FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
Commission File Number 1-13722
WHITMAN EDUCATION GROUP, INC.
Florida 22-2246554
------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4400 Biscayne Boulevard, Miami, Florida 33137
-----------------------------------------------
(Address of Principal Executive Offices)
(305) 575-6510
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
Indicate the number of shares outstanding of each of issuer's classes of
common stock, as of the latest practicable date.
As of January 23, 2002, there were 13,752,269 shares of common stock
outstanding.
1
WHITMAN EDUCATION GROUP, INC.
Form 10-Q
December 31, 2001
TABLE OF CONTENTS
Page No.
PART I - Financial Information
Item 1. Financial Statements.................................. 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 13
PART II - Other Information
Item 5. Exhibits and Reports on Form 8-K...................... 18
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Whitman Education Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, March 31,
2001 2001
---------------- ---------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents...... $ 8,498,252 $ 5,892,779
Accounts receivable, net....... 22,824,419 26,134,128
Inventories.................... 1,694,436 1,516,439
Deferred tax assets, net....... 2,965,750 3,742,038
Other current assets........... 1,638,105 1,551,714
---------------- ---------------
Total current assets.......... 37,620,962 38,837,098
Property and equipment, net...... 10,380,851 11,727,583
Deposits and other assets, net... 2,482,441 2,165,024
Goodwill, net.................... 9,306,922 9,306,922
---------------- ---------------
Total assets.................. $ 59,791,176 $ 62,036,627
================ ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.............. $ 1,733,439 $ 2,356,996
Accrued expenses.............. 4,638,269 3,106,146
Current portion of capitalized
lease obligations............. 1,807,631 1,859,195
Current portion of capital
expenditure note
payable....................... 1,300,000 541,667
Deferred tuition revenue...... 20,824,534 22,500,137
---------------- ---------------
Total current liabilities..... 30,303,873 30,364,141
Capitalized lease obligations.... 2,337,564 3,379,826
Capital expenditure note payable. 4,983,334 5,958,333
Line of credit................... - 1,789,897
Commitments and contingencies
Stockholders' equity:
Common stock, no par value,
authorized 100,000,000
shares; issued and
outstanding 13,709,269 at
December 31,2001 and
13,642,472 shares at
March 31, 2001............. 22,915,048 22,748,613
Additional paid-in capital... 674,173 674,173
Accumulated deficit.......... (1,422,816) (2,878,356)
---------------- ---------------
Total stockholders' equity... 22,166,405 20,544,430
---------------- ---------------
Total liabilities and
stockholders' equity......... $ 59,791,176 $ 62,036,627
================ ===============
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,
--------------------------------------
2001 2000
---------------- ---------------
Net revenues.................... $ 24,369,149 $ 20,878,235
Costs and expenses:
Instructional and educational
support..................... 14,770,480 13,385,860
Selling and promotional....... 3,630,829 3,429,755
General and administrative.... 3,628,924 2,958,630
---------------- ---------------
Total costs and expenses........ 22,030,233 19,774,245
---------------- ---------------
Income from operations.......... 2,338,916 1,103,990
Other (income) and expenses:
Interest expense.............. 215,070 322,445
Interest income............... (90,964) (79,528)
---------------- ---------------
Income before income tax
provision..................... 2,214,810 861,073
Income tax provision............ 885,924 343,051
---------------- ---------------
Net income...................... $ 1,328,886 $ 518,022
================ ===============
Net income per share:
Basic......................... $ .10 $ .04
================ ===============
Diluted....................... $ .09 $ .04
================ ===============
Weighted average common shares
outstanding:
Basic......................... 13,691,976 13,364,052
================ ===============
Diluted....................... 14,524,031 13,397,760
================ ===============
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,
------------------------------------
2001 2000
-------------- ---------------
Net revenues...................... $ 66,271,563 $ 58,278,904
Costs and expenses:
Instructional and educational
support....................... 42,546,001 39,263,572
Selling and promotional......... 10,831,045 10,737,054
General and administrative...... 10,023,206 8,804,030
-------------- ---------------
Total costs and expenses.......... 63,400,252 58,804,656
-------------- ---------------
Income (loss) from operations..... 2,871,311 (525,752)
Other (income) and expenses:
Interest expense................ 729,057 850,945
Interest income................. (283,646) (239,185)
-------------- ---------------
Income (loss) before income tax
provision (benefit) and
cumulative effect of change in
accounting principle............ 2,425,900 (1,137,512)
Income tax provision (benefit).... 970,360 (453,185)
-------------- ---------------
Income (loss) before cumulative
