<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999
OR
----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
---------- ----------
COMMISSION FILE NUMBER: 0-26040
---------------
COMPUTER LEARNING CENTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 36-3501869
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11350 RANDOM HILLS ROAD, SUITE 240
FAIRFAX, VIRGINIA 22030
(Address of principal executive offices) (Zip Code)
</TABLE>
(703) 359-9333
(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 the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT JUNE 8, 1999
<S> <C>
Common Stock, $.01 par value 17,493,251
</TABLE>
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1
<PAGE> 2
COMPUTER LEARNING CENTERS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Operations................................... 3
Consolidated Balance Sheets............................................. 4
Consolidated Statements of Cash Flows................................... 5
Notes to Consolidated Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risks...... 20
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings................................................ 21
Item 2. Changes in Securities............................................ 22
Item 3. Defaults Upon Senior Securities.................................. 22
Item 4. Submission of Matters to a Vote of Security Holders.............. 22
Item 5. Other Information................................................ 22
Item 6. Exhibits and Reports on Form 8-K................................. 23
SIGNATURES................................................................ 23
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
THREE-MONTH
PERIOD ENDED
APRIL 30,
---------
<S> <C> <C>
1999 1998
--------- --------
Revenues $ 35,982 $ 36,056
Costs and expenses:
Costs of instruction and services 25,478 20,411
Selling and promotional 5,537 5,161
General and administrative 4,945 3,333
Provision for doubtful accounts 2,551 2,096
Amortization of intangible assets 141 132
-------- --------
38,652 31,133
(Loss) income from operations (2,670) 4,923
Interest income (expense), net (9) 284
Litigation settlement expense -- (210)
Gain on sale of investment securities -- 279
-------- --------
(Loss) income before income taxes (2,679) 5,276
Provision for (benefit from) income taxes (1,111) 2,133
--------- --------
Net (loss) income $ (1,568) $ 3,143
========= ========
(Loss) Earnings per share of common stock:
Basic $ (0.09) $ 0.18
========= ========
Diluted $ (0.09) $ 0.17
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31, APRIL 30,
1999 1999 1998
----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 4,172 $ 7,691 $ 21,120
Accounts receivable, net...................... 53,920 56,697 51,268
Deferred tax asset............................ 4,671 4,671 1,536
Prepaid expenses and other current assets..... 7,429 8,913 3,961
--------- --------- ----------
Total current assets..................... 70,192 77,972 77,885
--------- --------- ---------
Fixed assets, net.................................. 37,684 37,604 31,892
Long-term accounts receivable, net................. 7,722 10,660 10,006
Other long-term assets............................. 4,379 4,500 4,796
--------- --------- ----------
Total assets............................. $ 119,977 $ 130,736 $ 124,579
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable........................ $ 4,128 $ 6,503 $ 4,904
Accrued employee expenses..................... 2,177 1,775 2,086
Accrued other expenses........................ 6,312 8,341 6,411
Deferred revenues............................. 44,586 50,932 53,064
--------- --------- ---------
Total current liabilities................ 57,203 67,551 66,465
--------- --------- ---------
Long-term debt..................................... 4,375 3,000 ---
Long-term deferred revenues........................ 2,605 3,073 3,335
Other long-term liabilities........................ 2,834 2,576 1,873
--------- --------- ----------
Total liabilities........................ 67,017 76,200 71,673
--------- --------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000
authorized shares, no shares issued or
outstanding................................. -- -- --
Common stock, $.01 par value, 35,000,000
authorized shares; 17,493,251, 17,493,251
and 17,327,668 shares issued and
outstanding, respectively................... 175 175 173
Additional paid-in capital.................... 40,682 40,682 35,307
Accumulated other comprehensive loss.......... (56) (48) (12)
Retained earnings............................. 12,159 13,727 17,438
--------- --------- ---------
Total stockholders' equity............... 52,960 54,536 52,906
--------- --------- ---------
Total liabilities and stockholders' equity $ 119,977 $ 130,736 $ 124,579
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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COMPUTER LEARNING CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE-MONTH
PERIOD ENDED
APRIL 30,
------------------------
1999 1998
-------- --------
Cash flows from operating activities:
<S> <C> <C>
Net income.............................................. $ (1,568) $ 3,143
Adjustments to reconcile net income to cash (used for)
provided by operating activities:
Provision for doubtful accounts.................... 2,551 2,096
Depreciation....................................... 2,274 1,476
Amortization of intangible asset................... 141 132
Changes in net assets and liabilities:
Accounts receivable................................ 627 (2,732)
Prepaid expenses and other current assets.......... 1,484 129
Long-term accounts receivable...................... 2,537 (3,018)
Other long-term assets............................. (28) (245)
Trade accounts payable............................. (2,375) 2,541
Accrued employee expenses.......................... 402 (1,032)
Accrued other expenses............................. (2,029) (1,106)
Deferred revenues.................................. (6,346) 1,085
Long-term deferred revenues........................ (468) (378)
Other long-term liabilities........................ 258 800
--------- ---------
Cash (used for) provided by operating activities (2,540) 2,891
---------- ---------
Cash flows from investing activities:
Capital expenditures.................................... (2,354) (6,610)
Cash from acquired companies............................ --- 932
Other................................................... --- (39)
--------- -----------
Cash used for investing activities............ (2,354) (5,717)
--------- ---------
Cash flows from financing activities:
Repayments of long-term debt............................ --- (518)
Borrowing from long-term debt........................... 1,375 ---
Exercise of stock options............................... --- 87
--------- ---------
Cash (used for) provided by financing activities 1,375 (431)
--------- ----------
Net decrease in cash and cash equivalents.................... (3,519) (3,257)
--------- ---------
Cash and cash equivalents, beginning of period............... 7,691 24,377
--------- ---------
Cash and cash equivalents, end of period..................... $ 4,172 $ 21,120
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1-NATURE OF THE BUSINESS, BASIS OF PRESENTATION AND GEOGRAPHIC INFORMATION:
Nature of the Business
Computer Learning Centers, Inc. (the "Company" or "CLC") is a public
company traded on the NASDAQ National Market. As of April 30, 1999, the Company
operated twenty-seven Learning Centers in the U.S. and Canada and is
headquartered in Fairfax, Virginia.
Basis of Presentation
The interim consolidated financial statements of Computer Learning
Centers, Inc. (the "Company" or "CLC") as of and for the three months ended
April 30, 1999 and 1998 have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission ("SEC") with respect to
Form 10-Q and reflect all normal recurring adjustments that are, in the opinion
of management, necessary for a fair statement of results for the interim periods
presented. Pursuant to such rules and regulations, certain notes in the audited
financial statements for fiscal year 1999 included in the Company's Annual
Report on the SEC's Form 10-K ("1999 Annual Report") have been omitted.
As used herein, the three-month periods ended April 30, 1999 and 1998 are
referred to as "first quarter 1999" and "first quarter 1998", respectively.
These financial statements should be read in conjunction with the 1999
Annual Report. The Company's consolidated balance sheet as of January 31, 1999
was derived from the audited financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior period amounts to
conform with the current period presentation.
Geographic information
The following table sets forth financial information for the Company's
U.S. and Canadian operations.
<TABLE>
<CAPTION>
AS OF AND FOR THE FIRST QUARTER
- -------------------------------
ENDED: 1999 1998
- ------ ---------------------------------- ----------------------------------
U.S. CANADIAN TOTAL U.S. CANADIAN TOTAL
---- -------- ----- ---- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 33,906 $ 2,076 $ 35,982 $ 34,255 $ 1,801 $ 36,056
(Loss) Income before income taxes (3,233) 554 (2,679) 4,629 647 5,276
Long-lived assets, net 36,655 1,029 37,684 30,617 1,275 31,892
</TABLE>
6
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COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
2. - ACCOUNTS RECEIVABLE:
Student accounts receivable are initially established for the balance of
course tuition (however, only for year one of two-year programs) at the time a
student enrolls in the Learning Center and consist of financial aid, third-party
and self-pay receivable balances. Financial aid receivables are student
receivable balances expected to be paid through federal student financial
assistance funds administered pursuant to Title IV of the Higher Education Act
of 1965, as amended ("Title IV"). Third-party student receivable balances are
those expected to be paid by employer companies or various non-Title IV federal
and state agencies. Self-pay student receivables consist of those amounts to be
paid by the student. The Company makes available to qualifying students,
alternative financing arrangements ("CLC financing") which help fund their
education. Dependent upon the creditworthiness of the individual, CLC financing
may be offered to assist students with meeting their financial obligations
related to attending CLC. The Company requires students receiving CLC financing
to make regular monthly payments. Depending on the level of financing extended
to students, payment plans offered generally range from six months to three
years. All amounts due to the Company in periods beyond one year are classified
as long-term receivables.
When a student withdraws, tuition paid in excess of earned tuition
revenues is refunded based on the applicable refund policy and tuition revenues
earned in excess of tuition paid remains as an account receivable. Based on
comparison to historical levels, the Company provides for estimated student
withdrawals, as reductions to accounts receivable and related deferred revenue
balances, thus stating these amounts at estimated net realizable value.
Accounts receivable balances are reviewed no less frequently than
quarterly for the purpose of determining appropriate levels of allowance for
doubtful accounts. The Company establishes the allowance for doubtful accounts
using an objective model, which applies various expected loss percentages to
aging categories based on historical bad debt experience. The Company charges
off accounts receivable balances deemed to be uncollectible (usually those that
are delinquent for more than 120 days). All charge offs are recorded as
reductions in the allowance for doubtful accounts, and any recoveries of
previously written off accounts receivable are recorded as increases to the
allowance for doubtful accounts.
As of April 30, 1999 and 1998, net accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
APRIL 30, 1999
---------------------------------
CURRENT LONG TERM TOTAL
--------- ----------- -------
<S> <C> <C> <C>
Accounts receivable...................... $ 72,503 $ 11,468 $ 83,971
Student withdrawal allowance............. (11,273) (1,663) (12,936)
Allowance for doubtful accounts.......... (7,310) (2,083) (9,393)
-------- -------- --------
$ 53,920 $ 7,722 $ 61,642
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1998
----------------------------------
CURRENT LONG TERM TOTAL
--------- ----------- -------
<S> <C> <C> <C>
Accounts receivable...................... $ 66,803 $13,788 $ 80,591
Student withdrawal allowance............. (11,438) (2,014) (13,452)
Allowance for doubtful accounts.......... (4,097) (1,768) (5,865)
-------- ------- --------
$ 51,268 $10,006 $ 61,274
======== ======= ========
</TABLE>
7
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COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
3. - LONG-TERM DEBT:
The Company has an available credit facility of $20.0 million with a
bank, of which approximately $4.4 million is outstanding as of April 30, 1999.
This credit facility consists of a revolving line of credit, with a convertible
term loan component. Any outstanding amounts borrowed under the revolving line
of credit are payable upon its termination in October 2000. The credit agreement
requires maintenance of certain financial ratios and contains other restrictive
covenants including limitations on purchases and sales of assets. For the first
quarter 1999, the Company failed to meet one of the financial ratio
requirements. The Company has obtained a waiver for this financial ratio
requirement from its lender and is in compliance with all other covenants as of
and for the first quarter 1999. As a condition for the Company to receive the
financial ratio wavier, the Company agreed to an amendment of its credit
facility. This amendment eliminates the term loan component of the facility
and imposes other restrictions including prohibiting acquisitions by the
Company until the Company achieves compliance with the financial ratio
requirement.
