<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
*****
FORM 10-Q
*****
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------------------------------------
Commission file number 0-21730
---------
STECK~VAUGHN PUBLISHING CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware I.R.S. No. 33-0556929
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4515 Seton Center Parkway, Suite 300 Austin, Texas 78759
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (512) 343-8227
----------------------------
8701 North Mopac Expressway, Suite 200 Austin, Texas 78759-8364
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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: 14,331,917 common stock shares outstanding at October 29, 1996.
- --------------------------------------------------------------------------------
<PAGE> 2
STECK~VAUGHN
PUBLISHING CORPORATION
CONSOLIDATED BALANCE SHEETS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(amounts in thousands, except share counts) 1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,636 $ 10,041 $ 9,628
Marketable securities 1,399 1,748 1,846
Receivables, net of allowance of $864, $468 and $287 25,698 10,909 15,902
Inventories and supplies 19,114 18,099 15,513
Prepaid and deferred marketing expenses 849 1,456 1,682
Note receivable from parent company -- 4,000 6,500
Deferred plant costs 2,916 2,854 2,420
Other current assets 2,731 1,667 1,477
-------- -------- --------
Total current assets 58,343 50,774 54,968
LAND, BUILDINGS AND EQUIPMENT, net 9,393 6,741 6,566
ACQUIRED INTANGIBLE ASSETS, net 14,697 8,998 4,879
DEFERRED PLANT COSTS 3,565 3,015 3,408
OTHER ASSETS 799 -- --
-------- -------- --------
$ 86,797 $ 69,528 $ 69,821
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 7,089 $ 4,551 $ 5,571
Accrued royalties 2,239 2,129 2,250
Accrued commissions 1,148 343 897
Accrued salaries, wages and bonuses 2,352 345 559
Payable to parent company 1,600 1,299 1,129
Current portion of long-term debt 3,195 343 343
Accrued and deferred income taxes 270 691 2,020
Other liabilities 185 -- --
-------- -------- --------
Total current liabilities 18,078 9,701 12,769
-------- -------- --------
LIABILITIES PAYABLE AFTER ONE YEAR
Long-term debt, less current portion 10,204 2,904 1,114
Deferred income taxes -- 629 189
-------- -------- --------
10,204 3,533 1,303
-------- -------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 5,000,000 shares authorized and unissued -- -- --
Common stock, $.01 par value; 25,000,000 shares authorized;
14,587,000, 14,573,000, and 14,568,000 shares issued 146 146 146
Additional paid-in capital 36,891 36,828 36,792
Retained earnings 23,310 21,143 20,611
Unrealized gain on marketable securities, net of tax effect 1 10 33
-------- -------- --------
60,348 58,127 57,582
Treasury stock, at cost (255,000 shares) (1,833) (1,833) (1,833)
-------- -------- --------
Total stockholders' equity 58,515 56,294 55,749
-------- -------- --------
$ 86,797 $ 69,528 $ 69,821
======== ======== ========
</TABLE>
2
<PAGE> 3
STECK~VAUGHN
PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(amounts in thousands, except per share amounts) 1996 1995 1996 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
NET REVENUES $ 32,419 $ 20,372 $ 66,176 $ 46,797
Product cost and fulfillment 8,785 4,997 19,631 12,490
-------- -------- -------- --------
GROSS PROFIT 23,634 15,375 46,545 34,307
Product development 3,544 2,069 9,408 6,444
Selling and marketing 9,772 6,498 20,559 14,602
General and administrative 2,518 1,061 5,121 3,545
Provision for doubtful accounts 52 34 97 83
Amortization of acquired intangible assets 556 185 1,367 554
Write-off of acquired in-process research
and development costs -- -- 4,100 --
-------- -------- -------- --------
OPERATING INCOME 7,192 5,528 5,893 9,079
Interest income 120 504 710 1,254
Interest expense (302) (49) (595) (148)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 7,010 5,983 6,008 10,185
Income taxes 2,664 2,277 3,841 3,870
-------- -------- -------- --------
NET INCOME $ 4,346 $ 3,706 $ 2,167 $ 6,315
======== ======== ======== ========
EARNINGS PER SHARE $ 0.30 $ 0.26 $ 0.15 $ 0.44
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 14,433 14,359 14,419 14,349
======== ======== ======== ========
</TABLE>
3
<PAGE> 4
STECK~VAUGHN
PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
PART I. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30
(amounts in thousands) 1996 1995 1996 1995
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net income $ 4,346 $ 3,706 $ 2,167 $ 6,315
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation and amortization 395 277 964 914
Amortization of acquired intangible assets 556 185 1,367 554
Write-off of acquired in-process research
and development costs -- -- 4,100 --
Provision for doubtful accounts 52 34 97 83
(Gain)/Loss on sale of assets -- (8) (2) 19
Change in assets and liabilities net of effects from
acquisitions:
Receivables (8,877) (4,523) (13,326) (7,959)
Inventories and supplies 1,976 (2,196) (899) (2,693)
Prepaid and deferred marketing expenses 3,441 1,248 607 (66)
Deferred plant costs (303) (287) (612) (45)
Receivable from/payable to parent company 969 53 301 1,677
Accounts payable and accrued expenses 1,178 2,683 2,092 3,419
Other (902) (37) (899) (61)
-------- -------- -------- --------
NET CASH FROM (FOR) OPERATING ACTIVITIES 2,831 1,135 (4,043) 2,157
-------- -------- -------- --------
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Net sales of marketable securities -- 117 333 5,540
Note receivable from parent company, net activity 3,000 (4,500) 4,000 (6,500)
Additions to land, buildings and equipment (843) (141) (2,380) (639)
Dispositions of land, buildings and equipment 27 -- 59 115
Acquisition costs, net of cash acquired 21 -- (10,728) (123)
-------- -------- -------- --------
NET CASH FROM (FOR) INVESTING ACTIVITIES 2,205 (4,524) (8,716) (1,607)
-------- -------- -------- --------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Changes in current portion of long-term debt 801 -- 1,257 (219)
Additions to long term debt -- -- 11,024 --
Reductions in long-term debt (1,919) (86) (3,990) (257)
Proceeds from issuance of common stock 36 -- 63 --
Purchase of treasury stock -- -- -- (150)
-------- -------- -------- --------
NET CASH FROM (FOR) FINANCING ACTIVITIES (1,082) (86) 8,354 (626)
-------- -------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,954 (3,475) (4,405) (76)
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE PERIOD 1,682 13,103 10,041 9,704
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT THE
END OF THE PERIOD $ 5,636 $ 9,628 $ 5,636 $ 9,628
======== ======== ======== ========
</TABLE>
4
<PAGE> 5
STECK~VAUGHN
PUBLISHING CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS, CONTINUED
Note 1 - Summary of Accounting Policies
Steck-Vaughn Publishing Corporation (the Company) was incorporated on March 10,
1993, as a wholly-owned subsidiary of National Education Corporation.
