PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
2000 2000
--------------- -------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents................. $ 2,563,577 $ 6,056,738
Accounts receivable, net.................. 25,294,239 26,198,803
Inventories............................... 1,540,849 1,409,449
Deferred tax assets, net.................. 3,630,134 2,800,968
Other current assets...................... 1,926,053 1,830,882
--------------- -------------
Total current assets..................... 34,954,852 38,296,840
Property and equipment, net................. 11,179,669 11,284,404
Deposits and other assets, net.............. 3,268,175 3,351,370
Goodwill, net............................... 9,378,652 9,593,841
--------------- -------------
Total assets............................. $ 58,781,348 $ 62,526,455
=============== =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.......................... $ 2,021,250 $ 1,345,738
Accrued expenses.......................... 3,967,389 5,731,883
Current portion of capitalized lease
obligations............................ 1,515,263 1,454,792
Deferred tuition revenue.................. 21,160,098 21,589,823
--------------- -------------
Total current liabilities................ 28,664,000 30,122,236
Capitalized lease obligations............... 3,408,399 3,561,818
Long-term debt.............................. 6,730,156 7,557,447
Stockholders' equity:
Common stock, no par value, authorized
100,000,000 shares; issued and outstanding
13,368,535 shares at December 31, 2000
and 13,412,455 shares at March 31, 2000.. 22,009,408 22,067,271
Additional paid-in capital................ 674,173 674,173
Accumulated deficit....................... (2,704,788) (1,456,490)
--------------- -------------
Total stockholders' equity............... 19,978,793 21,284,954
--------------- -------------
Total liabilities and stockholders'
equity................................ $ 58,781,348 $ 62,526,455
=============== =============
See accompanying notes to financial statements.
3
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
DECEMBER 31,
---------------------------
2000 1999
----------- ------------
Net revenues.............................. $20,878,235 $20,287,808
Costs and expenses:
Instructional and educational support... 13,385,860 12,703,537
Selling and promotional................. 3,429,755 3,423,209
General and administrative.............. 2,958,630 3,013,968
------------ ------------
Total costs and expenses.................. 19,774,245 19,140,714
------------ ------------
Income from operations.................... 1,103,990 1,147,094
Other (income) and expenses:
Interest expense........................ 322,445 274,380
Interest income......................... (79,528) (79,878)
------------ ------------
Income before income tax provision........ 861,073 952,592
Income tax provision...................... (343,051) (379,513)
------------ ------------
Net income................................ $ 518,022 $ 573,079
============ ============
Net income per share:
Basic and diluted....................... $ .04 $ .04
============ ============
Weighted average common shares outstanding:
Basic................................... 13,364,052 13,406,795
============ ============
Diluted................................. 13,397,760 13,464,655
============ ============
See accompanying notes to financial statements.
4
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
DECEMBER 31,
----------------------------
2000 1999
----------- -----------
Net revenues............................. $58,278,904 $56,664,102
Costs and expenses:
Instructional and educational support.. 39,263,572 38,558,134
Selling and promotional................ 10,737,054 9,094,902
General and administrative............. 8,804,030 9,111,459
----------- -----------
Total costs and expenses................. 58,804,656 56,764,495
----------- -----------
Loss from operations..................... (525,752) (100,393)
Other (income) and expenses:
Interest expense....................... 850,945 868,186
Interest income........................ (239,185) (220,414)
----------- -----------
Loss before income tax benefit and
cumulative effect of change in
accounting principle................... (1,137,512) (748,165)
Income tax benefit....................... 453,185 298,069
----------- -----------
Loss before cumulative effect of
change in accounting principle......... (684,327) (450,096)
Cumulative effect of change in
accounting principle, net of tax ...... (563,971) -
----------- -----------
Net loss.................................. $(1,248,298) $ (450,096)
=========== ===========
Net loss per share (basic and diluted):
Loss before cumulative effect of
change in accounting principle....... $ (.05) $ (.03)
Cumulative effect of change in
accounting principle, net of tax .... (.04) -
----------- -----------
Net loss .............................. $ (.09) (.03)
=========== ===========
Weighted average common shares
outstanding:
Basic and diluted ..................... 13,358,568 13,424,156
=========== ===========
See accompanying notes to financial statements.