4. -EARNINGS PER SHARE:
The following table sets forth the basic and diluted earnings per share
calculations for the three months ended April 30, 1999 and 1998:
<TABLE>
<CAPTION>
(LOSS) PER SHARE
INCOME SHARES AMOUNT
------ ------ ---------
<S> <C> <C> <C>
THREE MONTHS ENDED APRIL 30, 1999
Earnings per share of common stock -- basic................... $(1,568) 17,493,251 $(0.09)
Dilutive securities-
Stock options............................................ -- --- --
------- ------------ ------
Earnings per share of common stock -- diluted................. $(1,568) 17,493,251 $(0.09)
-------- ------------ -------
</TABLE>
<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNT
------ ------ ---------
<S> <C> <C> <C>
THREE MONTHS ENDED APRIL 30, 1998
Earnings per share of common stock -- basic................... $3,143 17,081,118 $0.18
Dilutive securities-
Stock options............................................ -- 1,006,681 --
------- ------------ -----
Earnings per share of common stock -- diluted................. $3,143 18,087,799 $0.17
------- ------------ -----
</TABLE>
The Company had 1,664,831 options outstanding as of April 30, 1999
however, these options are not included in the calculation of the number of
dilutive securities outstanding as their impact is antidilutive due to the net
loss for the first quarter of 1999 and since certain options exercise prices
were below the average market price of the common shares during the period.
Shares that are contingently issuable with respect to the shareholder litigation
settlement (see Note 5) are also not included in the calculation as their impact
is antidilutive. All options of the Company had a dilutive effect for the first
quarter of 1998.
5. - LITIGATION:
Active Litigation
On May 5, 1998, a class action lawsuit was filed against the Company in
the Superior Court of New Jersey in Bergen County, New Jersey, on behalf of all
students who attended a Learning Center in New Jersey within six years of May 5,
1998. The complaint alleges, among other things, that the Company, at its
Learning Centers located in the State of New Jersey, failed to provide certain
educational services and resources, misrepresented certain information
respecting services, resources, occupational
8
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COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
5. - LITIGATION (CONTINUED):
opportunities and student outcomes and violated the New Jersey Consumer Fraud
Act. The Company is unable to estimate the outcome of the matter or any
potential liability.
Between June 1, 1998 and May 31, 1999, the Company was named as defendant
in six other lawsuits in California, Texas, Virginia and New Jersey by
individual students or groups of students who formerly attended one of its
Learning Centers. The complaints allege, among other things, that the Company,
at the affected Learning Centers, failed to provide plaintiffs with certain
educational services and resources and misrepresented certain information
respecting services, resources, student outcomes and violated the applicable
state consumer laws. In May 1999, one of these six cases was settled resulting
in a payment to the former student for an immaterial sum. The Company is unable
to estimate the outcome of the other five matters or any potential liability.
In addition to the lawsuits discussed above, the Company is a defendant
in a number of civil lawsuits involving current and former employees, which the
Company considers incidental to its business and unlikely to have a material
effect on the Company's future operations. However, there can be no assurance
that these matters will not have a material adverse effect on the results of
operations of the Company in a future period, depending in part on the results
for such period.
The Company intends to defend itself vigorously in the lawsuits referred
to above; however, there can be no assurance that the Company will be successful
in defending itself in any of these proceedings. Even if the Company prevails on
the merits in such litigation, the Company has incurred and expects to continue
to incur legal and other defense costs as a result of such proceedings. These
proceedings could involve substantial diversion of the time of some members of
management, and an adverse determination in, or settlement of, such litigation
could involve the payment of significant amounts, or could include terms in
addition to such payments, which could have a severe impact on the Company's
business, financial condition and results of operations.
There can be no assurance that additional legal proceedings will not be
filed or that adverse actions will not be initiated against the Company, either
by federal or state regulators, or other parties. Any such legal proceedings or
adverse action could have a severe impact on the Company's business, financial
condition and results of operations.
Settled Litigation
On May 19, 1998, a lawsuit was filed against the Company in the District
Court of Harris County, Texas, by six former students of the Houston Learning
Center. Subsequently, the petition was amended to seek certification as a class
action lawsuit on behalf of all students who attended a Learning Center in Texas
within four years of May 19, 1998, and removed to the U.S. District Court for
the Southern District of Texas, Houston Division. The complaint alleges, among
other things, that the Company, at its Learning Centers located in the state of
Texas, failed to provide certain educational services and resources,
misrepresented certain information respecting services, resources, occupational
opportunities and student outcomes, and violated the Texas Deceptive Trade
Practices Act. The Company executed a settlement agreement with the six former
students who filed the lawsuit. In June 1999 the Company agreed to payment of a
nonmaterial sum without admitting or denying the charges.
9
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COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
5. - LITIGATION (CONTINUED):
On March 13, 1998, a class action lawsuit was filed against the Company
in the United States District Court for the Central District of California on
behalf of all purchasers of Company Common Stock from April 30, 1997 through
March 10, 1998. Over the following two months, eight additional similar cases
were filed in United States District Courts: two in the Central District of
California; five in the Northern District of Illinois; and one in the Eastern
District of Virginia. The complaints alleged violations of the Securities
Exchange Act of 1934, including allegations that the Company was experiencing
"operations difficulties" and failed to disclose the alleged difficulties. The
complaints also alleged that Company insiders realized profits by trading their
shares of Company stock while in possession of material adverse information. All
of the complaints were filed on behalf of classes of shareholders of Company
Common Stock beginning as early as March 11, 1997 and ending as late as April 7,
1998. All of these shareholder lawsuits were consolidated and transferred to the
United States District Court for the Eastern District of Virginia. The Company
entered into a settlement agreement with the plaintiffs in February 1999,
whereby the Company settled these allegations and agreed to compensation to
members of the plaintiffs' class. The terms of the settlement, which are subject
to final judicial approval and stockholder vote, call for the payment of $3.0
million in cash ($2.35 million is covered by the Company's insurance) and the
issuance of 550,000 shares of CLC Common Stock, subject to certain price
protection features, which may result in additional payment of cash or issuance
of stock at the Company's option, to guarantee a total settlement of $7.5
million. The price protection feature provides that the Company will issue
additional stock or pay additional cash equal to the difference between the
average price of the Company's Common Stock at certain dates and $8.18 per
share. The settlement agreement contains a floor of $2.00 per share, at which
the settlement agreement may be terminated at the plaintiff's option. The
Company's $650 cash portion of the settlement agreement was paid in April 1999,
and the remaining $2.35 million cash obligation was paid in June 1999.
Litigation settlement expense for the first quarter 1998 consists of $210 of
legal expenses specifically related to this litigation.
6. - REGULATORY MATTERS:
The Company is subject to extensive regulation as a participant in
various federal and state government supported financial aid programs. These
regulations require, among other things, that the Company and its Learning
Centers comply with certain financial responsibility and administrative
capability requirements. Failure to comply with these requirements could result
in restriction or loss by the Company or its Learning Centers of their ability
to participate in federal or other financial aid programs or to provide
educational and training services. Such restrictions could have a severe impact
on the Company's business, financial condition and results of operations.
U. S. Department of Education ("Department of Education" or "Department")
Under the standards of financial responsibility of the Department of
Education, if an institution's annual financial aid compliance audit or a review
by another regulatory agency finds that the institution made refunds late (as
defined by the Department) to 5% or more of its students in either of the two
most recent fiscal years, the institution is required to post a letter of credit
in favor of the Department in an amount equal to 25% of the total Title IV
Program refunds paid by the institution in its prior fiscal year. The Company
has posted a letter of credit of $1.5 million with respect to all U.S. Learning
Centers except Somerville and Methuen, MA Learning Centers for which a separate
$2.85 million letter of credit was required to meet financial responsibility,
and the Paramus, NJ Learning
10
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COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
6. - REGULATORY MATTERS (CONTINUED):
Center for which no letter of credit is required.
The Department reviewed the Company's administration of federal student
financial aid programs at its Alexandria and Manassas, VA Learning Centers for
the two-year period ended June 30, 1998. In addition, the Department has
reviewed the Company's administration of federal funds under the Title IV
Programs for all its Learning Centers during the year ending January 31, 1998.
The Department issued preliminary reports on these reviews in September and
December 1998, respectively. These reports cite numerous findings of alleged
noncompliance with Department regulations. The Company has responded to each of
the findings raised in these reports and negotiations aimed at their resolution
are continuing. The findings raised in these reports do not affect the continued
eligibility of any of the Company's Learning Centers to participate in federal
student aid programs or the manner in which such funds are disbursed.
State Authorization and Accreditation
The Maryland Higher Education Commission ("MHEC") and Texas Workforce
Commission ("TWC") reviewed programs at the Company's Laurel, Maryland and
Houston, Texas Learning Centers, respectively. In October 1998, the MHEC issued
its report citing several findings of regulatory noncompliance at the Laurel
Learning Center. The TWC's reports, also issued in October 1998, contain
findings related to their investigation of student complaints at the Houston
Learning Center. In both these matters, the Company agreed to make refunds to
certain former students who attended the affected Learning Centers. In April
1999, the Company entered into a settlement agreement with the MHEC. Under the
terms of the settlement, the Company agreed to pay a $60 fine, assured the MHEC
that the Company would continue to implement policies and procedures imposed by
the MHEC. The Company has made the required refunds to former students of the
Houston Learning Center and taken additional corrective measures as directed by
the TWC. The settlement of these matters in the first quarter 1999 exceeded the
amount provided by the Company due to additional unanticipated refunds in both
the TWC and MHEC matters. During the first quarter of 1999, the Company recorded
expenses of $872 representing the amount of these unanticipated student refunds
and fees. Although the TWC has communicated to us that our actions are
sufficient to correct the findings noted in the Reports, the TWC has not issued
a formal resolution letter, and we do not expect to receive one. We believe the
matter has been resolved and will not proceed to formal administrative or
judicial proceedings.
On May 10, 1999, the Illinois State Board of Education ("ISBE") issued a
report regarding ISBE's March 1999 site visit to the Schaumburg Learning Center.
In that report, the ISBE stated that the site visit indicates that the
Schaumburg Learning Center is in compliance with the Private Business and
Vocational Schools Act. On that basis, the ISBE issued a conditional Certificate
of Approval to the Learning Center covering the year ending June 30, 1999. The
ISBE subsequently advised the Schaumburg Learning Center that it would conduct
another site visit in July 1999 to determine if the Learning Center has complied
with the conditions on the Certificate of Approval. The ISBE has stated that if
the conditions are not met, it will proceed to hearing to determine if the
Learning Center should continue to hold a Certificate of Approval, and if the
conditions are met, it will close this matter.
11
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COMPUTER LEARNING CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
6. - REGULATORY MATTERS (CONTINUED):
Heightened Cash Monitoring
On April 6, 1998, the Department of Education notified the Company that,
based upon the Department's monitoring of recent litigation involving the
Company and certain student complaints lodged against the Company, it placed all
Learning Centers on a "heightened cash monitoring status." This status allows
all Learning Centers to continue to receive federal student financial assistance
funds so long as the funds requested are drawn after they have been credited to
student accounts and CLC subsequently provides evidence of such credit and other
supporting information to Department. The Department does not consider
"heightened cash monitoring status" to represent either an adverse or punitive
action. This action by Department should not have any effect on the availability
or timing of financial assistance to the Company's students, nor should it have
a material affect on the Company's cash flow or operating results.