Effective April 2, 1993, National Education Corporation made a capital
contribution of all of the stock of Steck-Vaughn Company (SVC) to the Company.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Steck-Vaughn Company, SV Distribution Company
(dba Summit Learning,), and Edunetics Ltd. and Edunetics Corporation (together
referred to as "Edunetics" herein).
Due to the seasonal nature of the Company's traditional selling cycle, a
substantial portion of selling and marketing costs of the Company are deferred
in the first half of the year and fully amortized later in the calendar year to
properly match the costs with revenues.
Effective January 1, 1995, the Company changed its method of valuing
inventories to the first-in, first-out (FIFO) method from the last-in,
first-out (LIFO) method. Financial statements of all prior years were restated
to apply the FIFO method retroactively.
The Company follows Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed", in recording and classifying the costs incurred for the development
of software products. Such costs are expensed as incurred until the product
under development reaches technological feasibility, at which point all such
costs are capitalized and amortized over the estimated economic life of the
product. These capitalized costs will increase with the addition of more
software-based training and education products.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments of a normal recurring nature
necessary to present fairly financial position, results of operations, and cash
flows. Certain information and footnote disclosures 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 and
the notes thereto included in the Company's 1995 Form 10-K. The results of
operations for interim periods are not necessarily indicative of the results of
operations to be expected for the year.
5
<PAGE> 6
STECK~VAUGHN
PUBLISHING CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS, CONTINUED
Note 2 - Investments
<TABLE>
<CAPTION>
Sept. 30 December 31, Sept. 30,
(amounts in thousands) 1996 1995 1995
----------------------------------
<S> <C> <C> <C>
Available-for-sale securities $ 1,399 $ 1,748 $ 1,846
Held-to-maturity securities -- 1,000 3,200
----------------------------------
1,399 2,748 5,046
Less securities classified as cash
equivalents
-- (1,000) (3,200)
----------------------------------
Total marketable securities $ 1,399 $ 1,748 $ 1,846
==================================
</TABLE>
During the nine months ended September 30, 1996 and 1995, the Company did not
realize a material gain or loss from the sale of available-for-sale securities.
Note 3 - Inventories and Supplies
<TABLE>
<CAPTION>
Sept. 30, December 31, Sept. 30,
(amounts in thousands) 1996 1995 1995
-------------------------------------
<S> <C> <C> <C>
Finished Goods $18,341 $17,111 $14,618
Work in process 79 81 40
Raw materials and supplies 694 907 855
-------------------------------------
Total $19,114 $18,099 $15,513
=====================================
</TABLE>
The balance in inventories and supplies has increased due to the acquisition of
several new products and lines of business during the past twelve months.
Note 4 - Business Combinations
On April 30, 1996, the Company acquired all of the stock of Edunetics Ltd., an
Israel corporation engaged in the development of educational software, for cash
consideration of $12,000,000. At closing, the purchase price was funded by
cash on hand and the Company's bank line of credit. The acquisition was
accounted for using the purchase method of accounting. Accordingly, in the
second quarter of 1996 the purchase price was allocated to assets and
liabilities, including in-process research and development projects, based on
their estimated fair values as of the date of acquisition. The estimated value
of the in-process research and development projects of $4,100,000 was written
off in the second quarter of 1996 as required by generally accepted accounting
principles. As a result of the acquisition, acquired intangible assets
increased $7,165,000, consisting primarily of goodwill, and will be amortized
over a weighted average life of approximately ten years. In addition, net
deferred tax assets of $1,600,000 were recorded in conjunction with the
acquisition.