5
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
DECEMBER 31,
--------------------------
2000 1999
----------- ------------
Cash flows from operating activities:
Net loss......................................... $(1,248,298) $ (450,096)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................ 3,037,521 3,304,079
Bad debt expense............................. 2,883,296 2,528,388
Deferred tax benefit......................... (829,166) (298,365)
Changes in operating assets and liabilities:
Accounts receivable........................ (1,978,732) (2,033,346)
Inventories................................ (131,400) (156,338)
Other current assets....................... (103,332) (647,572)
Deposits and other assets.................. 83,195 (458,703)
Accounts payable........................... 675,512 137,589
Accrued expenses........................... (1,764,494) 690,697
Income taxes payable....................... - (898,664)
Deferred tuition revenue................... (429,725) 1,417,149
Other liabilities.......................... - (475,203)
----------- ------------
Net cash provided by operating activities........ 194,377 2,659,615
----------- ------------
Cash flows from investing activities:
Purchase of property and equipment............... (1,472,793) (959,212)
Investment in Huron University................... - (1,164,613)
----------- ------------
Net cash used in investing activities............ (1,472,793) (2,123,825)
----------- ------------
Cash flows from financing activities:
Proceeds from line of credit, long-term
borrowings and capitalized lease obligations... 16,122,709 25,233,467
Principal payments on line of credit,
long-term borrowings and other liabilities..... (18,279,591) (28,207,598)
Purchase of common stock ........................ (127,936) -
Proceeds from purchases in stock purchase plan,
exercise of options and warrants............... 70,073 92,158
----------- ------------
Net cash used in financing activities............ (2,214,745) (2,881,973)
----------- ------------
Decrease in cash and cash equivalents............ (3,493,161) (2,346,183)
Cash and cash equivalents at beginning of period. 6,056,738 4,267,110
----------- ------------
Cash and cash equivalents at end of period....... $ 2,563,577 $ 1,920,927
=========== ============
Continued on following page.
See accompanying notes to financial statements.
6
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
DECEMBER 31,
---------------------------
2000 1999
----------- -----------
Supplemental disclosures of noncash financing
activities:
Equipment acquired under capital leases............ $ 1,236,643 $1,778,239
============ ===========
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 850,944 $ 868,186
============ ===========
Income taxes paid.................................. $ 140 $1,341,656 140
============ ===========
See accompanying notes to financial statements.
7
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and, in the
opinion of the management of Whitman, include all adjustments, which are of a
normal recurring nature, necessary for a fair presentation of financial position
and the results of operations and cash flows for the periods presented. However,
the financial statements do not include all information and footnotes required
for a presentation in accordance with generally accepted accounting principles.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included or
incorporated by reference in Whitman's Form 10-K for the fiscal year ended March
31, 2000. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
The accompanying financial statements include the accounts of Whitman
Education Group, Inc., and its wholly-owned subsidiaries, Ultrasound Technical
Services, Inc. ("Ultrasound Diagnostic Schools"), Sanford Brown College, Inc.
("Sanford-Brown College") and CTU Corporation ("Colorado Technical University").
All intercompany accounts and transactions have been eliminated. Hereafter,
references to "Whitman" shall include collectively Whitman Education Group, Inc.
and its operating subsidiaries, Ultrasound Diagnostic Schools, Sanford-Brown
College and Colorado Technical University.
Whitman experiences seasonality in its quarterly results of operations as a
result of changes in the level of student enrollment. New enrollment in
Whitman's schools tends to be lower in the first and second fiscal quarters
covering the summer months which are traditionally associated with recess from
school. Costs are generally not significantly affected by the seasonal factors
on a quarterly basis. Accordingly, quarterly variations in net revenues will
result in fluctuations in income (loss) from operations on a quarterly basis.
2. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the fiscal
2001 presentation. These changes had no effect on previously reported net income
(loss).
8
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- ---------- ----------
Numerator:
Net income (loss).........$ 518,022 $ 573,079 $(1,248,298) $ (450,096)
========== ========== ========== ==========
Denominator:
Denominator for basic net
income (loss) per share
- weighted average
shares.................13,364,052 13,406,795 13,358,568 13,424,156
Effect of dilutive
securities:
Employee stock options.. 33,708 57,860 - -
---------- ---------- ---------- -----------
Dilutive potential common
shares.................. 33,708 57,860 - -
Denominator for diluted
net income (loss) per
share - adjusted
weighted average
shares and assumed
conversions.............13,397,760 13,464,655 13,358,568 13,424,156
========== ========== ========== ===========
Basic and diluted net
income (loss) per share..$ .04 $ .04 $ (.09) $ (.03)
========== ========== =========== ===========
4. COMPREHENSIVE INCOME (LOSS)
In fiscal 1999, Whitman adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income. Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components. Statement
130 requires unrealized gains or losses on Whitman's available-for-sale
securities, which prior to its adoption were recorded separately in
stockholders' equity, to be included in other comprehensive loss.
For the three months ended December 31, 2000 and 1999, total comprehensive
income was $518,022 and $573,079, respectively. For the nine months ended
December 31, 2000 and 1999, total comprehensive losses were $1,248,298 and
$450,096, respectively.
5. LEGAL SETTLEMENT
In May 2000, Whitman (in conjunction with its insurance carriers) reached
an agreement in principle to settle the previously reported case styled
Cullen, et. al. v. Whitman Education Group, Inc., et. al., in the United
States District Court for the Eastern District of Pennsylvania (Civil Action No.
98-CV-4076). On October 6, 2000, the Court approved the settlement, which took
effect 30 days later, after the period for any appeal had expired. The
settlement agreement covers students who attended Whitman's Ultrasound
Diagnostic Schools any time from August 1, 1994 to August 1, 1998 in either the
9
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5. LEGAL SETTLEMENT - (CONTINUED)
general ultrasound program or the non-invasive cardiovascular technology
program. As a result of the settlement, Whitman recorded a one-time, after-tax
charge to earnings of approximately $932,000, or $0.07 per share in the fiscal
quarter ended March 31, 2000. Although management denied the allegations of the
lawsuit, and believed the key allegations to be without merit, Whitman entered
into the settlement to resolve litigation in a satisfactory business manner, to
avoid disruption of Whitman's business, and to allow Whitman to pursue its
mission of providing quality education to its enrolled students.
6. SEGMENT AND RELATED INFORMATION
In fiscal 1999, Whitman adopted the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise."
Whitman is organized by two reportable segments, the University Degree Division
and the Associate Degree Division through three wholly-owned subsidiaries. The
University Degree Division primarily offers bachelor, master and doctorate
degrees through Colorado Technical University. The Associate Degree Division
offers associate degrees and diplomas or certificates through Sanford-Brown
College and Ultrasound Diagnostic Schools.
Whitman's revenues are not materially dependent on a single customer or
small group of customers.