effect of change in accounting
principle....................... 1,455,540 (684,327)
Cumulative effect of change in
accounting principle,
net of tax...................... - (563,971)
-------------- ---------------
Net income (loss)................ $ 1,455,540 $ (1,248,298)
============== ===============
Basic net income (loss) per share:
Income (loss) before cumulative
effect of change in
accounting principle.......... $ .11 $ (.05)
Cumulative effect of change in
accounting principle, net of
tax........................... - (.04)
-------------- ---------------
Net income (loss) per share....... $ .11 $ (.09)
============== ===============
Diluted net income (loss) per
share:
Income (loss) before cumulative
effect of change in accounting
principle..................... $ .10 $ (.05)
Cumulative effect of change in
accounting principle, net of
tax........................... - (.04)
-------------- ---------------
Net income (loss) per share....... $ .10 $ (.09)
============== ===============
Weighted average common shares
outstanding:
Basic........................... 13,669,833 13,358,568
============== ===============
Diluted......................... 14,150,767 13,358,568
============== ===============
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,
--------------------------------
2001 2000
-------------- --------------
Cash flows from operating activities:
Net income (loss).................... $ 1,455,540 $ (1,248,298)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization..... 2,868,912 3,037,521
Bad debt expense.................. 3,530,641 2,883,296
Deferred tax expense (benefit).... 776,288 (829,166)
Changes in operating assets and
liabilities:
Accounts receivable............. (220,932) (1,978,732)
Inventories..................... (177,997) (131,400)
Other current assets............ (87,050) (103,332)
Deposits and other assets....... (317,417) 83,195
Accounts payable................ (623,557) 675,512
Accrued expenses................ 1,532,123 (1,764,494)
Deferred tuition revenue........ (1,675,603) (429,725)
------------- --------------
Net cash provided by operating
activities......................... 7,060,948 194,377
------------- --------------
Cash flows from investing activity:
Purchase of property and equipment... (1,008,413) (1,472,793)
------------- --------------
Net cash used in investing activity.. (1,008,413) (1,472,793)
------------- --------------
Cash flows from financing activities:
Proceeds from line of credit and
long-term debt..................... 17,728,494 16,122,709
Principal payments on line of credit,
long-term debt and capital lease
obligations........................ (21,341,991) (18,279,591)
Purchase of common stock ............ - (127,936)
Proceeds from purchases in stock
purchase plan and exercise of
options............................ 166,435 70,073
-------------- --------------
Net cash used in financing
activities......................... (3,447,062) (2,214,745)
-------------- --------------
Increase (decrease) in cash and cash
equivalents........................ 2,605,473 (3,493,161)
Cash and cash equivalents at
beginning of period................ 5,892,779 6,056,738
-------------- --------------
Cash and cash equivalents at end of
period............................. $ 8,498,252 $ 2,563,577
============== ==============
Continued on following page.
See accompanying notes to financial statements.
6
Whitman Education Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows - (Continued)
(Unaudited)
For the Nine Months Ended
December 31,
---------------------------------
2001 2000
---------------- --------------
Supplemental disclosures of noncash
financing and investing activities:
Equipment acquired under capital
leases............................. $ 513,108 $ 1,236,643
================ ==============
Supplemental disclosures of cash flow
information:
Interest paid........................ $ 729,057 $ 850,944
================ ==============
Income taxes paid.................... $ 5,000 $ 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 management, 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 accounting principles generally accepted in the
United States of America. 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 our Form 10-K for the
fiscal year ended March 31, 2001. 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
2002 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) - (Continued)
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,
--------------------------- ---------------------------
2001 2000 2001 2000
----------- ------------- ------------- -------------
Numerator:
Income (loss) before
cumulative effect
of change in
accounting
principle......... $ 1,328,886 $ 518,022 $ 1,455,540 $ (684,327)
Cumulative effect of
change in
accounting
principle, net of
tax............... - - - (563,971)
----------- ------------ ------------ -------------
Net income (loss)... $ 1,328,886 $ 518,022 $ 1,455,540 $ (1,248,298)
=========== ============ ============ =============
Denominator:
Denominator for
basic earnings per
share-
weighted average
shares............ 13,691,976 13,364,052 13,669,833 13,358,568
Effect of dilutive
securities:
Employee stock
options........... 832,055 33,708 480,934 -
----------- ------------ ------------- ------------