6
<PAGE> 7
STECK~VAUGHN
PUBLISHING CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Percentage change
September 30, September 30, From Prior Year Period
1996 1995 1996 1995 Q3 1996 YTD 1996
-------- -------- -------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES:
Steck-Vaughn Core Business Revenues
Elementary/High School 56.6% 69.5% 49.1% 61.4% 29.4% 13.1%
Adult Education 14.7 16.6 16.5 21.2 41.4 10.0
Library 15.2 13.9 19.5 17.4 74.5 59.1
----- ----- ----- -----
86.5 100.0 85.1 100.0 37.6 20.4
Summit Learning revenues 8.3 -- 10.6 -- -- --
Edunetics revenues 5.2 -- 4.3 -- -- --
----- ----- ----- -----
TOTAL NET REVENUES 100.0 100.0 100.0 100.0 59.1 41.4
Product cost and fulfillment 27.1 24.5 29.7 26.7 75.8 57.2
----- ----- ----- -----
GROSS PROFIT 72.9 75.5 70.3 73.3 53.7 35.7
Product development 10.9 10.1 14.2 13.7 71.3 46.0
Selling and marketing 30.1 31.9 31.1 31.2 50.4 40.8
General and administrative 7.8 5.2 7.7 7.6 137.3 44.5
Provision for doubtful accounts 0.2 0.2 0.1 0.2 52.9 16.9
Amortization of acquired
intangible assets 1.7 0.9 2.1 1.2 200.5 146.8
Write-off of acquired in-process
research and development costs -- -- 6.2 -- -- --
----- ----- ----- -----
OPERATING INCOME 22.2 27.2 8.9 19.4 30.1 (35.1)
Interest income 0.4 2.4 1.1 2.7 (76.2) (43.4)
Interest expense (1.0) (0.2) (0.9) (0.3) 516.3 302.0
----- ----- ----- -----
INCOME BEFORE INCOME TAXES 21.6 29.4 9.1 21.8 17.2 (41.0)
Income taxes (8.2) (11.2) (5.8) (8.3) 17.0 (0.7)
----- ----- ----- -----
NET INCOME 13.4% 18.2% 3.3% 13.5% 17.3 (65.7)
===== ===== ===== =====
</TABLE>
The discussion in this document contains trend analysis and other forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those projected in the
forward-looking statements throughout this document.
7
<PAGE> 8
STECK~VAUGHN
PUBLISHING CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
NET REVENUES
<TABLE>
<CAPTION>
NET REVENUES BY PRODUCT LINE Three Months Ended Nine Months Ended
September 30, September 30,
(amounts in thousands) 1996 1995 1996 1995
--------------------------------------------------
<S> <C> <C> <C> <C>
Steck-Vaughn Core Business:
Elementary and High School (El/Hi) $18,330 $14,167 $32,482 $28,731
Adult Education 4,771 3,373 10,931 9,936
Library 4,941 2,832 12,932 8,130
--------------------------------------------------
28,042 20,372 56,345 46,797
Summit Learning 2,691 -- 7,025 --
Edunetics 1,686 -- 2,806 --
--------------------------------------------------
TOTAL $32,419 $20,372 $66,176 $46,797
==================================================
</TABLE>
The above revenues reflect Steck-Vaughn's actual shipments for the quarter
ended September 30, 1996, including $3,200,000 of shipments in the third
quarter related to orders in backlog at the end of the second quarter which
could not be shipped then due to problems encountered in the implementation of
a new warehouse management system. These orders would have been shipped in the
second quarter had the difficulties in implementing the new warehouse
management system not occurred. Accordingly, management believes that analysis
of the revenues for the period is more meaningful on a pro forma presentation
basis reflecting the exclusion of the $3,200,000 of unshipped orders as set
forth below.
The following table presents revenues as if the $3.2 million of excess backlog
of shippable orders had been shipped by June 30, 1996.
<TABLE>
<CAPTION>
NET REVENUES BY PRODUCT LINE
(EXCLUDING SECOND QUARTER EXCESS BACKLOG) Three Months Ended
September 30, Percentage
(amounts in thousands) 1996 1995 Change
-------------------------------------------------
<S> <C> <C> <C>
Steck-Vaughn Core Business:
Elementary and High School (El/Hi) $16,474 $14,167 16.3%
Adult Education 4,124 3,373 22.3
Library 4,244 2,832 49.9
-----------------------
24,842 20,372 21.9
Summit Learning 2,691 -- --
Edunetics 1,686 -- --
-----------------------
Total $29,219 $20,372 43.4%
=======================
</TABLE>
Revenues increased 59.1% for the three-month period and 41.4% for the nine
months ended September 30, 1996. Of the 59.1% increase for the quarter, 21.5%
is attributable to the acquisition of Summit Learning and Edunetics, 15.7% is
due to the carryover into the third quarter of the second quarter's excess
backlog, and 21.9% is attributable to the increase in the third quarter of the
Company's core business.
8
<PAGE> 9
STECK~VAUGHN
PUBLISHING CORPORATION
FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
El/Hi sales increased 29.4% (16.3% without the excess backlog) during the third
quarter, as compared to last year, as sales of traditional skills and test
preparation products continued to be strong. This growth was driven by the
continued interest among educators in returning to basic skills instruction.
Best selling products in the El/Hi market segment address such key curriculum
areas as phonics, spelling, reading, math, science, and social studies. The
strong performance of test preparation and assessment products, bolstered by
the product line acquired from Berrent Publications, Inc. in November 1994,
reflects the increased use of standardized tests in public schools.
Sales of adult education products increased 41.4% (22.3% without the excess
backlog) due to the the acquisition of the Educational Development
Laboratories, Inc. (EDL) technology product in October 1995. EDL offers a
broad range of computer-based educational materials for adult and high school
students designed to teach basic reading, writing, and vocabulary skills.
Library sales continued their dramatic increase, with sales for the third
quarter up 74.5% (49.9% without the excess backlog) compared to the prior year.
Exclusive distribution agreements entered into in 1995 and early 1996 with
Wayland Publishers, Abdo and Daughters, and Larousse Kingfisher Chambers, Inc.,
were responsible for much of the increase. The release of two major revised
Steck-Vaughn series, the 53-volume Portrait of America and the 24-volume
Raintree Illustrated Science Encyclopedia, also contributed to the increase.
With the growth of the library product line, the Company restructured its sales
force during the third quarter to expand its coverage of the library market.
The Company has engaged 97 independent sales reps to carry the Company's entire
library product line, allowing the Company's dedicated sales force to focus
exclusively on the elementary curriculum and newly-acquired Edunetics lines.
In addition, the Company expanded its telemarketing sales force, creating rep
teams for each of its three main library product lines.