Summarized financial information concerning the Whitman reportable segments
is shown in the following table:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- -----------
Net revenues:
Associate Degree
Division........ $15,380,648 $15,365,116 $44,327,126 $42,453,403
University Degree
Division........ 5,497,587 4,922,692 13,951,778 14,210,699
------------ ------------ ----------- -----------
Total.............. $20,878,235 $20,287,808 $58,278,904 $56,664,102
============ ============ =========== ===========
Income (loss) before
income tax provision
(benefit) and cumulative
effect of change in
accounting principle:
Associate Degree
Division......... $ 246,384 $ 408,176 $ (859,446) $ 110,481
University Degree
Division......... 1,140,178 1,112,923 1,361,368 891,222
Other.............. (525,489) (568,507) (1,639,434) (1,749,868)
------------ ------------ ------------ ----------
Total............ $ 861,073 $ 952,592 $(1,137,512) $ (748,165)
============ ============ ============ ===========
December 31, March 31,
2000 2000
------------ ------------
Total assets:
Associate Degree
Division....... $44,358,941 $49,223,023
University Degree
Division....... 12,271,778 11,152,738
Other............ 2,150,629 2,150,694
------------ -----------
Total............ $58,781,348 $62,526,455
============ ===========
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of Whitman, the related notes to
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in Whitman's Form 10-K
for the year ended March 31, 2000 and the condensed consolidated financial
statements and the related notes to the condensed consolidated financial
statements included in Item 1 of this Quarterly Report on Form 10-Q. Except for
the historical matters contained herein, statements made in this report are
forward-looking and are made pursuant to the safe harbor provisions of the
Securities Litigation Reform Act of 1995. Such statements may include, but are
not limited to, projections of revenues, income, and cash flows, and Whitman's
financing needs and plans for future operations. Investors are cautioned that
forward-looking statements involve risks and uncertainties, including, but not
limited to, regulatory, licensing and accreditation risks inherent in operating
proprietary postsecondary educational institutions, risks relating to
unanticipated attrition or reductions in student enrollment, risks that
marketing efforts may not achieve anticipated results, risks that new programs
may not be implemented on a timely basis or be successful, which may cause our
actual results, performance or achievements to differ materially from the
forward-looking statements made in the report or otherwise made by or on our
behalf. Other factors that may affect our future results include certain
economic, competitive, governmental and other factors discussed in our filings
with the Securities and Exchange Commission. We assume no responsibility to
update forward-looking statements made herein or otherwise.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
statement of operations data to net revenues for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ----------------------
2000 1999 2000 1999
-------- --------- -------- --------
Net revenues............... 100.0 % 100.0 % 100.0 % 100.0 %
-------- --------- -------- --------
Costs and expenses:
Instructional and
educational support..... 64.1 62.6 67.4 68.0
Selling and promotional.. 16.4 16.9 18.4 16.1
General and
administrative......... 14.2 14.8 15.1 16.1
-------- --------- -------- --------
Total costs and expenses... 94.7 94.3 100.9 100.2
-------- --------- -------- --------
Income (loss) from
operations................ 5.3 5.7 (0.9) (0.2)
Other (income) and
expenses:
Interest expense......... 1.6 1.4 1.5 1.5
Interest income.......... (0.4) (0.4) (0.4) (0.4)
-------- --------- -------- --------
Income (loss) before income
tax provision (benefit)
and cumulative effect
of change in accounting
principle................ 4.1 4.7 (2.0) (1.3)
Income tax provision
(benefit)................. 1.6 1.9 (0.8) (0.5)
-------- --------- -------- --------
Income (loss) before
cumulative effect of
change in accounting
principle................. 2.5 2.8 (1.2) (0.8)
Cumulative effect of
change in accounting
principle, net of tax..... - - (0.9) -
-------- --------- -------- --------
Net income (loss).......... 2.5 % 2.8 % (2.1)% (0.8)%
======== ========= ======== ========
11
RESULTS OF OPERATIONS - (CONTINUED)
THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THE THREE MONTHS
ENDED DECEMBER 31, 1999
Net revenues increased by $0.6 million or 2.9% to $20.9 million for the
three months ended December 31, 2000 from $20.3 million for the three months
ended December 31, 1999. This increase was primarily due to a 0.7% increase in
average student enrollment and an increase in tuition rates.
The University Degree Division experienced an 8.8% increase in average
student enrollment and the Associate Degree Division experienced a 3.4% decrease
in average student enrollment. The increase in student enrollment in the
University Degree Division was primarily due to increased enrollment at Colorado
Technical University's Sioux Falls campus and in Colorado Technical University's
information technology programs. The decrease in student enrollment in the
Associate Degree Division was primarily due to a decrease in enrollment in the
healthcare programs at Sanford-Brown College.