Dilutive potential
common shares..... 832,055 33,708 480,934 -
Denominator for
diluted earnings
per share-
adjusted weighted
- average shares
and assumed
conversions....... 14,524,031 13,397,760 14,150,767 13,358,568
============ ============ ============= ============
Basic income (loss)
before effect of
change in
accounting
principle......... $ .10 $ .04 $ .11 $ (.05)
Cumulative effect of
change in
accounting
principle, net of
tax............... - - - (.04)
------------ ------------- ------------- ------------
Basic net income
(loss) per share... $ .10 $ .04 $ .11 $ (.09)
============ ============= ============= ============
Diluted income
(loss) before
effect of change
in accounting
principle......... $ .09 $ .04 $ .10 $ (.05)
Cumulative effect of
change in
accounting
principle, net of
tax............... - - - (.04)
------------ ------------- ------------- ------------
Diluted net income
(loss) per share... $ .09 $ .04 $ .10 $ (.09)
============ ============= ============= ============
9
Whitman Education Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)-(Continued)
4. New Accounting Pronouncements
In April 2001, Whitman adopted Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Because Whitman does not
use derivatives, the adoption of SFAS 133 did not have any effect on Whitman's
results of operations or financial position.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS 144 is effective for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years, with early adoption encouraged. The
provisions of SFAS 144 generally are to be applied prospectively. Whitman does
not expect the adoption of SFAS 144 to have a material effect on its results of
operations or financial position.
5. Goodwill
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations", and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 141 and 142"), effective for
fiscal years beginning after December 15, 2001. Under the new rules, goodwill
(and intangible assets deemed to have indefinite lives) will no longer be
amortized but will be subject to annual impairment tests or more frequently if
impairment indicators arise. Other intangible assets will continue to be
amortized over their useful lives.
Whitman has elected to adopt the provisions of SFAS 141 and 142 effective
April 1, 2001. Application of the nonamortization provision of SFAS 142 resulted
in an increase in net income of $43,000 and $129,000, net of taxes, for the
three and nine months ended December 31, 2001, respectively. Pro forma net
income (loss) and net income (loss) per basic and diluted share amounts, for the
three and nine months ended December 31, 2000, had SFAS 141 and 142 been applied
retroactively, would have been approximately $561,000 and $.04 and $(1,119,000)
and $(.08), respectively.
During September 2001, the Company completed its transitional impairment
test of goodwill in accordance with SFAS 142. As a result of this test, it was
determined that there was no impairment of goodwill.
6. Income (Loss) Per Share
Basic income (loss) before cumulative effect of change in accounting
principle, cumulative effect of change in accounting principle, net of tax and
net income (loss) per common share is computed using the weighted average number
of common shares outstanding during the period. Diluted income (loss) before
cumulative effect of change in accounting principle, cumulative effect of change
in accounting principle, net of tax and net income (loss) per share is computed
using the weighted average number of common and common equivalent shares
outstanding during the period.
10
Whitman Education Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)
7. Comprehensive Income (Loss)
Whitman complies with the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes rules for the reporting and display of comprehensive income and its
components. SFAS 130 requires unrealized gains or losses on Whitman's
available-for-sale securities to be included in "other comprehensive income."
For the three months ended December 31, 2001 and December 31, 2000,
comprehensive income were $1,328,886 and $518,022, respectively. For the nine
months ended December 31, 2001 and December 31, 2000, comprehensive income was
$1,455,540 and comprehensive loss was $1,248,298, respectively.
8. Contingencies
On May 4, 2000, Whitman, in conjunction with its insurance carriers,
reached an agreement in principle to settle the class action lawsuit, Cullen,
et. al. v. Whitman Education Group, Inc., et. al. 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 general ultrasound program
or the non-invasive cardiovascular technology program. The settlement agreement
provided for payment of $5,970,000 in cash and approximately $1,346,000 in loan
forgiveness of delinquent obligations owed by students to Whitman's Ultrasound
Diagnostic Schools. The actual cash payment of approximately $5,970,000 was
funded by Whitman contributing $1,170,000 and Whitman's insurance carriers
contributing $4,800,000. Whitman also contributed $1,346,000 in debt
forgiveness, all of which was fully reserved or previously written-off at March
31, 2000. Whitman also provided for a reserve for potential claims from members
of the class action lawsuit who elected not to participate in the settlement.