Summit Learning sales during the third quarter of $2,691,000 were incremental
to the Company, following the acquisition of Summit in December 1995. Summit's
direct response marketing channel enables the Company to increasingly reach
decision makers at every level within the schools. The Company has added
selected Steck-Vaughn print and Edunetics Interactive CD-ROM products and
included significant new product in the Summit catalogs. The Young Explorers
catalog is distributed to consumers in the fall to coincide with holiday gift
buying, providing entry to the home market for the Company.
Edunetics revenue was attributable primarily to contractual obligations for
systems installations. During the third quarter, Edunetics recognized its
first revenue under the three-year, $3.4 million contract entered into in June
1996 with the Detroit public school system to provide Edunetics' proprietary
educational software programs to 60 schools within the district.
Steck-Vaughn acquired Edunetics Ltd. in April 1996 to expand the Company's
offerings in the educational software market. Edunetics' catalog of software
products offers comprehensive computer-based product lines in science and math,
including eight new titles launched in the summer of 1996.
9
<PAGE> 10
STECK~VAUGHN
PUBLISHING CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
PRODUCT COST AND FULFILLMENT EXPENSE
Product cost and fulfillment expense as a percentage of revenues increased for
the three-month period and nine-month period ended September 30, 1996, as
compared to 1995, primarily due to the inclusion of the Summit Learning
business for the first time. Product cost and fulfillment for the Company's
core business (excluding Summit and Edunetics) for the three months ended
September 30, 1996, represented 24.6% of core business revenues as compared to
24.5% for the same period in the previous year. Increases in the cost of print
products resulted from the increase in products acquired through distribution
agreements, as opposed to internal development, and the increased use of
wholesalers to sell library titles. These cost increases were offset by the
increased sales of technology and testing products, which carry higher gross
margins, and the decline in royalty expense due to the increase in products
acquired through distribution agreements. Fulfillment expenses were also
higher due to increases in labor costs necessary to implement the new warehouse
management system and eliminate the backlog. Summit Learning's product and
fulfillment costs, at 60.3% of revenues, reflect the non-proprietary nature of
the product line.
PRODUCT DEVELOPMENT EXPENSE
The following table reconciles product development investment to product
development expense for each of the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, Percentage September 30, Percentage
(amounts in thousands) 1996 1995 Change 1996 1995 Change
--------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Product development investment $ 3,846 $ 2,355 63.3% $ 10,020 $ 6,492 54.3%
Plant costs capitalized (1,383) (1,091) 26.8 (3,389) (2,376) 42.6
Plant costs amortized 1,081 805 34.3 2,777 2,328 19.3
--------------------- ---------------------
Product development expense $ 3,544 $ 2,069 71.3 $ 9,408 $ 6,444 46.0
===================== =====================
</TABLE>
Product development investment for the three months and nine months ended
September 30, 1996, increased over 50% as compared to the prior year. The
higher cost is attributable to the inclusion of the Company's recently-acquired
product lines, EDL and Edunetics, and the expansion of the library line.
Amortization costs increased due to higher sales as the amortization rate is a
function of product shipped.
10
<PAGE> 11
STECK~VAUGHN
PUBLISHING CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
SELLING AND MARKETING EXPENSE
The following table reconciles selling and marketing costs to selling and
marketing expense for each of the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
(amounts in thousands) 1996 1995 Change 1996 1995 Change
---------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Selling and marketing costs $ 6,843 $ 4,563 50.0% $19,757 $14,392 37.3%
Selling and marketing deferred 2,929 1,935 51.4 802 210 281.9
----------------------- ---------------------
Net selling and marketing expense $ 9,772 $ 6,498 50.4 $20,559 $14,602 40.8
======================= =====================
</TABLE>
Selling and marketing costs increased for the three months and nine months
ended September 30, 1996, as compared to the prior year, due to higher
commissions resulting from increased revenues and the expansion of the
telemarketing sales force. Costs for the year are also up due to higher
catalog expense. Catalog costs increased as the Company circulated two new
smaller catalogs targeted to specified audiences during the first quarter,
accelerated the recognition of catalog expenses in accordance with the
Company's adoption of the new accounting standard, and acquired Summit
Learning, a catalog marketer, in December 1995.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased in the third quarter due to the
inclusion of $861,000 in costs attributable to the change in chief executive
officers at the Company. This non-recurring expense included obligations under
the previous CEO's employment contract as well as expenses incurred in the
employment of the new chief executive. General and administrative expenses
also increased during the third quarter with the inclusion of Edunetics'
operations for a full quarter.
OPERATING INCOME BY SEGMENT
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Percentage of Revenue
September 30, September 30, Year-To-Date
(amount in thousands) 1996 1995 1996 1995 1996 1995
------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Steck-Vaughn Core Business $ 7,965 $ 5,528 $ 11,154 $ 9,079 19.8% 19.4
Summit Learning (156) -- (356) -- (5.1) --
Edunetics (617) -- (805) -- (28.7) --
-------------------- --------------------
7,192 5,528 9,993 9,079 15.1 19.4
Write-off of research
and development -- -- (4,100) --
-------------------- --------------------
Operating Income $ 7,192 $ 5,528 $ 5,893 $ 9,079
==================== ====================
</TABLE>
Operating income as a percentage of revenues for the nine months ended
September 30, 1996, as compared to 1995, was up slightly for Steck-Vaughn
Company due to economies resulting from the increase in sales. The operating
results of Summit and Edunetics reflect the transition phase of both divisions.
11
<PAGE> 12
STECK~VAUGHN
PUBLISHING CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Operating income for Steck-Vaughn's Core Business for the three months ended
September 30, 1996, excluding the estimated income from the pro forma sales
attributable to the excess backlog at the end of the second quarter, was
$6,525,000 versus $5,528,000 for the third quarter last year, an increase of
18.0%.