Instructional and educational support increased by $0.7 million or 5.4% to
$13.4 million for the three months ended December 31, 2000 from $12.7 million
for the three months ended December 31, 1999. As a percentage of net revenues,
instructional and educational support expenses increased to 64.1% for the three
months ended December 31, 2000 as compared to 62.6% for the three months ended
December 31, 1999. The increase in instructional and educational support
expenses was primarily due to an increase of $0.6 million in the University
Degree Division. The increase in instructional and educational support expenses
in the University Degree Division was primarily due to increases in payroll and
related benefits for faculty and student support personnel to support the
increase in enrollment and an increase in expenses related to the start up of
Colorado Technical University's online program.
Selling and promotional expenses remained consistent at $3.4 million for
the three months ended December 31, 2000 and December 31, 1999. As a percentage
of net revenues, selling and promotional expenses decreased to 16.4% for the
three months ended December 31, 2000, as compared to 16.9% for the three months
ended December 31, 1999.
General and administrative expenses remained consistent at $3.0 million for
the three months ended December 31, 2000 and December 31, 1999. As a percentage
of net revenues, general and administrative expenses decreased to 14.2% for the
three months ended December 31, 2000 as compared to 14.8% for the three months
ended December 31, 1999.
Income from operations remained consistent at $1.1 million for the three
months ended December 31, 2000 and December 31, 1999.
We reported net income of $0.5 million and $0.6 million for the three
months ended December 31, 2000 and 1999, respectively.
12
RESULTS OF OPERATIONS - (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THE NINE MONTHS
ENDED DECEMBER 31, 1999
Net revenues increased by $1.6 million or 2.8% to $58.3 million for the
nine months ended December 31, 2000 from $56.7 million for the nine months ended
December 31, 1999. Excluding Huron University, which was sold in August 2000,
net revenues increased by $3.1 million or 5.5% to $58.3 million for the nine
months ended December 31, 2000 from $55.2 million for the nine months ended
December 31, 1999. This increase was primarily due to a 3.0% increase in average
student enrollment.
Excluding Huron University, the University Degree Division experienced a
5.2% increase in average student enrollment and the Associate Degree Division
experienced a 1.9% increase in average student enrollment. The increase in
student enrollment in the University Degree Division was primarily due to
increased enrollment at Colorado Technical University's Sioux Falls campus and
in Colorado Technical University's information technology programs. The increase
in average student enrollment in the Associate Degree Division was primarily due
to increased enrollments in the medical assisting and health information
specialist programs offered by the Ultrasound Diagnostic Schools.
Instructional and educational support increased by $0.7 million or 1.8% to
$39.3 million for the nine months ended December 31, 2000 from $38.6 million for
the nine months ended December 31, 1999. As a percentage of net revenues,
instructional and educational support expenses decreased to 67.4% for the nine
months ended December 31, 2000 as compared to 68.0% for the nine months ended
December 31, 1999. Excluding Huron University, instructional and educational
support expenses increased by $2.9 million or 7.9% to $39.3 million for the nine
months ended December 31, 2000 from $36.4 million for the nine months ended
December 31, 1999. Excluding Huron University, as a percentage of net revenues,
instructional and educational support expenses increased to 67.4% for the nine
months ended December 31, 2000 as compared to 65.9% for the nine months ended
December 31, 1999. This increase in instructional and educational support
expenses was primarily due to an increase of $1.7 million in the University
Degree Division and $1.2 million in the Associate Degree Division. The increase
in instructional and educational support expenses in the University Degree
Division was primarily due to increases in payroll and related benefits for
faculty and student support personnel to support the increase in enrollment and
an increase in expenses related to the start up of Colorado Technical
University's online program. The increase in instructional and educational
support expenses in the Associate Degree Division was primarily due to an
increase in payroll and related benefits for faculty and staff to support the
increase in enrollment and an increase in occupancy expenses related to the
expansion of facilities.