This reserve was estimated based on historical student settlement experience. As
a result of the cash settlement payment and estimated reserves, Whitman recorded
a one-time, after-tax charge to earnings of approximately $930,000, or $.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
students.
9. Segment and Related Information
Whitman complies with the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers.
11
Whitman Education Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)
9. Segment and Related Information - (Continued)
Whitman is organized into two reportable segments, the University Degree
Division and the Associate Degree Division. 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 Whitman's reportable segments
is shown in the following table:
For the Three Months For the Nine Months
Ended December 31, Ended December 31,
------------------------------ ----------------------------
2001 2000 2001 2000
-------------- ------------ ------------ ------------
Net revenues:
Associate Degree
Division....... $ 18,961,395 $15,380,648 $ 51,650,238 $44,327,126
University Degree
Division....... 5,407,754 5,497,587 14,621,325 13,951,778
-------------- ------------ ------------- ------------
Total............ $ 24,369,149 $20,878,235 $ 66,271,563 $58,278,904
============== ============ ============= ============
Income (loss)
before income tax
provision
(benefit) and
cumulative effect
of change in
accounting
principle:
Associate Degree
Division...... $ 2,324,627 $ 246,384 $ 3,851,871 $ (859,446)
University
Degree Division 418,205 1,140,178 324,834 1,361,368
Other........... (528,022) (525,489) (1,750,805) (1,639,434)
-------------- ------------ ------------- -------------
Total........... $ 2,214,810 $ 861,073 $ 2,425,900 $(1,137,512)
============== ============ ============= =============
December 31, March 31,
2001 2001
-------------- ------------
Total assets:
Associate Degree
Division...... $ 41,366,208 $48,327,713
University Degree
Division...... 8,390,435 11,895,647
Other............ 10,034,533 1,813,267
-------------- -------------
Total.......... $ 59,791,176 $62,036,627
============== =============
12
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 the
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, 2001 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, Whitman's financing needs and plans for future resources,
working capital, operations and share repurchases, if any. 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,
(including risks relating to the continued eligibility of our schools to receive
funds under Title IV Programs), risks relating to unanticipated attrition or
reductions in student enrollment and risks relating to the availability of
financing which may cause our actual results, performance or achievements to
differ materially from the results expressed in the forward-looking statements
made in this report. 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,
------------------------- -------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
Net revenues.......... 100.0% 100.0% 100.0% 100.0%
---------- ----------- ----------- -----------
Costs and expenses:
Instructional and
educational support. 60.6 64.1 64.2 67.4
Selling and
promotional......... 14.9 16.4 16.4 18.4
General and
administrative...... 14.9 14.2 15.1 15.1
---------- ----------- ----------- -----------
Total costs and
expenses............ 90.4 94.7 95.7 100.9
---------- ----------- ----------- -----------
Income (loss) from
operations.......... 9.6 5.3 4.3 (0.9)
Other (income) and
expenses:
Interest expense.... 0.9 1.6 1.1 1.5
Interest income..... (0.4) (0.4) (0.5) (0.4)
---------- ----------- ----------- -----------
Income (loss) before
income tax provision
(benefit) and
cumulative effect of
change in accounting
principle........... 9.1 4.1 3.7 (2.0)
Income tax provision
(benefit)............ 3.6 1.6 1.5 (0.8)
---------- ----------- ----------- -----------
Income (loss) before
cumulative effect of
change in accounting
principle........... 5.5 2.5 2.2 (1.2)
Cumulative effect of
change in accounting
principle, net of
tax................. - - - (0.9)
---------- ----------- ----------- -----------
Net income (loss)..... 5.5% 2.5% 2.2% (2.1)%
========== =========== =========== ===========
13
Results of Operations - (Continued)
Three months ended December 31, 2001 compared to the three months ended
December 31, 2000
Net revenues increased by $3.5 million or 16.7% to $24.4 million for the
three months ended December 31, 2001 from $20.9 million for the three months
ended December 31, 2000. This increase was primarily due to a 7.9% increase in
average student enrollment and an increase in tuition rates.
The Associate Degree Division experienced a 14.7% increase in average
student enrollment and the University Degree Division experienced a 4.0%
decrease in average student enrollment. The increase in student enrollment in
the Associate Degree Division was primarily due to increased enrollment in the
medical assisting and health information specialist programs offered by the
Ultrasound Diagnostic Schools and the information technology and allied health
programs offered at Sanford-Brown College. The increase in student enrollment in
the Associate Degree Division was due to our improved marketing and admissions
efforts which permitted us to increase the rate at which we converted leads to
new student starts. The decrease in average student enrollment in the University
Degree Division was primarily due to a decline in student enrollment in the
master's program.