AMORTIZATION OF ACQUIRED INTANGIBLE ASSETS
Amortization expense increased due to the acquisitions of Edunetics in April
1996 and substantially all of the assets of EDL in October 1995 and Summit
Learning in December 1995.
INTEREST INCOME AND EXPENSE
Interest income for the three-month period ended September 30, 1996, was lower
than the previous year, reflecting the use of all excess cash-on-hand to fund
the three recent acquisitions and the retirement of the Company's line of
credit agreement with National Education Corporation. Interest expense for the
three months ended September 30, 1996, was higher than the prior year due to
advances made on the Company's bank line of credit to fund the acquisition of
Edunetics and to the debt incurred in the acquisition of EDL.
INCOME TAXES
Income tax expense for the three-month and nine-month periods ended September
30, 1996, was accrued at 38% of income before income taxes excluding the
write-off of acquired in-process research and development costs, which is not
deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash, marketable securities,
cash provided from operations, and the Company's bank line of credit. At
September 30, 1996, the Company had $7,035,000 in cash and marketable
securities. The Company's uses of cash include product development, capital
expenditures, working capital requirements of the Company, and selected
acquisitions of complementary businesses and product lines.
The Company maintains a revolving bank credit agreement, the amount of which
was increased to $15,000,000 and the maturity date of which was extended to
June 10, 1998 during the first quarter of 1996. The agreement provides for
borrowings at prime or, at the Company's option, LIBOR plus 1.5 percent. The
bank credit agreement replaced the Company's borrowing ability from National
Education Corporation pursuant to an intercompany agreement. At September 30,
1996, $10,000,000 was outstanding under the bank credit facility.
On April 30, 1996, the Company acquired all of the stock of Edunetics Ltd., an
Israel corporation engaged in the development of educational software, for cash
consideration of $12,000,000. At closing, the purchase price was funded by
cash on hand and the Company's bank line of credit. The acquisition was
accounted for using the purchase method of accounting. Accordingly, in the
second quarter of 1996 the purchase price was allocated to assets and
liabilities, including in-process research and development projects, based on
their estimated fair values as of the date of acquisition. The estimated value
of the in-process research and development projects was written off in the
second quarter of 1996 as required by generally accepted accounting principles.
In conjunction with the acquisition of EDL, the Company issued a note to the
seller of approximately $1,900,000 with interest at 6% payable quarterly and
principal due on February 28, 1997.
Under the revolving loan agreement between the Company and National Education
Corporation, National Education Corporation had the ability to borrow up to
$5,000,000 from the Company. On July 25, 1996, National Education Corporation
paid the loan in full and terminated the revolving loan agreement.
12
<PAGE> 13
STECK~VAUGHN
PUBLISHING CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Net cash flow from operating activities for the three months ended September
30, 1996, of $2,813,000 was $1,678,000 higher than the prior year period. The
increase resulted from the decrease in inventories attributable to the higher
level of sales and the decrease in prepaid marketing costs attributable to
seasonal fluctuations in deferred sales and catalog expense. This increase was
partially offset by the increase in receivables resulting from the 59.1%
increase in revenues.
Net cash outflow for operating activities for the nine months ended September
30, 1996, was $4,061,000 compared to net cash inflow of $2,157,000 for the
prior year period. The decrease is primarily attributable to the increase in
receivables resulting from the increase in revenues.
In May 1994, the Company announced a program to repurchase up to 500,000 shares
of its common stock. As of September 30, 1996, 255,000 shares had been
repurchased for an aggregate amount of $1,833,000, increasing National
Education Corporation's ownership to 83.1% of the common stock of the Company.
The Company has not repurchased any of its shares during 1996.
The Company expects that cash, cash provided from operations, and the revolving
credit facility will be sufficient to provide for planned working capital
requirements, debt service, and capital expenditures for the foreseeable
future.
13
<PAGE> 14
STECK~VAUGHN
PUBLISHING CORPORATION
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 By-Laws of the Company. (1)
4.1 Specimen of Common Stock Certificate of the Company. (1)
10.1 Modification and Renewal of Note, dated December 28, 1992,
between NationsBank of Texas, N.A., as holder, and
Steck-Vaughn Company, as borrower, secured by and as purchase
money for the Company's distribution center in Austin, Texas.
(2)
10.2 Office Lease, dated July 1991, between Bristol Group, Inc., as
landlord, and Steck-Vaughn Company, as tenant, for the
Company's principal offices in Austin, Texas. (3)
10.3 Agreement, dated June 1, 1990, between the American Council on
Education and Steck-Vaughn Company, granting exclusive license
for reproduction and distribution of official GED Practice
Tests and Addendum effective July 28, 1992. (4)
10.4 Form of Intercompany Agreement between the Company and
National Education Corporation. (5)
10.5 First Amendment to Intercompany Agreement between the Company
and National Education Corporation dated June 10, 1994. (6)
10.6 Form of Tax Sharing Agreement between the Company and National
Education Corporation. (7)
10.7 Form of Indemnification Agreements between the Company and its
Officers and Directors. (8)
10.8 The Company's 1993 Stock Option Plan as amended through May
17, 1995. (9)
10.9 National Education Corporation Supplemental Executive
Retirement Plan (10)
10.10 Asset Purchase Agreement, dated as of April 26, 1993, by and
between Steck-Vaugh Company as purchaser, and Creative Edge,
Inc., as seller (11)
10.11 Revolving Line of Credit Note and Option Agreement between the
Company and National Education Corporation, dated February 28,
1995 (12)
10.12 Addendum to Agreement between the American Council on
Education and and Steck-Vaughn Company extending the
expiration of the Agreement to August 31, 2001 (13)
10.13 The Company's 1995 Directors' Stock Option and Award Plan (14)
10.14 Renewal and Extension Agreement between the Company and
National Education Corporation, effective December 31, 1995
(15)
14
<PAGE> 15
STECK~VAUGHN
PUBLISHING CORPORATION
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
10.15 First Amendment to Stock Option Agreement between the Company
and National Education Corporation, effective December 31,
1995. (16)
10.16 Letter Amendment to Stock Option Agreement between the Company
and National Education Corporation, dated February 1, 1996.
