principal financial officer)
15
<PAGE>
EXHIBITS
Exhibit
Number Description of Exhibit
11 Statement re: computation of per share earnings.
27 Financial Data Schedule
16
<PAGE>
Exhibit 11
Net Income Per Common Share
- ---------------------------
for the three months ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Net Income Per Common Share Primary:
- -----------------------------------
Net income $ 795,474 $ 734,187
Less preferred dividends 25,500 38,826
---------- ----------
Net income available to common stockholders $ 769,974 $ 695,361
========== ==========
Average shares outstanding 6,050,580 5,719,773
Common stock equivalents less convertible preferred 1,065,089 1,454,901
---------- ----------
Adjusted average shares outstanding 7,115,669 7,174,674
Primary earnings per common share $ 0.11 $ 0.10
========== ==========
Net Income Per Common Share Fully Diluted:
- ------------------------------------------
Net Income $ 795,474 $ 734,187
---------- ----------
Average shares outstanding 6,050,580 5,719,773
Common Stock equivalents including
convertible preferred 1,398,400 1,831,609
---------- ----------
Average Shares outstanding assuming full dilution 7,448,980 7,551,382
Fully diluted earnings per share $ 0.11 $ 0.10
========== ==========
</TABLE>
17
<PAGE>
Exhibit 11
Net Income Per Common Share
- ---------------------------
for the six months ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Net Income Per Common Share Primary:
- -----------------------------------
Net income $1,724,077 $1,600,613
Less preferred dividends 51,000 77,652
---------- ----------
Net income available to common stockholders $1,673,077 $1,522,961
========== ==========
Average shares outstanding 6,047,767 5,314,031
Common stock equivalents less convertible preferred 1,065,089 1,454,901
---------- ----------
Adjusted average shares outstanding 7,112,856 6,768,932
Primary earnings per common share $ 0.24 $ 0.23
========== ==========
Net Income Per Common Share Fully Diluted:
- -----------------------------------------
Net Income $1,724,077 $1,600,613
---------- ----------
Average shares outstanding 6,047,767 5,314,031
Common Stock equivalents including
convertible preferred 1,398,400 1,831,609
---------- ----------
Average Shares outstanding assuming full dilution 7,446,167 7,145,640
Fully diluted earnings per share $ 0.23 $ 0.22
========== ==========
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JAN-30-1997 JAN-30-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 1,623 5,252
<SECURITIES> 0 0
<RECEIVABLES> 1,178 779
<ALLOWANCES> 103 103
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,183 8,278
<PP&E> 19,776 19,323
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 63,086 56,833
<CURRENT-LIABILITIES> 11,315 9,629
<BONDS> 0 0
0 0
4,698 4,698
<COMMON> 6,051 5,831
<OTHER-SE> 34,136 32,323
<TOTAL-LIABILITY-AND-EQUITY> 63,086 56,833
<SALES> 39,664 29,489
<TOTAL-REVENUES> 39,664 29,489
<CGS> 33,019 23,812
<TOTAL-COSTS> 35,793 25,990
<OTHER-EXPENSES> (5) (251)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 853 1,107
<INCOME-PRETAX> 2,973 2,593
<INCOME-TAX> 1,249 993
<INCOME-CONTINUING> 1,724 1,600
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,724 1,601
<EPS-PRIMARY> 0.24 0.23
<EPS-DILUTED> 0.23 0.22
</TABLE>