Selling and promotional expenses increased by $1.6 million or 18.1% to
$10.7 million for the nine months ended December 31, 2000 from $9.1 million for
the nine months ended December 31, 1999. As a percentage of net revenues,
selling and promotional expenses increased to 18.4% for the nine months ended
December 31, 2000 as compared to 16.1% for the nine months ended December 31,
1999. Excluding Huron University, selling and promotional expenses increased by
$1.9 million or 21.7% to $10.7 million for the nine months ended December 31,
2000 from $8.8 million for the nine months ended December 31, 1999. Excluding
Huron University, as a percentage of net revenues, selling and promotional
expenses increased to 18.4% for the nine months ended December 31, 2000 as
compared to 16.0% for the nine months ended December 31, 1999. This increase in
selling and promotional expenses was primarily due to an increase in advertising
expenses resulting from marketing efforts directed at increasing enrollment.
13
RESULTS OF OPERATIONS - (CONTINUED)
General and administrative expenses decreased by $0.3 million or 3.4% to
$8.8 million for the nine months ended December 31, 2000 from $9.1 million for
the nine months ended December 31, 1999. As a percentage of net revenues,
general and administrative expenses decreased to 15.1% for the nine months ended
December 31, 2000 as compared to 16.1% for the nine months ended December 31,
1999. Excluding Huron University, general and administrative expenses decreased
by $0.3 or 3.1% to $8.8 million for the nine months ended December 31, 2000 from
$9.1 million for the nine months ended December 31, 1999. Excluding Huron
University, as a percentage of net revenues, general and administrative expenses
decreased to 15.1% for the nine months ended December 31, 2000 as compared to
16.4% for the nine months ended December 31, 1999. The decrease in general and
administrative expenses was primarily due to a reduction in administrative
payroll expenses and consulting fees in the University Degree Division.
We reported losses from operations of $0.5 million and $0.1 million for the
nine months ended December 31, 2000 and 1999, respectively. Excluding Huron
University, income from operations decreased by $1.4 million to a loss from
operations of $0.5 million for the nine months ended December 31, 2000 as
compared to income from operations of $0.9 million for the nine months ended
December 31, 1999. This decrease in profitability was primarily due to a
decrease in income from operations of $1.0 million in the Associate Degree
Division due to an increase in selling and promotional expenses as a percentage
of net revenues from 17.4% for the nine months ended December 31, 1999 to 20.0%
for the nine months ended December 31, 2000. Additionally, income from
operations in the University Degree Division decreased by $0.6 million due to an
increase in instructional and educational support expenses as a percentage of
net revenues from 65.2% for the nine months ended December 31, 1999 to 71.9% for
the nine months ended December 31, 2000.
We reported net losses of $1.2 million and $0.5 million for the nine months
ended December 31, 2000 and 1999, respectively. The increase in net loss was
primarily due to the implementation of SEC Staff Accounting Bulletin No. 101
effective April 1, 2000, which resulted in a one-time charge after taxes of $0.6
million.
SEASONALITY
We experience seasonality in our quarterly results of operations as a
result of changes in the level of student enrollment. New enrollment in our
schools tends to be lower in the first and second fiscal quarters covering the
summer months which are traditionally associated with recess from school. Costs
are generally not significantly affected by the seasonal factors on a quarterly
basis. Accordingly, quarterly variations in net revenues will result in
fluctuations in income from operations on a quarterly basis.
The operating results of Huron University, which was sold in August 1999,
were significantly affected by seasonality. As a more traditional university,
Huron University experienced a significant decline in revenues during the late
spring and summer. The decline in revenues combined with a relatively constant
level of operating expenses resulted in operating losses of $1.0 million at
Huron University for the nine months ended December 31, 1999. Due to the sale of
Huron University, our operating results were not affected by the operations of
Huron University for the three and nine months ended December 31, 2000 and the
three months ended December 31, 1999.
14
RESULTS OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 2000 and March 31, 2000 were $2.6
million and $6.1 million, respectively. The decrease in cash and cash
equivalents was primarily due to the net repayment of debt of $2.2 million, the
settlement payment of the class action lawsuit of $1.2 million and the purchase
of capital expenditures of $1.5 million. Our working capital totaled $6.3
million at December 31, 2000 and $8.2 million at March 31, 2000.