(17)
10.17 Agreement between the Company and Edunetics Ltd. dated
February 29, 1996. (18)
10.18 Loan Agreement between NationsBank of Texas, N.A., and
Steck-Vaughn Company, dated April 29, 1996. (19)
10.19 Second Renewal and Extension Agreement between the Company and
National Education Corporation, effective March 31, 1996. (20)
10.20 Second Amendment to Stock Option Agreement between the Company
and National Education Corporation, effective March 31, 1996.
(21)
10.21 Office lease, dated April 26, 1996, between Quarry Lake
Business Center, Ltd. as landlord, and Steck- Vaughn Company,
as tenant, for the Company's principal offices in Austin,
Texas, beginning November 1, 1996. (22)
10.22 Third Renewal and Extension Agreement between the Company and
National Education Corporation, effective June 30, 1996. (23)
10.23 Third Amendment to Stock Option Agreement between the Company
and National Education Corporation, effective June 30, 1996.
(24)
10.24 Employment Agreement between the Company and Anita Kopec,
dated September 10, 1996. (25)
11.1 Statement re Calculation of Earnings Per Share. (25)
27.1 Financial Data Schedule. (25)
15
<PAGE> 16
STECK~VAUGHN
PUBLISHING CORPORATION
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
(1) Incorporated by reference to the identically numbered exhibit in
Amendment No. 1 to the Company's Registration Statement on Form S-1,
File No. 33-62334, filed with the Securities and Exchange Commission
on June 17, 1993 ("Amendment No. 1 to S-1 Registration Statement").
(2) Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, File No. 33-62334, filed with the
Securities and Exchange Commission on May 7, 1993 (the "S-1
Registration Statement").
(3) Incorporated by reference to Exhibit 10.5 to the Company's S-1
Registration Statement.
(4) Incorporated by reference to Exhibit 10.7 to the Company's Amendment
No. 1 to S-1 Registration Statement.
(5) Incorporated by reference to Exhibit 10.8 to the Company's Amendment
No. 1 to S-1 Registration Statement.
(6) Incorporated by reference to Exhibit 10.15 in the Company's Form 10-Q
for the quarterly period ended June 30, 1994, filed with the
Securities and Exchange Commission on August 11, 1994.
(7) Incorporated by reference to Exhibit 10.9 to the Company's Amendment
No. 1 to S-1 Registration Statement.
(8) Incorporated by reference to Exhibit 10.10 to the Company's Amendment
No. 1 to S-1 Registration Statement.
(9) Incorporated by reference to Exhibit 10.11 to the Company's Amendment
No. 1 to S-1 Registration Statement.
(10) Incorporated by reference to Exhibit 10.12 to the Company's S-1
Registration Statement.
(11) Incorporated by reference to Exhibit 10.13 to the Company's S-1
Registration Statement.
(12) Incorporated by reference to Exhibit 10.12 in the Company's Form 10-K
for the year ended December 31, 1994, filed with the Securities and
Exchange Commission on March 29, 1995.
(13) Incorporated by reference to Exhibit 10.13 in the Company's Form 10-Q
for the quarterly period ended March 31, 1995, filed with the
Securities and Exchange Commission on May 12, 1995.
(14) Incorporated by reference to Exhibit A in the Company's Proxy
Statement furnished in connection with the Annual Meeting of
Stockholders held May 17, 1995, filed with the Securities and Exchange
(15) Incorporated by reference to Exhibit 10.16 in the Company's Form 10-K
for the year ended December 31, 1995, filed with the Securities and
Exchange Commission on March 25, 1996.
(16) Incorporated by reference to Exhibit 10.17 in the Company's Form 10-K
for the year ended December 31, 1995, filed with the Securities and
Exchange Commission on March 25, 1996.
16
<PAGE> 17
STECK~VAUGHN
PUBLISHING CORPORATION
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
(17) Incorporated by reference to Exhibit 10.18 in the Company's Form 10-K
for the year ended December 31, 1995, filed with the Securities and
Exchange Commission on March 25, 1996.
(18) Incorporated by reference to Exhibit 10.19 in the Company's Form 10-K
for the year ended December 31, 1995, filed with the Securities and
Exchange Commission on March 25, 1996.
(19) Incorporated by reference to Exhibit 10.18 in the Company's Form 10-Q
for the quarterly period ended March 31, 1996, filed with the
Securities and Exchange Commission on May 14, 1996.
(20) Incorporated by reference to Exhibit 10.19 in the Company's Form 10-Q,
for the quarterly period ended March 31, 1996, filed with the
Securities and Exchange Commission on May 14, 1996.
(21) Incorporated by reference to Exhibit 10.20 in the Company's Form 10-Q,
for the quarterly period ended March 31, 1996, filed with the
Securities and Exchange Commission on May 14, 1996.
(22) Incorporated by reference to Exhibit 10.21 in the Company's Form 10-Q,
for the quarterly period ended June 30, 1996 filed with the Securities
and Exchange Commission on August 13, 1996.
(23) Incorporated by reference to Exhibit 10.22 in the Company's Form 10-Q,
for the quarterly period ended June 30, 1996, filed with the
Securities and Exchange Commission on August 13, 1996.