7. - COMPREHENSIVE (LOSS) INCOME:
Total comprehensive (loss) income is summarized as follows:
<TABLE>
<CAPTION>
FIRST QUARTER
--------------
1999 1998
------- ---------
<S> <C> <C>
Net (loss) income.................................. $ (1,568) $ 3,143
Unrealized gain net of realized gain on
investment securities..................... --- (160)
Foreign currency translation adjustment............ (8) (12)
---------- ----------
Total comprehensive (loss) income.................. $ (1,576) $ 2,971
========== =========
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause our actual results to differ
materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth below under the caption
"Certain Factors That May Affect Future Results" and "Part II, Item 1 -- Legal
Proceedings" contained herein.
This management's discussion and analysis of financial condition and
results of operations ("MD&A") should be read in conjunction with the Item 1
- -"Business - Financial Aid and Regulation" contained in our Annual Report on
Form 10-K ("1999 Annual Report") as filed with the U.S. Securities and Exchange
Commission ("SEC") for the year ended January 31, 1999, for discussion of, among
other matters:
- The nature and extent of our participation in federal student aid
programs authorized under Title IV of the Higher Education Act of
1965, as amended ("Title IV Programs");
- The U.S. Department of Education's ("Department of Education" or
"Department") review and regulation of Title IV Programs and
review of our Learning Centers, including:
-student loan default rates,
-heightened cash monitoring of our Learning Centers by the
Department,
-financial responsibility measures,
-the effect of a change in control, and
-percentage of applicable revenue that may be derived from
Title IV Programs;
- State authorization, regulation and accreditation of our Learning
Centers, including pending actions with state agencies and other
actions and settlements occurring in prior periods;
- Canadian regulations affecting certain of our Learning Centers;
and
- U.S. federal income tax relief to qualifying students.
This MD&A should also be read in conjunction with the same titled section
contained in our 1999 Annual Report for a discussion of, among other matters:
- A business overview and description of acquisitions occurring
through February 1998;
- Components of income statement classification;
- Cyclical pattern of enrollments; and
- Collection risk management associated with our student financing
plans.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data of the
Company expressed as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE-MONTH
PERIOD ENDED APRIL 30,
-----------------------
1999 1998
---------- ---------
<S> <C> <C>
Revenues......................................... 100.0% 100.0%
Costs and expenses:
Costs of instruction and services........... 70.8 56.6
Selling and promotional..................... 15.4 14.3
General and administrative.................. 13.7 9.2
Provision for doubtful accounts............. 7.1 5.8
Amortization of intangible assets........... 0.4 0.4
----- -----
107.4 86.3
----- -----
(Loss) income from operations.................... (7.4) 13.7
Interest income (expense), net................... -- 0.8
Litigation settlement expense.................... -- (0.6)
Gain on sale of investment securities............ -- 0.7
------ ---
(Loss) income before income taxes................ (7.4) 14.6
(Benefit from) provision for income taxes........ (3.1) 5.9
------ -----
Net (loss) income................................ (4.3)% 8.7%
====== =====
</TABLE>
13
<PAGE> 14
THREE MONTHS ENDED APRIL 30, 1999 ("FIRST QUARTER OF 1999") COMPARED WITH THE
THREE MONTHS ENDED APRIL 30, 1998 ("FIRST QUARTER OF 1998").
Revenues were $36.0 million in both the first quarter of 1999 and the
first quarter of 1998. The average monthly student population for the
first quarter of 1999 versus 1998 fell 5%. The number of students attending
Learning Center programs at the end of the quarter decreased 11% to 10,254 in
the first quarter of 1999 from 11,481 in the first quarter of 1998. The revenue
level remained similar despite the decrease in enrollments, since enrollment
decline was offset by the impact of increasing popularity of our higher tuition
programs.
When evaluating the enrollment growth, we view all Learning Centers
opened or acquired during the last two fiscal years (current and preceding) as
"new" in order to account for the start-up period inherent in new Learning
Center openings. Learning Centers opened for more than two fiscal years are
"same centers." The following table shows a comparison of student enrollments in
new centers and same centers:
<TABLE>
<CAPTION>
First Quarter Increase/
1999 1998 (Decrease) %
---- ---- ---------- ---
<S> <C> <C> <C> <C>
New centers..................................... 717 221 496 224%
Same centers.................................... 2,255 3,219 (964) (30)
------ ------- ------- ------
Total .......................................... 2,972 3,440 (468) (14)%
======= ======= ===== ======
</TABLE>
The following summarizes the actual Learning Center openings and
acquisitions for the last two fiscal years.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
LEARNING CENTER OPENINGS/ACQUISITIONS 2000 1999 1998
- -------------------------------------------- ------ ------ -----
<S> <C> <C> <C>
First Quarter....................... -- 5 --
-----
Second Quarter...................... 1 2
Third Quarter....................... -- 1
Fourth Quarter...................... 1 3
----- -----
Total..................... -- 7 6
----- ==== ====
</TABLE>
Costs of instruction and services increased 25% to $25.5 million in the
first quarter of 1999 from $20.4 million in the first quarter of 1998. These
direct costs consist primarily of faculty and staff compensation and related
benefits, and facility costs (including rent and depreciation). Instruction
costs and services as a percentage of revenues increased to 71% in the first
quarter of 1999 from 57% in the first quarter of 1998. This increase in cost of
instruction and services as a percentage of revenue is primarily attributable to
lower enrollments during the first quarter of 1999 at several of our more
established Learning Centers, the opening of four new Learning Centers since
January 1998, and increased costs in anticipation of growth that was not
achieved at expected levels. Due to the start up period inherent in new Learning
Centers, the ratio of cost of instruction and services to revenues generated at
those Centers typically is very high relative to same centers as fixed costs
typically exceed revenues during their first year. Lower enrollments at our more
established Learning Centers resulted in a higher ratio of cost of instruction
due to decreased revenues without a corresponding decrease in fixed costs. The
decline in same center enrollments has been greatest in terms of number of
students at our Learning Centers in the Washington, DC suburbs and those in
California, which have had average population declines of 33% and 32%,
respectively. In addition, our Learning Centers in Texas have experienced a
decline in enrollments of 52% in first quarter 1999 versus first quarter 1998.
We attribute the decreases in enrollments to negative publicity generated by the
state regulatory actions, optimizing of class sizes and poor lead conversion
performance at these centers.
Selling and promotional expenses increased 6% to $5.5 million in the
first quarter of 1999 from $5.2 million in the first quarter of 1998 due
primarily to increased marketing and advertising necessary to promote the new
Learning Centers opened after the first quarter of 1998. Selling and promotional
14
<PAGE> 15
expenses as a percentage of revenues increased to 15% in the first quarter of
1999 from 14% in the first quarter of 1998.
General and administrative expenses increased 48% to $4.9 million in the
first quarter of 1999 from $3.3 million in the first quarter of 1998, primarily
as a result of the addition of $872,000 of increased regulatory expense to
provide for additional obligations associated with resolution of reviews
conducted by the Texas Workforce Commission ("TWC") and Maryland Higher
Education Commission ("MHEC"). Also contributing to this increase is $200,000 in
costs to develop a new proprietary administrative software system, $125,000
provided for settlement of lawsuits brought by former students of our Houston
Learning Center and an increase in personnel to support the growth of the
business. General and administrative expenses as a percentage of revenues
increased to 14% in the first quarter of 1999 from 9% in the first quarter of
1998.
Provision for doubtful accounts increased 24% to $2.6 million in the
first quarter of 1999 from $2.1 million in the first quarter of 1998, attributed
to the increase in CLC financed student accounts receivable balances. Provision
for doubtful accounts as a percentage of revenues increased to 7% in the first
quarter of 1999 from 6% in the first quarter of 1998. We attribute this increase
to a shift in student enrollments to higher priced tuition programs, which upon
graduation typically have higher amounts of self-pay accounts receivable after
application of available federal financial aid. The self-pay receivables have
historically had lower collection rates than loans from traditional third-party
lenders.
Amortization of intangible assets equaled $141,000 in the first quarter
of 1999 versus $132,000 in the first quarter of 1998.
We realized net interest expense of $9,000 in the first quarter 1999,
compared to net interest income of $284,000 in the first quarter 1998. This
variance can be attributed to a decrease in interest generated from lower
average invested cash balances as well as interest expense on long-term debt
borrowings outstanding during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents decreased by $3.5 million for the three
month period ending April 30, 1999. Cash generated from operations for the first
quarter of 1999 compared to the first quarter of 1998 decreased by approximately
$5.4 million primarily due to lower net income.
Our principal sources of funds at April 30, 1999 were cash and cash
equivalents of approximately $4.2 million and net current accounts receivable of
$53.9 million. Additionally, we have a credit agreement with a bank that
provides for a $20.0 million secured revolving credit facility, expiring in
October 2000. The line of credit consists of a revolving credit note, inclusive
of a $7.0 million convertible term loan. The interest on the facility is based
either on the bank's U.S. prime rate or the London Interbank Offer Rate
("LIBOR") which were 7.75% and 4.78%, respectively at April 30, 1999. Interest
rates are equal to (i) the U.S. prime rate or LIBOR plus 1.25% for revolving
credit loans and (ii) the U.S. prime rate plus 0.25% or LIBOR plus 1.50% for the
convertible term loans. We have borrowings outstanding of approximately $4.4
million on our line of credit as of April 30, 1999. In addition, we have pledged
portions of our line of credit totaling $6.0 million to the Department of
Education, to our insurance carrier and to our landlords on behalf of certain
Learning Centers. As of April 30, 1999, we have $9.6 million available under the
line of credit agreement.
The credit agreement requires maintenance of certain financial ratios and
contains other restrictive covenants including limitations on purchases and
sales of assets. For the first quarter 1999, we failed to meet one of the
financial ratio requirements. We have obtained a waiver for this financial ratio
15
<PAGE> 16
requirement from our lender and we are in compliance with all other covenants
as of and for the first quarter 1999. As a condition for the Company to receive
the financial ratio waiver, the Company agreed to an amendment of its credit
facility. This amendment eliminates the term loan component of the facility and
imposes other restrictions including prohibiting acquisitions by the Company
until the Company achieves compliance with the financial ratio requirement.
We continuously review our cash flow, and seek strategies to provide
favorable returns on our capital. The Board of Directors authorized a program to
repurchase up to 1,000,000 shares of our common stock over a two-year period
ending August 31, 2000. As of May 31, 1999, we had not purchased any stock under
this program.
We believe our available cash on hand, cash provided by operating
activities and existing lines of credit will be sufficient to meet our cash
requirements for at least the next twelve months. Thereafter, we will continue
to evaluate all sources of capital available to us, including bank financing and
additional equity or debt offerings, to satisfy ongoing working capital and
capital expenditure requirements.
REGULATORY MATTERS - CURRENT DEVELOPMENTS
We are subject to extensive federal and state regulation and review of
operations at our U.S. Learning Centers. There are several regulatory reviews
ongoing at certain Learning Centers which are more fully described in "Item 1 -
Business - Financial Aid and Regulation" section in our 1999 Annual Report.