Net cash of $0.2 million was provided by operating activities for the nine
months ended December 31, 2000 compared to net cash of $2.7 million provided by
operating activities for the nine months ended December 31, 1999. The decrease
of $2.5 million was primarily due to a decrease in accrued expenses and an
increase in net losses of $0.8 million.
Net cash of $1.5 million and $2.1 million were used for investing
activities for the nine months ended December 31, 2000 and 1999, respectively.
The decrease of $0.6 million was primarily due to cash used for the investment
in Huron University for the nine months ended December 31, 1999. This decrease
was partially offset by an increase in cash used for capital expenditures.
Net cash of $2.2 million was used in financing activities for the nine
months ended December 31, 2000, compared to net cash of $2.9 million used in
financing activities for the nine months ended December 31, 1999. The decrease
in cash used in financing activities was due to a decrease of $0.8 million in
net payments on long-term borrowings.
We have an $8.5 million line of credit which expires on September 30, 2002.
At December 31, 2000, we had $6.7 million outstanding under this facility and
letters of credit outstanding of $0.2 million which reduced the amount available
for borrowing. The amounts borrowed under this facility for the nine months
ended December 31, 2000 were primarily used for operations, capital expenditures
and repayment of debt.
On November 5, 1999 our Board of Directors authorized the repurchase of up
to $1.0 million of our common stock. The repurchases will be made from time to
time in the open market or through privately negotiated transactions. We
anticipate that the repurchase of shares will be funded through cash from
operations. During the three months ended December 31, 2000, we did not
repurchase any shares of our common stock and during the nine months ended
December 31, 2000, we repurchased 90,000 shares of our common stock for
approximately $128,000. Since the inception of the repurchase program, we have
repurchased 285,000 shares of our common stock for approximately $498,000.
Our primary source of operating liquidity is the cash received from
payments of tuition and fees. Most students attending our schools receive some
form of financial aid under Title IV Programs. We receive approximately 75% of
our funding from the Title IV Programs. Disbursements under each program are
subject to disallowance and repayment by the schools.
We believe that with our working capital, our cash flow from operations,
our credit facilities and our expected increased financings under capital lease
obligations to fund capital expenditures, we will have adequate resources to
meet our anticipated operating requirements for the foreseeable future.
15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Whitman during the quarter ended
December 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITMAN EDUCATION GROUP, INC.
(Registrant)
By: /s/ Fernando L.Fernandez
Fernando L. Fernandez
Vice President - Finance, Chief Financial Officer
and Treasurer
Date: February 7, 2001
16
WHITMAN EDUCATION GROUP, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
Period Type.................................................. 9 Months
Fiscal Year-End.........................................March 31, 2001
Period-End...........................................December 31, 2000
Cash.........................................................2,563,577
Securities...........................................................0
Receivables.................................................32,036,706
Allowances...................................................6,742,467
Inventory....................................................1,540,849
Current Assets..............................................34,954,852
PPE.........................................................28,921,062
Accumulated Depreciation....................................17,741,393
Total Assets................................................58,781,348
Current Liabilities.........................................28,664,000
Bonds................................................................0
Preferred - Mandatory................................................0
Preferred............................................................0
Common......................................................22,009,408
Other Shareholders' Equity..................................(2,030,615)
Total Liability and Equity.................................58,781,348
Sales.......................................................58,278,904
Total Revenues.............................................58,278,904
CGS.........................................................39,263,572
Total Costs.................................................50,000,626
Other Expenses.......................................................0
Loss Provision......................................................0
Interest Expense (Net)........................................611,760
Loss Pretax................................................(1,137,512)
Income Tax (Benefit)..........................................(453,185)
Loss Continuing .....................................................0
Discontinued.........................................................0
Extraordinary........................................................0
Changes.......................................................(563,971)
Net Loss....................................................(1,248,298)
EPS Basic........................................................(0.09)
EPS Diluted......................................................(0.09)