(24) Incorporated by reference to Exhibit 10.23 in the Company's Form 10-Q,
for the quarterly period ended June 30, 1996, filed with the
Securities and Exchange Commission on August 13, 1996.
(25) Filed herewith.
(b) A Form 8-KA was filed on July 9, 1996, reporting certain financial
information related to the Company's acquisition of all of the stock of
Edunetics Ltd.
17
<PAGE> 18
STECK~VAUGHN
PUBLISHING CORPORATION
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.
STECK-VAUGHN PUBLISHING CORPORATION
Date: November 7, 1996 By /s/ FLOYD D. ROGERS
------------------------------
Floyd D. Rogers
Vice President, Finance and
Chief Financial Officer
18
<PAGE> 19
STECK~VAUGHN
PUBLISHING CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT PAGE NO.
----------- ------- --------
<S> <C> <C>
10.24 Employment Agreement Between the Company and Anita
Kopec, dated September 10, 1996. 20
11.1 Statement re Calculation of Earnings Per Share. 24
27.1 Financial Data Schedule. 25
</TABLE>
19
<PAGE> 1
September 10, 1996
Ms. Anita Kopec
143 Vista del Monte
Los Gatos, CA 95032
Re: Employment
Dear Anita:
Subject to formal approval by the Board of Directors of Steck-Vaughn
Publishing Corporation (the "Company") and certain other approvals described
below, I am pleased to confirm my offer to you of employment on the following
terms:
1. Position. You will be employed as President and Chief
Executive Officer of the Company.
2. Salary. Your base salary will be $210,000 per year. Your
salary will be paid to you in accordance with the Company's standard payroll
policies and procedures.
3. Bonus Compensation. Subject to formal approval by the National
Education Corporation ("NEC") Compensation and Option Committee, you will
participate in NEC's EVA Incentive Compensation Plan. The Plan, as currently
structured, will provide you the opportunity to earn up to 60% of your base
salary for achieving 100% of your target performance. The EVA Incentive
Compensation Plan also provides for additional bonus for certain
over-achievement of target performance. A copy of the 1996 EVA Incentive
Compensation Plan is attached. The executive bonus compensation plan is
reviewed and adopted annually by the NEC Compensation and Option Committee.
Provided you remain employed with the Company through the date of payment of
annual executive incentive compensation (usually the last week of February or
first week of March), for the initial year 1996, you will be guaranteed a
minimum bonus of 30% of your annual base salary pro rated from your employment
start date through December 31, 1996. Upon commencement of your employment, the
Company will pay you a one-time payment equal to $675 multiplied by the number
of full weeks in 1996 beginning January 1, 1996 and ending on the date of
commencement of your employment with the Company.
4. Stock Options. Subject to the formal approval by the Option
Committee of the Company, you will receive non-qualified stock options to
purchase 210,000 shares of the
<PAGE> 2
Ms. Anita Kopec
September 10, 1996
Page 2
Company's common stock. The options will be subject to the terms and conditions
of the Company's 1993 Stock Option and Incentive Award Plan, as amended, and
the terms of a separate Stock Option Agreement to be entered into pursuant to
the Plan. The stock option agreement will provide for an immediate vesting of
options upon a change of control. The exercise price of the option shall be the
average closing price for the Company's common stock on The NASDAQ National
Market System for the ten trading days prior to the date of commencement of
your employment. The options will vest in equal annual installments over the
first three years of your employment. The options will expire ten years from
the date of grant. The Stock Option Agreement will contain a provision for the
conversion of your stock options to options to purchase shares of NEC common
stock in the event the Company or NEC, at any time during the term of the
options, pursues any plan to purchase or otherwise eliminate the minority
stockholder interests in the Company. The conversion formula will provide for
the conversion of your Company options into a smaller or larger number of NEC
options based upon the then-relative market values of the Company's common
stock and the NEC common stock, and for the exercise price of the NEC options
to be discounted from the then-market value of the NEC common stock so as to
preserve any appreciated value in your options attributable to the increase in
the market value of the Company's common stock between the commencement of your
employment and the average of the ten trading days prior to the disclosure of
any such stock purchase program by the Company or NEC.
5. Other Fringe Benefits. You will be entitled to receive the
following Company fringe benefits as they may exist or be amended from time to
time:
(a) Participation in the NEC group health plan which
provides dental, medical and eye glass coverage for you, your spouse and minor
dependents.
(b) Participation in the executive medical program, which
has a current limitation of $10,000 of covered expenses per year.
(c) Participation in the NEC 401(k) Retirement Plan,
subject to the terms of that Plan, including a one-year waiting period.
(d) An automobile allowance of $6,000 per year and
reimbursement of all costs in connection with the operation of an automobile
including insurance, gas and maintenance.
(e) Membership and dues for membership in an executive
health club.
(f) A financial planning allowance, with a current
limitation of $2,500 per year.
(g) Subject to NEC Compensation and Option Committee
approval and subject to the SERP Addendum (a copy of which is attached hereto),
participation in the NEC Supplemental Executive Retirement Plan (the "SERP")
<PAGE> 3
Ms. Anita Kopec
September 10, 1996
Page 3
6. Severance Benefits. In the event your employment is terminated
by the Company other than for cause, then, in accordance with NEC policy, you
will receive 12 months continuation of base salary and fringe benefits or, at
your option, a lump sum payment equal to one year's salary with no fringe
benefits. You will not be eligible for bonus or incentive compensation during
the salary continuation period, and you will not accrue vacation or other
similar benefits. Further, your stock options will not continue to vest during
the salary continuation period, and must be exercised or they will expire
within 90 days after termination of employment, in accordance with the terms of
the Company's stock option plan and stock option agreement.