Current developments regarding these regulatory matters are discussed below.
U.S. Department of Education ("Department of Education" or "Department")
We have submitted written responses with respect to all of the findings
of noncompliance asserted in the Department of Education's program review report
on our Alexandria, VA and Manassas, VA Learning Centers for the period July 1,
1996 through June 30, 1998. The Department has not yet issued a final
determination letter with respect to this program review. We expect the
Department to issue a final determination letter after reviewing our responses
to their program review report, the last of which was submitted in June 1999.
The Department reviewed the results of our independent audit for the year
ended January 31, 1998 and issued a preliminary audit determination report in
December 1998. The Department's report alleged that we failed to make student
refunds at our Learning Centers operating during fiscal year 1998 within the
timeframe established by the Department. The Department required us to perform
more expansive reviews of student account files ("file reviews") at five of
these Learning Centers, which were deemed to have non-compliant findings in
excess of rates tolerable by the Department. We expect the Department will issue
a final determination letter after reviewing the results of these file reviews
that we submitted to the Department in March 1999.
In January 1999, the Department of Education initiated a program review
of the administration of the Title IV Programs by our Laurel, MD Learning Center
for the period July 1, 1997 through the present. The Department has not yet
issued any reports on this program review.
State Authorization and Accreditation
On May 10, 1999, the Illinois State Board of Education ("ISBE") issued a
report regarding ISBE's March 1999 site visit to the Schaumburg Learning Center.
In that report, the ISBE stated that the site visit indicates that our
Schaumburg Learning Center is in compliance with the Private Business and
Vocational Schools Act. On that basis, the ISBE issued a conditional Certificate
of Approval to us covering the year ending June 30, 1999. The ISBE subsequently
advised the Schaumburg Learning Center that it would conduct another site visit
in July 1999 to determine if the Learning Center has complied with the
conditions on the Certificate of Approval. The ISBE has stated that if the
conditions are not met, it will proceed to hearing to determine if the Learning
Center should continue to hold a Certificate of Approval, and if the conditions
are met, it will close this matter.
16
<PAGE> 17
In April 1999, we executed a settlement agreement with the Maryland
Higher Education Commission ("MHEC") to settle a Notice of Deficiencies issued
by MHEC to our Laurel Learning Center in October 1998. In conjunction with this
settlement agreement, we paid a $60,000 fine and assured the MHEC that the
Laurel Learning Center would continue to implement certain policies and
procedures. The settlement of this matter in the first quarter of 1999 exceeded
the amount provided by the Company due to additional unanticipated refunds.
Under certain circumstances, we may need to make additional refunds
to students currently enrolled at the Learning Center; however, we expect no
further impact from this matter on the results of our operations in future
periods.
In October 1998, the Texas Workforce Commission ("TWC") issued three
separate Complaint Investigation Reports (the "Reports") respecting complaints
submitted to the TWC by seven former students of the Houston Learning Center.
During the first quarter 1999, we made refunds, as noted above, to former
students as mandated by the TWC after issuing their Reports. Since that time we
have taken additional corrective measures and paid additional unanticipated
student refunds to former students of our Houston Learning Center, in an effort
to resolve the findings noted in the Reports. Although the TWC has communicated
to us that our actions are sufficient to correct the findings noted in the
Reports, the TWC has not issued a formal resolution letter, and we do not expect
to receive one. We believe the matters have been resolved and they will not
proceed to formal administrative or judicial proceedings.
Accreditation by an accrediting agency recognized by the Department of
Education is required in order for an institution (as defined by the Department
as a main campus and any branch campuses) to become and remain eligible to
participate in the Title IV Programs. In addition, most states require
institutions operating within their borders to become and continue to be
accredited as a condition of continuing state authorization. All of our
U.S.-based Learning Centers are accredited by ACICS, which is an accrediting
agency recognized by the Department of Education. Three of our institutions
operating in the United States are due for renewal of accreditation during
fiscal 2000. We have submitted all three renewal applications and have provided
additional information as requested to the accrediting agency in order to
complete the renewal process.
The loss of accreditation or state authorization by an existing Learning
Center or the failure of a new or newly acquired Learning Center to obtain state
authorization would render the affected Learning Center ineligible to
participate in the Title IV Programs and would have a material adverse effect on
our results of operations and financial condition.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following factors, among others, including without limitation those
set forth below under the caption "Part II, Item 1 - Legal Proceedings," could
cause actual results to differ materially from those contained in forward
looking statements made in this Report on Form 10-Q and presented elsewhere by
us from time to time.
Potential Adverse Effects of Regulation
We are dependent on the authorization of the applicable agency or
agencies of each state within which a Learning Center is located to allow us to
operate and to grant degrees or diplomas to students. State authorization is
also required in order for an institution to become and remain eligible to
participate in the Title IV Programs. We are subject to extensive and varying
regulation in each of the states in which the Learning Centers currently
operate.
In the event that we fail to maintain or renew any required regulatory
approvals, accreditations or authorizations of any of the Learning Centers it
would have a material adverse effect on our results of operations and financial
condition.
17
<PAGE> 18
Potential Adverse Effects of Change of Control
General Atlantic Corporation ("GAC"), General Atlantic Partners II, L.P.
("GAP") and GAP-CLC Partners, L.P. ("GAP-CLC") (collectively, the "General
Atlantic Entities") beneficially own approximately 17% of the outstanding shares
of our Common Stock. Consequently, the General Atlantic Entities, and GAC in
particular, will continue to have significant influence over our policies and
affairs. Upon a change of ownership resulting in a change of control of the
Company, as defined in the Department of Education's regulations, each of our
Learning Centers would be required to apply to the Department to reestablish its
eligibility to participate in the Title IV Programs. If such application were
incomplete or untimely or the Department's review indicated material
deficiencies, the affected Learning Center could lose access to Title IV Program
funding for an indeterminate period of time, leading to the loss of a portion,
or all, of its Title IV funding during the reapproval period. A change of
control also could affect the state authorization and accreditation of our
Learning Centers. If we experience a change of control under Department of
Education, state or accreditation standards and any of our Learning Centers lose
authority to operate or access to Title IV Program funding for an extended
period, it would have a material adverse effect on our results of operations and
financial condition.
Competition
The post-secondary adult education and training market is highly
fragmented, with no single institution or company holding a dominant market
share. We compete for students with vocational and technical training schools,
degree-granting colleges and universities, continuing education programs and
commercial training programs. Certain public and private colleges may offer
programs similar to those of the Learning Centers at a lower tuition cost due in
part to substantial government subsidies, foundation grants, tax-deductible
contributions or other financial resources not available to proprietary
institutions.
Risks Associated with Changes in Technology and Growth
The market for our programs and services is characterized by
rapidly-changing requirements and characteristics, and our ability to develop
and offer new programs and services and to open new locations is subject to
extensive state and federal regulation and accrediting agency requirements. If
we are unable, for financial, regulatory or other reasons, to develop and offer
new programs and services in a timely manner in response to changes in the
industry, or if programs and services offered by our Learning Centers fail to
gain or maintain widespread commercial acceptance, our business may be
materially and adversely affected.
Our ability to meet our future operating and financial goals will depend
upon our ability to successfully implement our growth strategy which will
include the introduction of new locations, as well as the potential acquisition
of assets and programs complementary to our operations. Our success in this area
will depend on our ability to successfully integrate such new locations, assets
and businesses. There can be no assurance that we will be able to implement or
manage expansion effectively.
Dependence upon Key Employees
Our success depends to a significant extent upon the continued service of
our executive officers and other key personnel. None of our executive officers
or key employees, other than the Chief Executive Officer, the Chief Financial
Officer, the President/Chief Operating Officer and the Vice President of
Operations are subject to an employment agreement. The loss of the services of
any of our executive officers or other key employees could have a material
adverse effect on the Company. Our future success will depend in part upon our
continuing ability to attract and retain highly qualified personnel. There can
be no assurance that we will be successful in attracting and retaining such
personnel.
18
<PAGE> 19
General
Because of these and other factors, past financial performance should not
be considered an indicator of future performance. Investors should not use
historical trends to anticipate future results and should be aware that the
trading price of our Common Stock may be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results, general
conditions in the education and training industry, changes in earnings estimates
and recommendations by analysts or other events.
YEAR 2000 COMPLIANCE
The Year 2000 computer issue (commonly referred to as "Y2K") exists
because many computer systems and applications currently use two-digit date
fields to designate a year. When the century date change occurs, date-sensitive
systems will recognize the year 2000 as 1900, or not at all. This inability to
recognize or properly treat the year 2000 may cause systems to process critical
information incorrectly.
State of Readiness
We have completed an initial assessment of potential exposure of our own
IT-Systems. We have identified certain software for which we engaged third-party
consultants to complete remediation as well as routine upgrades to the system,
which were completed in April 1999. In addition, an active project is underway
to replace our payroll and human resources systems to be Y2K ready as well as
provide significant improvements over the current systems. The payroll and human
resource IT-System conversion is being tested during June 1999 and is expected
to be in production in July 1999. Most of our computer hardware was acquired
during the last few years and these newer systems do not possess a Y2K problem.
We have computer hardware at certain Learning Centers that is not Y2K compliant,
and we plan to replace or repair these systems prior to December 1999. Most of
this noncompliant computer hardware equipment is scheduled for replacement in
the ordinary course of business and not part of a Y2K remediation effort. We are
in the process of formulating a plan relating to testing our IT-Systems, however
we have no plans to conduct formal testing on Learning Center facilities
readiness. Although we do not anticipate we will be significantly
affected by Y2K problems in our own IT-Systems, we may be adversely affected by
Y2K problems of our vendors, banking and governmental relationships, as well as
with our leased facilities. We have completed the assessment phase of evaluating
the readiness of our significant suppliers, business partners, banks, and
government agencies to determine the extent to which we may be vulnerable in the
event that those parties fail to properly remediate their own Y2K issues.
Our operations and liquidity largely depend upon the federal student
funding provided by Title IV Programs for our students. Processing of
applications for this funding is handled by the Department of Education's
computer systems. The U.S. General Accounting Office reported in September 1998
that the Department of Education's limited progress in making contingency plans,
should its IT systems fail, may not identify conditions that could cause
disruptions in the administration of, and disbursement of funds under Title IV
programs. On April 1, 1999, the Department of Education reported that the
Department's data systems are Y2K compliant, although the Department had not
tested the entire Title IV Programs delivery system which could reveal problems
that did not show up in tests of the individual systems. Any prolonged
interruption would have a material adverse impact on the education industry and,
accordingly, upon our business, results of operations, liquidity and financial
condition.
19
<PAGE> 20
Costs to address the Company's Year 2000 issues
We estimate that we have expended approximately $175,000 in direct costs
through April 30, 1999 to identify and remediate the Company's Y2K issues. We
estimate that we will expend an additional $125,000 during fiscal year 2000.
These amounts do not include:
- the salaries of our employees involved in the remediation process;
- the cost of the enhancement and replacements to our IT-Systems,
occurring in the normal course of operations; and
- the cost of replacing or acquiring any Non IT-Systems in the normal
course of operations.