Instructional and educational support expenses increased by $1.4 million,
or 10.3% to $14.8 million for the three months ended December 31, 2001 from
$13.4 million for the three months ended December 31, 2000. As a percentage of
net revenues, instructional and educational support expenses decreased to 60.6%
for the three months ended December 31, 2001 as compared to 64.1% for the three
months ended December 31, 2000. The increase in instructional and educational
support expenses was primarily due to an increase in payroll expenses and
related benefits for faculty, academic administrators and student support
personnel to support the increase in enrollment. The decrease in instructional
and educational support expenses as a percentage of net revenues was due to our
ability to better leverage our instructional and educational support expenses to
support an increased revenue base.
Selling and promotional expenses increased by $0.2 million, or 5.9%, to
$3.6 million for the three months ended December 31, 2001 from $3.4 million for
the three months ended December 31, 2000. As a percentage of net revenues,
selling and promotional expenses decreased to 14.9% for the three months ended
December 31, 2001 as compared to 16.4% for the three months ended December 31,
2000. The decrease in selling and promotional expenses as a percentage of net
revenues was due to our improved marketing and admissions efforts that allowed
us to maintain such expenses relatively unchanged while supporting a growth in
revenues.
General and administrative expenses increased by $0.7 million, or 22.7%, to
$3.6 million for the three months ended December 31, 2001 from $3.0 million for
the three months ended December 31, 2000. As a percentage of net revenues,
general and administrative expenses increased to 14.9% for the three months
ended December 31, 2001 as compared to 14.2% for the three months ended December
31, 2000. The increase in general and administrative expenses was primarily due
to an increase in administrative payroll expenses and related benefits and an
increase in bad debt expense in the Associate Degree Division. For the three
months ended December 31, 2001, bad debt expense as a percentage of net revenues
increased to 4.9% from 4.7% for the three months ended December 31, 2000. The
increase in bad debt expense was primarily due to the increase in net revenues
for the three months ended December 31, 2001 and to the negative impact of the
October 2000 required adoption of the Department of Education's new methodology
for calculating the amount of previously disbursed federal student financial aid
that we must return to the federal government with respect to students who have
since withdrawn from our schools. This new regulation increases the student's
obligation to the school from which they have withdrawn and decreases the amount
of student federal financial aid received by the school on behalf of the
students who withdrew.
14
Results of Operations - (Continued)
We reported income from operations of $2.3 million for the three months
ended December 31, 2001 as compared to income from operations of $1.1 million
for the three months ended December 31, 2000. This increase in profitability was
primarily due to an increase in income from operations of $2.0 million in the
Associate Degree Division which was partially offset by a decrease in income
from operations of $0.7 million in the University Degree Division.
We reported net income of $1.3 million for the three months ended December
31, 2001 and a net income of $0.5 million for the three months ended December
31, 2000. The increase in net income was primarily due to an increase in
profitability in the Associate Degree Division.
Nine months ended December 31, 2001 compared to the nine months ended
December 31, 2000
Net revenues increased by $8.0 million, or 13.7%, to $66.3 million for the
nine months ended December 31, 2001 from $58.3 million for the nine months ended
December 31, 2000. This increase was primarily due to a 5.5% increase in average
student enrollment and an increase in tuition rates.
The Associate Degree Division experienced a 7.3% increase in average
student enrollment and the University Degree Division experienced a 1.9%
increase in average student enrollment. The increase in student enrollment in
the Associate Degree Division was primarily due to increased enrollment in the
medical assisting program and the health information specialist program offered
by the Ultrasound Diagnostic Schools and the information technology and allied
health programs offered at Sanford-Brown College. The increase in student
enrollment in the Associate Degree Division was due to our improved marketing
and admissions efforts which permitted us to increase the rate at which we
converted leads to new student starts. The increase in student enrollment in the
University Degree Division was primarily due to increased enrollment at Colorado
Technical University's Colorado Springs campus.
Instructional and educational support expenses increased by $3.3 million,
or 8.4%, to $42.5 million for the nine months ended December 31, 2001 from $39.3
million for the nine months ended December 31, 2000. As a percentage of net
revenues, instructional and educational support expenses decreased to 64.2% for
the nine months ended December 31, 2001 as compared to 67.4% for the nine months
ended December 31, 2000. The increase in instructional and educational support
expenses was primarily due to an increase in payroll expenses and related
benefits for faculty, academic administrators and student support personnel to
support the increase in enrollment. The decrease in instructional and
educational support expenses as a percentage of net revenues was due to our
ability to better leverage our instructional and educational support expenses to
support an increased revenue base.