7. Commencement Date. You will commence employment on a date to
be mutually agreed, but not later than September 30, 1996.
8. Relocation Expenses. The Company will reimburse you for the
following relocation expenses:
(a) Reasonable nonrecurring closing costs (excluding loan
points paid to obtain a reduced interest rate) on the sale of your existing and
on the purchase of a new home;
(b) Reasonable transportation cost of household goods and
furnishings from Los Gatos, California to Austin, Texas;
(c) Reasonable transportation cost of your family from
Los Gatos, California to Austin, Texas; and
(d) The prepayment penalty (estimated to be approximately
$8,000) and the real estate brokerage fee paid by you on the sale of your
existing Los Gatos, California home.
(e) A cash payment equal to that portion of the above
relocation expenses that must be recognized by you as income in 1996 for
federal income tax purposes (and not offset by a corresponding deduction)
multiplied by your anticipated 1996 marginal federal income tax rate.
9. Termination Within Two Years - Relocation Expenses. If your
employment is terminated by the Company without cause within two years after
the commencement of your employment, then the Company will reimburse you for
reasonable nonrecurring closing costs (expressly excluding real estate
brokerage fees) on the sale of your then existing Austin home, reasonable
transportation costs of household goods and furnishings from Austin to a new
destination within the continental United States and reasonable transportation
costs of your family from Austin, Texas to a new location within the
continental United States to the extent these costs are not paid or reimbursed
by a new employer. This obligation shall expire if not used within 18 months
following the date of your termination of employment on the terms described
above.
<PAGE> 4
Ms. Anita Kopec
September 10, 1996
Page 4
10. Employment Policies. You understand and agree that your
employment by the Company is subject to all policies and procedures of the
Company and NEC. You acknowledge and agree that you have had the opportunity
to, and have, reviewed and understand the Company's and NEC's employment
policies. You understand and agree that your employment by the Company is "at
will" and may be terminated at any time by you or the Company for any reason or
for no reason. You acknowledge that, among other policies, you understand and
agree to the Company's confidential information policy, insider trading of
securities policy, sexual harassment policy, and mandatory arbitration of
employment disputes policy.
To signify your acceptance of this offer and confirm our understanding
(subject to the Board and Committee approvals discussed above), please sign and
return a copy of this letter.
Very truly yours,
Sam Yau
Chairman of the Board
SY/PCM:jar
CONFIRMED AND ACCEPTED
THIS ____ DAY OF SEPTEMBER, 1996
- ----------------------------------
Anita Kopec
<PAGE> 5
ADDENDUM TO
NATIONAL EDUCATION CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Addendum to the National Education Corporation Supplemental
Executive Retirement Plan (the "SERP") is made and entered into as of the ____
day of September, 1996 by and between National Education Corporation ("NEC")
and Anita Kopec ("Kopec"). For valuable consideration, the receipt of which is
acknowledged, NEC and Kopec agree as follows:
1. Serp Participation. The SERP provides certain retirement,
death and disability benefits to certain executives of National Education
Corporation and its subsidiaries who are selected for participation in the SERP
at the discretion of the NEC Compensation and Option Committee. Kopec is
hereby designated a participant in the SERP subject to all of the terms and
conditions thereof as the same may be hereafter modified from time to time or
terminated and subject to the terms of this Addendum.
2. Acceleration Waiting Period. In the event of the occurrence
of a transaction within eighteen (18) months following the date of this
Addendum which constitutes a change of control for purposes of Section 8 of the
SERP, Kopec will not receive accelerated vesting or accelerated payment of
retirement benefits under Section 8 of the SERP.
IN WITNESS WHEREOF, this Addendum has been executed as of the ___ day of
September, 1996.
NATIONAL EDUCATION CORPORATION
By:
---------------------------
Its:
--------------------------
------------------------------
ANITA KOPEC
<PAGE> 1
STECK~VAUGHN
PUBLISHING CORPORATION
EXHIBIT 11.1
To Form 10-Q dated September 30, 1996
CALCULATION OF EARNINGS PER SHARE
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30
1996 1995 1996 1995
------------------------ -------------------------
<S> <C> <C> <C> <C>
Net Income (Loss) $ 4,346 $ 3,706 $ 2,167 $6,315
===================== =====================
Common Stock:
Shares outstanding from the beginning
of the period 14,329 14,313 14,318 14,338
Shares issued,weighted for period held -- -- 7 --
Assumed exercise of stock options using the 104 46 94 30
treasury stock method
Purchase of treasury shares,
weighted for period held -- -- -- (19)
--------------------- ---------------------
Weighted Average Shares Outstanding 14,433 14,359 14,419 14,349
===================== =====================
Earnings (Loss) Per Share $ 0.30 $ 0.26 $ 0.15 $ 0.44
===================== =====================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,636
<SECURITIES> 1,399
<RECEIVABLES> 26,562
<ALLOWANCES> (864)
<INVENTORY> 19,114
<CURRENT-ASSETS> 58,343
<PP&E> 14,466
<DEPRECIATION> (5,073)
<TOTAL-ASSETS> 86,797
<CURRENT-LIABILITIES> 18,078
<BONDS> 0
0
0
<COMMON> 36,997
<OTHER-SE> (1,833)
<TOTAL-LIABILITY-AND-EQUITY> 86,797
<SALES> 32,419
<TOTAL-REVENUES> 32,419
<CGS> 8,785
<TOTAL-COSTS> 15,834
<OTHER-EXPENSES> 556
<LOSS-PROVISION> 52
<INTEREST-EXPENSE> 302
<INCOME-PRETAX> 7,010
<INCOME-TAX> 2,664
<INCOME-CONTINUING> 4,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,346
<EPS-PRIMARY> .3
<EPS-DILUTED> .3
</TABLE>