There can be no assurance that the cost estimates associated with our Y2K
issues will prove to be accurate or that those actual costs will not have a
material adverse effect on our results of operations and financial condition.
Risks Associated with Y2K Issues
Remediation of our Y2K problems may increasingly cause us to divert
management and employees time and attention. We are unable to estimate these
potential internal indirect costs expended on Y2K efforts; however, it is not
expected to have a material adverse effect on our financial condition, results
of operations or cash flows. We do not have a plan to utilize any independent
verification or validation process to assure the reliability of our risk or cost
estimates associated with Y2K efforts.
We have contemplated several possible worst case scenarios that could
arise from Y2K problems. At this time, there is insufficient information to
assess the likelihood of any of these scenarios. However, the most reasonably
likely worst case scenario for the Y2K issue would be that the third parties
with whom the Company has relationships would cease or not successfully complete
their Y2K remediation efforts. If this were to occur, we would encounter
disruptions to our business that could have a severe impact on our results of
operations, such as:
- We could experience significant delays in receipt of federal, state or
third-party student financial aid in payment of students' education
costs of attending our Learning Centers due to IT-System failures at
the Department of Education, any of our lending institutions or our
electronic payment processing agent.
Contingency Plan
We intend to develop a contingency plan during the first half of fiscal
2000 to prepare for the possibility that we may experience Y2K problems in our
own IT-Systems or Non IT-Systems. If Y2K problems occur with Non IT-Systems, we
expect to be able to isolate such systems so that they do not affect other
systems, and adjust the clocks on such Non IT-Systems that are not date
sensitive. We do not intend to create a formal contingency plan for IT-System
and Non IT-System that are not controlled by us, including third party systems
of the Department of Education, our accrediting agency, third-party student loan
institutions, or financial institutions on which we rely. We believe that with
the exception of the Department of Education, there are alternative service
providers with which we can contract in order to recover from any temporary
service interruptions due to Y2K problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
We have minimal exposure to market risks as it relates to the effects of
changes in interest rates and foreign currency exchange rates. We do not hold or
issue derivative financial instruments.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Active Litigation
On May 5, 1998, a class action lawsuit was filed against the Company in
the Superior Court of New Jersey in Bergen County, New Jersey, on behalf of all
students who attended a Learning Center in New Jersey within six years of May 5,
1998. The complaint alleges, among other things, that our Learning Centers in
New Jersey, failed to provide certain educational services and resources,
misrepresented certain information respecting services, resources, occupational
opportunities and student outcomes and violated the New Jersey Consumer Fraud
Act. We are unable to estimate the outcome of the matter or any potential
liability.
Between June 1, 1998 and May 31, 1999, the Company was named as defendant
in six other lawsuits in California, Texas, Virginia and New Jersey by
individual students or groups of students who formerly attended one of our
Learning Centers. The complaints allege, among other things, that our affected
Learning Centers, failed to provide plaintiffs with certain educational services
and resources and misrepresented certain information respecting services,
resources, student outcomes and violated the applicable state consumer laws. In
May 1999, one of these six cases was settled resulting in a payment to the
former student for an immaterial sum. We are unable to estimate the outcome of
the other five matters or any potential liability.
In addition to the lawsuits discussed above, the Company is a defendant
in a number of civil lawsuits involving current and former employees, which we
consider incidental to our business and unlikely to have a material effect on
our future operations. However, there can be no assurance that these matters
will not have a material adverse effect on our results of operations in a future
period, depending in part on the results for such period.
We intend to defend the Company vigorously in the lawsuits referred to
above; however, there can be no assurance that we will be successful in
defending the Company in any of these proceedings. Even if we prevail on the
merits in such litigation, we expect to incur legal and other defense costs as a
result of such proceedings. These proceedings could involve substantial
diversion of the time of some members of management, and an adverse
determination in, or settlement of, such litigation could involve the payment of
significant amounts, or could include terms in addition to such payments, which
could have a severe impact on our business, financial condition and results of
operations.
There can be no assurance that additional legal proceedings will not be
filed or that adverse action will not be initiated against the Company, either
by federal or state regulators, or other parties. Any such legal proceedings or
adverse action could have a severe impact on our business, financial condition
and results of operations.
Settled Litigation
On May 19, 1998, a lawsuit was filed against the Company in the District
Court of Harris County, Texas, by six former students of the Houston Learning
Center. Subsequently, the petition was amended to seek certification as a class
action lawsuit on behalf of all students who attended our Learning Centers in
Texas within four years of May 19, 1998, and removed to the U.S. District Court
for the Southern District of Texas, Houston Division. The complaint alleges,
among other things, that our Learning Centers in Texas failed to provide certain
educational services and resources, misrepresented certain information
respecting services, resources, occupational opportunities and student outcomes,
and violated the Texas Deceptive Trade Practices Act. In June 1999 the Company
executed a settlement agreement with the six former students who filed the
lawsuit. The Company agreed to payment of a nonmaterial sum without admitting or
denying the charges.
21
<PAGE> 22
On March 13, 1998, a class action lawsuit was filed against the Company
in the United States District Court for the Central District of California on
behalf of all purchasers of our Common Stock from April 30, 1997 through March
10, 1998. Over the following two months, eight additional similar cases were
filed in United States District Courts: two in the Central District of
California; five in the Northern District of Illinois; and one in the Eastern
District of Virginia. The complaints alleged violations of the Securities
Exchange Act of 1934, including allegations that the Company was experiencing
"operations difficulties" and failed to disclose the alleged difficulties. The
complaints also alleged that Company insiders realized profits by trading their
shares of Company stock while in possession of material adverse information. All
of the complaints were filed on behalf of classes of shareholders of Company
Common Stock beginning as early as March 11, 1997 and ending as late as April 7,
1998. All of these shareholder lawsuits were consolidated and transferred to the
United States District Court for the Eastern District of Virginia. The Company
entered into a settlement agreement with the plaintiffs in February 1999,
whereby the Company settled these allegations and agreed to compensation to
members of the plaintiffs' class. The terms of the settlement call for the
payment of $3.0 million in cash ($2.35 million is covered by the Company's
insurance) and the issuance of 550,000 shares of CLC Common Stock, subject to
certain price protection features, to guarantee a total settlement of $7.5
million. The price protection features include a provision that nullifies the
settlement agreement at the option of the plaintiffs if the market price of the
Company's Common Stock is less than or equal to $2.00 per share, during the time
period specified in the agreement. The Company's $650,000 cash portion of the
settlement was paid in April 1999, and the remaining $2.35 million cash
obligation was paid in June 1999.
On April 16, 1999, the United States District Court for the Eastern
District of Virginia modified a confidentiality order that had been entered in
the case. The modification permitted the Company's counsel to share with the
United States Securities and Exchange Commission material that we had obtained
in discovery from certain third parties who had been trading in our common
stock. We sought the modification of the confidentiality order because we
believe that the material in question might evidence violations of federal
securities laws by those third parties.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Not applicable.
22
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
A list of exhibits required to be filed as part of this report is set
forth in the Index to exhibits, which immediately precedes such exhibits and is
incorporated herein by reference.
(b) REPORTS ON FORM 8-K
None.
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.
Date: June 14, 1999
COMPUTER LEARNING CENTERS, INC.
By: /s/ CHARLES L. COSGROVE
-----------------------
Charles L. Cosgrove
Vice President and Chief Financial Officer
(Principal Financial Officer)
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO. IN THIS FILING
- ------- ----------- -----------------------
<S> <C> <C>
3.1 Second Amended and Restated Incorporated by reference to
Certificate of Incorporation of Exhibit 3.1 of the Registrant's
the Registrant, as amended report on Form 10-Q for the
quarter ended July 31, 1997
filed September 9, 1997
3.2 Amended and Restated Bylaws of Incorporated by reference to
the Registrant Exhibit 3.4 of the Registrant's
Form S-1 Registration
Statement as amended, filed
March 29, 1995 (No. 33-90716)
(the "Form S-1")
4.1 Form of Certificate for Shares of Incorporated by reference to
the Registrant's Common Stock Exhibit 4.1 of the Form S-1
10.1 First Amendment of Credit Filed herewith.
Agreement, dated October 31, 1998
by and between First Union National
Bank and the Registrant
10.2 Second Amendment of Credit Filed herewith.
Agreement, dated June 10, 1999
by and between First Union National
Bank and the Registrant
11.1 Statement re: Computation of Per Filed herewith.
Share Earnings
27 Financial Data Schedule Filed herewith.
</TABLE>
24
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT AGREEMENT
THIS AGREEMENT is made as of the 30th day of October, 1998, by
and between COMPUTER LEARNING CENTERS, INC., a Delaware corporation
("Borrower"), and FIRST UNION NATIONAL BANK, successor-by-merger to
CoreStates Bank, N.A. ("Lender").
RECITALS
R.1 Lender and Borrower are parties to a certain Credit Agreement
dated December 23, 1996 (the "Credit Agreement").
R.2 Borrower has requested that Lender amend the Credit Agreement in
certain respects, and Lender has agreed to do so upon the terms and conditions
set forth in this Agreement.
NOW, THEREFORE, in consideration of this Agreement, the parties
hereto agree as follows.
1. Defined Terms. All capitalized terms used in this Agreement
without definition shall have the meanings assigned to such terms in the Credit
Agreement, giving effect to the amendments of the Credit Agreement contained in
Sections 2 through 7 of this Agreement.
2. Amendment of Section 1 of the Credit Agreement. Section 1 of
the Credit Agreement is hereby amended as follows:
(a) By adding a new definition, immediately following the
definition of "Borrower Chief Executive Office," as follows:
"BORROWER INSTITUTION": any campus or institution
of the Borrower or any of its Domestic Subsidiaries, or
any branch or location of any thereof, engaged or created
or intended to be engaged, directly or indirectly, in any
business or business operations of the Borrower or any of
its Domestic Subsidiaries, including the provision of
information technology training or services,
computer-related training or services or other educational
training or services.
(b) By adding a new definition, immediately following the
definition of "Business Day," as follows:
<PAGE> 2
"CANADIAN CORPORATIONS": collectively, CLCQ
and Delta College.
(c) By adding a new definition, immediately following the
definition of "Change of Control," as follows:
"CLCQ": Computer Learning Centers of Quebec,
Inc., a Quebec corporation.
(d) By amending the definition of "Convertible Term Loan
Maximum Amount" to read, in its entirety, as follows:
"CONVERTIBLE TERM LOAN MAXIMUM AMOUNT": Seven
Million Dollars ($7,000,000.00).
(e) By adding a new definition, immediately following the
definition of "Default," as follows:
"DELTA COLLEGE": Delta College Inc., a Quebec
corporation.
(f) By adding new definitions, immediately following the
definition of "Default," as follows:
"DISQUALIFIED": the certification, eligibility,
authorization or accreditation (provisional or otherwise)
of the Borrower, any of its Domestic Subsidiaries or any
Borrower Institution, or any educational program of any
thereof, to receive, commit or disburse funds under, or to
administer or participate in, any Student Financial Aid
Program, or the participation therein of any thereof,
shall for any reason expire or be revoked, suspended,
terminated or determined to be invalid, in whole or in
part, retroactively or prospectively.
"DISQUALIFIED REVENUES RATIO": as at any date, the
ratio, expressed as a percentage and rounded upwards, if
necessary, to the nearest one-one hundredth of one percent
(1/100%), of (a) the sum, without duplication and
determined in accordance with GAAP for the four (4) most
recently ended quarterly accounting periods of the
Borrower, of the gross revenues of each of the Borrower,
its Domestic Subsidiaries and Borrower Institutions which
is Disqualified as at such date, to (b) the consolidated
gross revenues of the Borrower and its Domestic
Subsidiaries for such
-2-
<PAGE> 3
four (4) quarterly accounting periods of the
Borrower, determined in accordance with GAAP.
(g) By adding a new definition, immediately following the
definition of "Dollars," as follows:
"DOMESTIC SUBSIDIARY": as to any Person, a
Subsidiary which is organized under the laws of the United
States of America or any State thereof and which has its
chief executive office and each of its places of business
in the United States of America.
(h) By amending the definition of "L/C Commission Rate" to
read, in its entirety, as follows:
"L/C COMMISSION RATE": Three-quarters of one
percent (.75%) per annum.
(i) By adding a new definition, immediately following the
definition of "Officer Default Certificate," as follows:
"OFFICER FINANCIAL AID PROGRAM CERTIFICATE": a
certificate in form and content satisfactory to the
Lender, signed by the chief financial officer of the
Borrower and certifying, as at and for a particular time
and to the knowledge and belief of such officer after
diligent inquiry (a) for the Borrower, each of its
Domestic Subsidiaries and each Borrower Institution, the
Student Financial Aid Programs with respect to which the
Borrower, such Domestic Subsidiary or such Borrower
Institution, or its educational programs, is authorized,
accredited, certified and eligible (provisionally or
otherwise) to participate and is not Disqualified, (b) for
the Borrower, each of its Domestic Subsidiaries and each
Borrower Institution, default rates with respect to
Student Financial Aid Programs, and (c) a summary of the
current status of any actions, proceedings, investigations
or reviews of which the Borrower was required to notify
the Lender pursuant to clause (ii) of Subsection 6.6(b) of
this Agreement.
(j) By amending the definition of "Prime Rate" to read, in its
entirety, as follows:
"PRIME RATE": the rate which the Lender announces
from time to time as its prime lending rate, as in effect
from time to time. The Prime Rate is a reference rate and
does not necessarily represent the lowest or best rate
actually charged to any customer.
-3-
<PAGE> 4
The Lender may make commercial loans or other
loans at rates of interest at, above or below the Prime
Rate.
(k) By amending the definition of "Revolving Credit Maximum
Amount" to read, in its entirety, as follows:
"REVOLVING CREDIT MAXIMUM AMOUNT": Twenty Million
Dollars ($20,000,000.00), as such amount may be reduced
pursuant to Subsection 2.5.
(l) By amending the definition of "Revolving Credit
Termination Date" to read, in its entirety, as follows:
"REVOLVING CREDIT TERMINATION DATE": October 31,
2000, provided that, upon written request of the Borrower
delivered to the Lender not later than March 31 of each
year, such date (or any date to which such date is
extended in accordance herewith) may be extended for a
period of twelve (12) months upon the written agreement of
the Borrower and the Lender.
(m) By adding a new definition, immediately following the
definition of "Revolving Credit Termination Date," as follows:
"STUDENT FINANCIAL AID PROGRAM": any program under
Title IV of the Higher Education Act of 1965, under which
financial aid or financial assistance is provided to or
for students by the United States of America or any
Governmental Authority of the United States of America.
3. Amendment of Section 2 of the Credit Agreement. Section 2 of
the Credit Agreement is hereby amended as follows:
(a) By deleting from Subsection 2.4 of the Credit Agreement
the language "one-quarter of one percent (1/4%) per annum" and inserting in lieu
thereof the language "one-fifth of one percent (1/5%) per annum".
(b) By amending clause (b) of Subsection 2.7 to read, in its
entirety, as follows:
(b) the Borrower shall have given written notice to the
Lender not more than sixty (60) days and not less than
thirty (30) days prior to such Conversion Date of the
Borrower's desire to convert to a Convertible Term Loan a
portion of the Revolving Credit Loan
-4-
<PAGE> 5
Balance which is equal to Five Hundred Thousand Dollars
($500,000.00) or a whole multiple of Fifty Thousand
Dollars ($50,000.00) in excess thereof, accompanied by an
Officer Financial Covenant Certificate as at the end of
the most recently ended quarterly accounting period of the
Borrower, giving pro forma effect to the Conversion
described in such notice and demonstrating compliance by
the Borrower, as at such date and after giving such effect
to such Conversion, with the covenants contained in
Subsection 7.1 of this Agreement,
(c) By amending the second sentence of Subsection 2.9 to read,
in its entirety, as follows:
The original principal amount of each Convertible Term
Loan shall be payable by the Borrower in twenty (20)
consecutive equal quarterly installments, commencing
ninety (90) days after the applicable Conversion;
provided, however, that the principal amount of each
Convertible Term Loan representing a Conversion of one or
more Revolving Credit Loans incurred in connection with
reimbursement of the Lender by the Borrower on account of
one or more drawings under one or more Letters of Credit
shall be payable by the Borrower in eight (8) consecutive
equal quarterly installments, commencing ninety (90) days
after the applicable Conversion.
4. Amendment of Section 6 of the Credit Agreement. Section 6 of
the Credit Agreement is hereby amended as follows:
(a) By adding to Subsection 6.1(c)(i) the following new
clause, immediately following clause (z) thereof:
and (zz) an Officer Financial Aid Program Certificate for
such fiscal year
(b) By amending clause (d) of Subsection 6.1 to read, in its
entirety, as follows:
(d) (i) as soon as available but not later than
April 30 of each year, a copy of projections by the
Borrower of the operating budget and cash flow of the
Borrower and its Subsidiaries for such fiscal year of the
Borrower, in substantially the form attached hereto as
Exhibit F; and (ii) as soon as available but not later
than one (1) week after its submission to the U.S.
Department of Education, a copy of a compliance audit of
the administration by
-5-
<PAGE> 6
the Borrower and its Domestic Subsidiaries of Student
Financial Aid Programs under Title IV of the Higher
Education Act of 1965 conducted by independent certified
public accountants or a government auditor and complying
with all Requirements of Law;
(c) By amending Subsection 6.3 to read, in its entirety, as
follows:
6.3 Conduct of Business and Maintenance of
Existence. (a) Continue, and cause each of its
Subsidiaries to continue, to engage in the business of
information technology education; (b) preserve, renew and
keep in full force and effect, and cause each of its
Subsidiaries to preserve, renew and keep in full force and
effect, its organizational existence; (c) take, and cause
each of its Subsidiaries to take, all reasonable action to
maintain all rights, privileges and franchises necessary
or desirable in the normal conduct of its business; and
(d) comply with, and cause each of its Subsidiaries to
comply with, all Contractual Obligations and Requirements
of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(d) By amending clause (b) of Subsection 6.6 to read, in its
entirety, as follows:
(b) (i) of receipt of any written notice of
default or event of default under or as defined in any
Contractual Obligation of the Borrower or any of its
Subsidiaries which could reasonably be expected to have a
Material Adverse Effect, (ii) of any notice or knowledge
that the Borrower, any of its Domestic Subsidiaries or any
Borrower Institution, or any educational program of any
thereof, has been Disqualified, accompanied by a written
calculation by the Borrower of the Disqualified Revenues
Ratio as at the date that the Borrower, such Domestic
Subsidiary, such Borrower Institution or such educational
program was Disqualified, and (iii) of any notice or
knowledge of any action or proceeding against, or any
investigation or review of, the Borrower, any of its
Subsidiaries or any Borrower Institution, or any
educational program conducted by any thereof, by or on
behalf of any accrediting agency, the Department of
Education or any State of the United States of America or
any other Governmental Authority;
(e) By amending Subsection 6.7 to read, in its entirety, as
follows:
-6-
<PAGE> 7
6.7 Government Regulations. Subject to any other
more specific provisions of this Agreement, comply with,
and cause each of its Subsidiaries to comply with, all
applicable Requirements of Law relating to the conduct of
its business.
(f) By adding a new Subsection 6.11, immediately following
Subsection 6.10, as follows:
6.11 Year 2000 Compatibility. Take all action
necessary to assure that all computer-based systems of the
Borrower and each of its Subsidiaries are able to operate
and effectively process data, including dates, on and
after January 1, 2000. At the request of the Lender, the
Borrower shall provide the Lender with assurance
acceptable to the Lender of the Year 2000 compatibility of
the computer-based systems of the Borrower and each of its
Subsidiaries.
5. Amendment of Section 7 of the Credit Agreement. Section 7 of
the Credit Agreement is hereby amended as follows:
(a) By amending Subsection 7.9 to read, in its entirety, as
follows:
7.9 Limitation on Restricted Payments. Make or
commit to make, or permit any of its Subsidiaries to make
or commit to make, any Restricted Payments except:
(a) payments to the Borrower by any Subsidiary of
the Borrower;
(b) payments of compensation, stock options,
bonuses, insurance, fringe benefits and reimbursement of
expenses to employees of the Borrower in the ordinary
course of business;
(c) payments of dividends (including dividends
paid in capital stock of the Borrower) by the Borrower to
stockholders of the Borrower;
(d) payments made by the Borrower to repurchase
securities of the Borrower, to the extent such payments
are made with proceeds of a public offering of securities
of the Borrower;
(e) payments made by the Borrower to repurchase
securities of the Borrower, other than as permitted by
-7-
<PAGE> 8
clause (d) of this Subsection, to the extent that, at the
time of each such payment, the Cash Equivalents of the
Borrower exceed Ten Million Dollars ($10,000,000.00);
provided that the aggregate amount of all such payments
shall not exceed Two Million Five Hundred Thousand Dollars
($2,500,000.00); and provided further that, within five
(5) Business Days after each such payment, the Borrower
shall provide to the Lender in writing evidence
satisfactory to the Lender of the amount of such payment
and the amount of the Cash Equivalents of the Borrower at
the time of such payment; and
(f) other payments not exceeding Two Million Five
Hundred Thousand Dollars ($2,500,000.00) in the aggregate.
(b) By amending Subsection 7.15 to read, in its entirety, as
follows:
7.15 Fiscal Year. Permit the fiscal year of the
Borrower or any of its Subsidiaries to end on a day other
than January 31.
6. Amendment of Section 8 of the Credit Agreement. Section 8 of
the Credit Agreement is hereby amended as follows:
(a) By amending clause (f) by inserting the language ", any of
its Subsidiaries" immediately following the language "The Borrower".
(b) By amending clause (g) by inserting the language ", any of
its Subsidiaries" immediately following the language "The Borrower" and the
language "the Borrower" in each instance in which such language appears.
(c) By amending clause (m) by inserting the language ", any of
its Subsidiaries" immediately following the language "the Borrower".
(d) By adding a new clause (p), immediately following clause
(o) thereof, as follows:
(p) as at the date that the Borrower, any of its Domestic
Subsidiaries or any Borrower Institution, or any
educational program of any thereof, is Disqualified, the
Disqualified Revenues Ratio shall be equal to or greater
than ten percent (10%) and shall not be reduced to less
than ten percent (10%) as at a date within fifteen (15)
calendar days thereafter;
7. Amendment of Section 9 of the Credit Agreement. The notice
address for the Lender set forth in Subsection 9.3 is hereby amended to read, in
its entirety, as follows:
-8-
<PAGE> 9
First Union National Bank
1970 Chain Broad Road
McLean, VA 22102
Fax: (703) 760-5549
8. Amendment of Schedules and Exhibits to the Credit Agreement.
The Credit Agreement is hereby amended as follows:
(a) By deleting Schedule I to the Credit Agreement in its
entirety and replacing such Schedule with Schedule I to this Agreement.
(b) By deleting Exhibit A to the Credit Agreement in its
entirety and replacing such Exhibit with Exhibit A to this Agreement.
(c) By deleting Exhibit B to the Credit Agreement in its
entirety and replacing such Exhibit with Exhibit B to this Agreement.
(d) By deleting Exhibit C to the Credit Agreement in its
entirety and replacing such Exhibit with Exhibit C to this Agreement.
9. Representations and Warranties of Borrower. In order to induce
Lender to enter into this Agreement, Borrower represents and warrants to Lender
that:
(a) Borrower has the power and authority to execute, deliver
and perform this Agreement and the other Credit Documents executed or to be
executed by it in connection with this Agreement (the "Related Documents").
Borrower has taken all necessary action to authorize its execution, delivery and
performance of this Agreement and the Related Documents. No consent, approval or
authorization of, or filing with, any Governmental Authority, and no consent of
any other Person, is required in connection with Borrower's execution, delivery
and performance of this Agreement and the Related Documents, except for those
already duly obtained.
(b) This Agreement and the Related Documents have been duly
executed and delivered by Borrower, and constitute the legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
terms without defense, setoff or counterclaim. Borrower's execution, delivery
and performance of this Agreement and the Related Documents do not and will not
conflict with, or constitute a violation or breach of, or constitute a default
under, or result in the creation or imposition of any Lien upon any property of
Borrower or any Subsidiary of Borrower by reason of the terms of (a) any
mortgage, lease, agreement, instrument or Contractual Obligation to which
Borrower or any Subsidiary of Borrower is a party or which is binding upon it,
(b) any Requirement of Law, or (c) the articles of incorporation, as amended, or
bylaws, as amended, of Borrower.
-9-
<PAGE> 10
(c) Each of the representations and warranties of Borrower
contained in the Credit Agreement and the other Credit Documents, other than
those contained Subsections 4.1, 4.2, 4.6, 4.9, 4.10 and 4.12 of the Credit
Agreement, are correct and complete in all material respects as of the date
hereof.
(d) The Borrower does not own, lease, sublease, occupy, use or
operate any real property or improvements other than the Borrower Business
Premises. The Borrower's chief executive office (within the meaning of Section
9-103 of the Maryland Uniform Commercial Code) is located at the Borrower Chief
Executive Office. All financial books and records of the Borrower are located at
the Borrower Business Premises.
(e) Except as set forth in Exhibit D attached hereto, no
litigation, proceeding or, to the Borrower's actual knowledge, investigation of
or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against the Borrower or against any
of its properties or revenues (i) with respect to this Agreement, the Credit
Agreement or any of the other Credit Documents or any of the transactions
contemplated hereby or thereby, or (ii) which, if determined adversely to the
Borrower, could reasonably be expected to have a Material Adverse Effect. There
are no strikes, work stoppages, grievance proceedings or other controversies
pending or, to the knowledge and belief of the Borrower, imminent or threatened
between the Borrower and any employees of the Borrower or between the Borrower
and any union or other collective bargaining unit representing employees of the
Borrower which could reasonably be expected to have a Material Adverse Effect.
(f) The Borrower has no Subsidiaries except for the Canadian
Corporations.
(g) There has not occurred any material adverse change in the
business, operations, assets or financial condition of Borrower from those
indicated in the last financial statements delivered to the Lender pursuant to
Subsection 6.1(a) or 6.1(c) of the Credit Agreement.
(h) There exists no Default or Event of Default as of the date
hereof.
(i) Each of CLCQ and Delta College (i) is a Quebec corporation
duly organized, validly existing and in good standing, (ii) has the legal right
to own and operate its property, to lease the property it operates as lessee and
to conduct the business in which it is currently engaged, (iii) is duly
qualified to conduct business and is in good standing in each jurisdiction in
which such qualification is required by applicable Requirement of Law, and (iv)
is in compliance with all Requirements of Law except to the extent that the
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(j) The authorized capital stock of CLCQ consists of two (2)
classes, namely, Common Shares, having voting rights, and Dividend Access
Shares, having no voting
-10-
<PAGE> 11
rights except as provided in Sections 10.1, 11.1 and 12.2 of the Articles of
Incorporation of CLCQ. All of the issued and outstanding capital stock of each
class of CLCQ is legally and beneficially owned by the persons and in the
amounts set forth in Exhibit E attached hereto. All of the issued and
outstanding capital stock of each class of Delta College is legally and
beneficially owned by CLCQ, with the discretionary power and right to exercise
all rights and privileges, including voting rights, with respect thereto.
(k) No litigation, proceeding or, to the Borrower's actual
knowledge, investigation of or before any arbitrator or Governmental Authority
is pending or, to the knowledge of the Borrower, threatened by or against CLCQ
or Delta College or against any of their properties or revenues which, if
determined adversely to CLCQ or Delta College, as the case may be, could
reasonably be expected to have a Material Adverse Effect. There are no strikes,
work stoppages, grievance proceedings or other controversies pending or, to the
knowledge and belief of the Borrower, imminent or threatened between CLCQ or
Delta College and any employees of CLCQ or Delta College, respectively, or
between CLCQ or Delta College and any union or other collective bargaining unit
representing employees of CLCQ or Delta College, respectively, which could
reasonably be expected to have a Material Adverse Effect.
(l) Neither CLCQ nor Delta College is in default under or with
respect to any Contractual Obligation in any respect which could reasonably be
expected to have a Material Adverse Effect. The sum of the assets of each of
Delta College and CLCQ, at a fair valuation, exceeds the debts of CLCQ and Delta
College, respectively, exclusive, in the case of Delta College, of debts of
Delta College to the Borrower or CLCQ. The present fair salable value of the
assets of each of CLCQ and Delta College is greater than the amount required to
pay the liability on its debts of CLCQ and Delta College, respectively, as such
debts become absolute and matured, exclusive, in the case of Delta College, of
debts of Delta College to the Borrower or CLCQ. Each of CLCQ and Delta College
has sufficient capital with which to conduct its business. For purposes of this
Subsection, "debt" means "liability on a claim" and "claim" means any (i) right
to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured, or (ii) right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured or unsecured.
(m) Each of CLCQ and Delta College has good title to all of
its property, and none of such property is subject to any Lien, except as
permitted by Subsection 7.3.
(n) To the Borrower's knowledge: (i) no Hazardous Substance
has been released, discharged, spilled, emitted or disposed of on any Obligor
Use Property by CLCQ or Delta College or under any circumstances as a result of
which CLCQ or Delta College would be liable or financially responsible for
damages or the cost of remediation or clean-up; (ii) there is no existing
Hazardous Substance Contamination of any Obligor Use Property which was caused
by CLCQ or Delta College or under circumstances as a result of which CLCQ or
Delta
-11-
<PAGE> 12
College would be liable or financially responsible for damages or the cost of
remediation or clean-up; (iii) all operations now or previously conducted on
Obligor Use Property by CLCQ or Delta College comply with all Environmental
Laws; (iv) no underground storage tanks have been installed on any Obligor Use
Property by CLCQ or Delta College or under circumstances as a result of which
CLCQ or Delta College would be liable or financially responsible for damages or
the cost of removal, remediation or clean-up; and (v) neither CLCQ nor Delta
College has received, and neither CLCQ nor Delta College is aware of, any
Environmental Claim against, relating to or affecting in any way CLCQ or Delta
College or the use of any Obligor Use Property by CLCQ or Delta College or any
operations conducted on any Obligor Use Property by CLCQ or Delta College.
(o) Each of CLCQ and Delta College has filed or caused to be
filed all tax returns which are required to be filed by it, and each of CLCQ and
Delta College has paid all taxes shown to be due and payable on said returns on
any assessments made against it or any of its property and all other taxes, fees
or other charges imposed on it or any of its property by any Governmental
Authority (other than taxes the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of CLCQ or
Delta College, as applicable), and, to the knowledge of the Borrower, no claim
is being asserted with respect to any such tax, fee or other charge. No tax lien
has been filed against CLCQ or Delta College or any of their assets.
10. Conditions to Effectiveness of Amendments. The amendments of
the Credit Agreement contained in Sections 2 through 8 of this Agreement shall
be conditioned upon, and shall not be effective until, each of the following
conditions precedent shall have been satisfied as determined by Lender:
(a) There shall have been delivered to Lender, appropriately
completed and duly executed (when applicable) by an Authorized Officer of
Borrower, (i) an amendment and restatement of the Revolving Credit Note in the
form attached hereto as Exhibit F, (ii) a Certificate of the Secretary of
Borrower in form and content satisfactory to Lender, and (iii) in form and
substance satisfactory to Lender and its counsel, such other documents,
instruments and agreements, including financing statements, as Lender may
reasonably request in connection with the transactions contemplated by this
Agreement, the Related Documents and the other Credit Documents.
(b) No litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority shall be pending against Borrower or
any of its Subsidiaries, or against any properties or revenues of the Borrower
or any of its Subsidiaries (i) with respect to this Agreement, any of the Credit
Documents or any of the transactions contemplated hereby or thereby, or (ii)
which, if determined adversely to Borrower or any of its Subsidiaries, could
reasonably be expected to have a Material Adverse Effect.
-12-
<PAGE> 13
(c) As of the date hereof, all of Borrower's representations
and warranties contained in the Credit Agreement, this Agreement, the Related
Documents and the other Credit Documents shall be correct and complete in all
material respects, and no Default or Event of Default shall have occurred and be
continuing.
11. No Defenses or Claims. In order to induce Lender to enter into
this Agreement, Borrower acknowledges and represents to Lender that it has no
defense, setoff, cause of action or claim of any kind against Lender on account
of actions heretofore taken or not taken by Lender or otherwise, which can be
asserted as a basis to seek affirmative relief or damages from Lender or to
reduce or eliminate any obligations of Borrower to Lender.
12. No Novation or Waiver. Borrower and Lender intend that the
execution and delivery of this Agreement shall not constitute or be construed to
operate as a novation of the Credit Agreement or any obligations of Borrower
evidenced by any of the Credit Documents or as a novation of any security
interests or other Liens directly or indirectly securing any of such
obligations. The amendment and restatement of the Revolving Credit Note executed
and delivered to Lender pursuant to Section 10 of this Agreement shall
constitute the "Revolving Credit Note" for purposes of and as defined in the
Credit Agreement. Nothing contained in this Agreement or in any prior oral or
written communications from or on behalf of Lender to Borrower shall constitute
or be construed to operate as a waiver by Lender of any Defaults or Events of
Default which have occurred or of any rights or remedies heretofore or hereafter
accruing to Lender on account of any such Default or Event of Default or any
other Default or Event of Default.
13. Expenses. Whether or not the transactions contemplated hereby
are consummated, Borrower agrees to pay to Lender all costs and expenses that
Lender has paid or incurred or subsequently pays or incurs in connection with
the development, preparation, negotiation and execution of this Agreement and
the Related Documents, all as further provided in Section 9.6 of the Credit
Agreement.
14. Ratification of Documents and Obligations. Borrower and Lender
hereby ratify and confirm the Credit Agreement (as amended pursuant hereto), the
Borrower Security Agreement and the other Credit Documents, and agree that the
same, and all obligations of the parties thereunder, shall remain in full force
and effect.
15. Binding Nature, Merger, Counterparts and Choice of Law. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, and each reference in this
Agreement to any of the parties hereto shall be deemed to include the successors
and assigns of such party. This Agreement contains the entire agreement of the
parties with respect to the matters covered and the transactions contemplated
hereby and thereby, and no agreement, statement or promise made by any party, or
by any employee, officer, agent or attorney of any party, which is not contained
herein or therein, shall be valid or binding. This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which, when so executed
-13-
<PAGE> 14
and delivered, shall be an original, but all such counterparts shall together
constitute one and the same agreement. This Agreement, and the rights and
obligations of the parties hereunder, shall be governed by, and construed and
interpreted in accordance with, the internal laws of the State of Maryland,
exclusive of principles of conflicts of laws.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
ATTEST/WITNESS: COMPUTER LEARNING CENTERS, INC.
By:(SEAL)
- ----------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By:(SEAL)
- ----------------------------
Name:
Title:
-15-
<PAGE> 1
EXHIBIT 10.2
SECOND AMENDMENT AGREEMENT
THIS AGREEMENT is made as of the 10th day of June, 1999, by and
between COMPUTER LEARNING CENTERS, INC., a Delaware corporation ("Borrower"),
and FIRST UNION NATIONAL BANK ("Lender").
RECITALS
R.1 Lender and Borrower are parties to a certain Credit Agreement
dated December 23, 1996, as amended by a certain First Amendment Agreement dated
as of October 30, 1998 (as amended, the "Credit Agreement").
R.2 Borrower has requested that Lender waive a non-compliance by
Borrower with the Credit Agreement and amend the Credit Agreement in certain
respects, and Lender has agreed to do so upon the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of this Agreement, the parties
hereto agree as follows.
1. Defined Terms. All capitalized terms used in this Agreement
without definition shall have the meanings assigned to such terms in the Credit
Agreement.
2. Amendment of Section 2 of the Credit Agreement.
Notwithstanding the provisions of Subsection 2.7 of the Credit Agreement, no
Conversions may be elected by Borrower or implemented until (a) the Fixed Charge
Coverage Ratio shall be equal to or greater than 1.50 to 1.00 as at the end of
any quarterly accounting period of Borrower ending after the date of this
Agreement for the twelve (12)-month period then ending and (b) all of the other
conditions set forth in Subsection 2.7 shall have been satisfied. The provisions
of Subsection 2.7 shall be deemed amended in conformity with the foregoing
provisions of this Section 2.
3. Amendment of Section 7 of the Credit Agreement.
Notwithstanding the provisions of Subsections 7.7, 7.9(e), 7.9(f), 7.12(b) and
7.12(d) of the Credit Agreement, until the Fixed Charge Coverage Ratio is equal
to or greater than 1.50 to 1.00 as at the end of a quarterly accounting period
of Borrower ending after the date of this Agreement for the twelve (12)-month
period then ending, Borrower shall not make any Permitted Acquisitions,
repurchase any securities of Borrower (except as permitted by Subsection 7.9(d)
of the Credit Agreement and except for repurchases of securities of Borrower in
an amount not exceeding Two Million Five Hundred Thousand Dollars
($2,500,000.00) to be used by Borrower for the purpose of satisfying its
obligations in connection with settlement of the lawsuits consolidated in the
United States District Court for the Eastern District of Virginia filed by
purchasers of common stock of Borrower), make any Restricted Payments under
Subsection 7.9(f) of the Credit Agreement
<PAGE> 2
(except for the repurchases of securities referred to above in an amount not
exceeding Two Million Five Hundred Thousand Dollars ($2,500,000.00)), make any
loan or loans to any Person or Persons under Subsection 7.12(b) of the Credit
Agreement (except for loans to CLCQ and/or Delta College so long as CLCQ and/or
Delta College are Subsidiaries of Borrower) and not exceeding at any time the
aggregate amount of Two Million Dollars ($2,000,000.00), or make any Investments
under Subsection 7.12(d) of the Credit Agreement. The provisions of Subsections
7.7, 7.9(e), 7.9(f), 7.12(b) and 7.12(d) of the Credit Agreement shall be deemed
amended in conformity with the foregoing provisions of this Section 3(b).
4. Representations and Warranties of Borrower. In order to induce
Lender to enter into this Agreement, Borrower represents and warrants to Lender
that:
(a) Borrower has the power and authority to execute, deliver
and perform this Agreement and has taken all necessary action to authorize its
execution, delivery and performance of this Agreement. No consent, approval or
authorization of, or filing with, any Governmental Authority, and no consent of
any other Person, is required in connection with Borrower's execution, delivery
and performance of this Agreement, except for those already duly obtained.
(b) This Agreement has been duly executed and delivered by
Borrower, and constitutes the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with its terms without defense,
setoff or counterclaim. Borrower's execution, delivery and performance of this
Agreement does not and will not conflict with, or constitute a violation or
breach of, or constitute a default under, or result in the creation or
imposition of any Lien upon any property of Borrower or any Subsidiary of
Borrower by reason of the terms of (a) any mortgage, lease, agreement,
instrument or Contractual Obligation to which Borrower or any Subsidiary of
Borrower is a party or which is binding upon it, (b) any Requirement of Law, or
(c) the articles of incorporation, as amended, or bylaws, as amended, of
Borrower.
(c) Each of the representations and warranties of Borrower
contained in the Credit Agreement and the First Amendment Agreement dated as of
October 30, 1998, between Borrower and Lender, other than those contained
Subsections 4.1, 4.2, 4.6, 4.9, 4.10 and 4.12 of the Credit Agreement, are
correct and complete in all material respects as of the date hereof.
(d) There exists no Default or Event of Default as of the date
hereof, giving effect to the provisions of this Agreement.
5. Delivery of Secretary's Certificate. Contemporaneously with
the execution and delivery of this Agreement, Borrower shall deliver to Lender,
appropriately completed and duly executed, a Certificate of the Secretary of
Borrower in the form attached hereto as Exhibit A.
-2-
<PAGE> 3
6. Waiver by Lender. Lender hereby waives the Event of Default
resulting from Borrower's non-compliance with Subsection 7.1(b) of the Credit
Agreement as at April 30, 1999. The foregoing waiver is strictly limited and
shall not constitute or be construed to operate, by implication or course of
dealing or otherwise, as a waiver of, or a commitment by Lender to waive, any
other similar or dissimilar non-compliances or Events of Default which have
occurred or may occur in the future.
7. No Defenses or Claims. In order to induce Lender to enter into
this Agreement, Borrower acknowledges and represents to Lender that it has no
defense, setoff, cause of action or claim of any kind against Lender on account
of actions heretofore taken or not taken by Lender or otherwise, which can be
asserted as a basis to seek affirmative relief or damages from Lender or to
reduce or eliminate any obligations of Borrower to Lender.
8. No Novation or Waiver. Borrower and Lender intend that the
execution and delivery of this Agreement shall not constitute or be construed to
operate as a novation of the Credit Agreement or any obligations of Borrower
evidenced by any of the Credit Documents or as a novation of any security
interests or other Liens directly or indirectly securing any of such
obligations. Except as otherwise specifically set forth in this Agreement,
nothing contained in this Agreement or in any prior oral or written
communications from or on behalf of Lender to Borrower shall constitute or be
construed to operate as a waiver by Lender of any Defaults or Events of Default
which have occurred or of any rights or remedies heretofore or hereafter
accruing to Lender on account of any such Default or Event of Default or any
other Default or Event of Default.
9. Expenses. Whether or not the transactions contemplated hereby
are consummated, Borrower agrees to pay to Lender all costs and expenses that
Lender has paid or incurred or subsequently pays or incurs in connection with
the development, preparation, negotiation and execution of this Agreement, all
as further provided in Section 9.6 of the Credit Agreement.
10. Ratification of Documents and Obligations. Borrower and Lender
hereby ratify and confirm the Credit Agreement (as amended pursuant hereto), the
Revolving Credit Note, the Borrower Security Agreement and the other Credit
Documents, and agree that the same, and all obligations of the parties
thereunder, shall remain in full force and effect.
11. Binding Nature, Merger, Counterparts and Choice of Law. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, and each reference in this
Agreement to any of the parties hereto shall be deemed to include the successors
and assigns of such party. This Agreement contains the entire agreement of the
parties with respect to the matters covered and the transactions contemplated
hereby and thereby, and no agreement, statement or promise made by any party, or
by any employee, officer, agent or attorney of any party, which is not contained
herein or therein, shall be valid or binding. This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which, when so executed
-3-
<PAGE> 4
and delivered, shall be an original, but all such counterparts shall together
constitute one and the same agreement. This Agreement, and the rights and
obligations of the parties hereunder, shall be governed by, and construed and
interpreted in accordance with, the internal laws of the State of Maryland,
exclusive of principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
COMPUTER LEARNING CENTERS, INC.
By:(SEAL)
Name:
Title:
FIRST UNION NATIONAL BANK
By:(SEAL)
Name:
Title:
-4-
<PAGE> 1
EXHIBIT 11.1
COMPUTER LEARNING CENTERS, INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED APRIL 30,
----------------------------
1999 1998
------------ --------
<S> <C> <C>
Net (loss) income...................... $ (1,568) $ 3,143
------------ --------
Weighted average number of common shares
outstanding -- Basic................. 17,493,251 17,081,118
Dilutive securities:
Options........................... --- (a) 1,006,681
Weighted average number of common shares
outstanding -- Diluted............... 17,493,251 18,087,799
Earnings per share:
Basic............................. $ (0.09) $ 0.18
============ =========
Diluted........................... $ (0.09) $ 0.17
============ =========
</TABLE>
(a) The Company had 1,664,831 options outstanding as of April 30, 1999
however, these options are not included in the calculation of the number
of dilutive securities outstanding as their impact is antidilutive due to
the net loss for the first quarter of 1999 and since certain options
exercise prices were below the average market price of the common shares
during the period. There are 550,000 shares that are contingently
issuable with respect to settlement of shareholder litigation are also
not included in the calculation as their impact is antidilutive. All
options of the Company had a dilutive effect for the first quarter of
1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEET WHICH
ARE CONTAINED IN THE BODY OF THE ACCOMPANYING FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 4,172
<SECURITIES> 0
<RECEIVABLES> 72,503
<ALLOWANCES> (18,583)
<INVENTORY> 1,154
<CURRENT-ASSETS> 70,192
<PP&E> 59,750
<DEPRECIATION> (22,066)
<TOTAL-ASSETS> 119,977
<CURRENT-LIABILITIES> 57,203
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 52,785
<TOTAL-LIABILITY-AND-EQUITY> 119,977
<SALES> 0
<TOTAL-REVENUES> 35,982
<CGS> 0
<TOTAL-COSTS> 38,652
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> (2,679)
<INCOME-TAX> (1,111)
<INCOME-CONTINUING> (1,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,568)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