Selling and promotional expenses increased by $0.1 million, or 0.9%, to
$10.8 million for the nine months ended December 31, 2001 from $10.7 million for
the nine months ended December 31, 2000. As a percentage of net revenues,
selling and promotional expenses decreased to 16.4% for the nine months ended
December 31, 2001 as compared to 18.4% for the nine months ended December 31,
2000. The decrease in selling and promotional expenses as a percentage of net
revenues was due to our ability to maintain such expenses relatively unchanged
while supporting a growth in revenues.
General and administrative expenses increased by $1.2 million, or 13.9%, to
$10.0 million for the nine months ended December 31, 2001 from $8.8 million for
the nine months ended December 31, 2000. As a percentage of net revenues,
general and administrative expenses remained consistent at 15.1% for the nine
months ended December 31, 2001 and 2000. The increase in general and
administrative expenses was primarily due to an increase in administrative
payroll expenses and related benefits and an increase in bad debt expense in the
Associate Degree Division. For the nine months ended December 31, 2001, bad debt
expense as a percentage of net revenues increased to 5.3% from 4.9% for the nine
months ended December 31, 2000. The increase in bad debt expense was primarily
15
Results of Operations - (Continued)
due to the negative impact of the October 2000 required adoption of the
Department of Education's new methodology for calculating the amount of
previously disbursed federal student financial aid that we must return to the
federal government with respect to students who have since withdrawn from our
schools. This new regulation increases the student's obligation to the school
from which they have withdrawn and decreases the amount of student federal
financial aid received by the school on behalf of the students who withdrew.
We reported income from operations of $2.9 million for the nine months
ended December 31, 2001 as compared to a loss from operations of $0.5 million
for the nine months ended December 31, 2000. This increase in profitability was
primarily due to an increase in income from operations of $4.7 million in the
Associate Degree Division which was partially offset by a decrease in income
from operations in the University Degree Division of $1.2 million.
We reported net income of $1.5 million for the nine months ended December
31, 2001 and a net loss of $1.2 million for the nine months ended December 31,
2000. The increase in net income was primarily due to an increase in
profitability in the Associate Degree Division and 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 for the nine months ended December
31, 2000.
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.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 2001 and March 31, 2001 were $8.5
million and $5.9 million, respectively. The increase in cash and cash
equivalents was primarily due to net income of $1.5 million generated for the
nine months ended December 31, 2001. Our working capital totaled $7.3 million at
December 31, 2001 and $8.5 million at March 31, 2001.
Net cash of $7.0 million was provided by operating activities for the nine
months ended December 31, 2001 compared to net cash of $0.2 million provided by
operating activities for the nine months ended December 31, 2000. The increase
of $6.8 million was primarily due to an increase in net profits of $2.7 million,
a net increase in accounts payable and accrued expenses of $2.0 million, and a
decrease in net deferred income taxes of $1.6 million.
Net cash of $1.0 million was used in an investing activity for the nine
months ended December 31, 2001 compared to net cash of $1.5 million used in an
investing activity for the nine months ended December 31, 2000. The decrease of
$0.5 million was primarily due to a decrease in cash used for capital
expenditures.
Net cash of $3.4 million was used in financing activities for the nine
months ended December 31, 2001, compared to net cash of $2.2 million used in
financing activities for the nine months ended December 31, 2000. The increase
in cash used in financing activities was due primarily to an increase of $1.5
million in net payments on long-term debt and capital lease obligations.
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Results of Operations - (Continued)
Liquidity and Capital Resources - (Continued)
We have a $2.0 million line of credit which was scheduled to expire on June
30, 2002. In November, 2001, we extended the expiration date on the line of
credit to October 31, 2002. At December 31, 2001, we had no outstanding balance
under this facility and letters of credit outstanding of $0.5 million which
reduced the amount available for borrowing.
On November 5, 1999 our Board of Directors authorized the repurchase of up
to $1.0 million of our common stock. Any repurchases may be made from time to
time in the open market or through privately negotiated transactions. During the
nine months ended December 31, 2001, we did not repurchase any shares of our
common stock. Since the inception of the repurchase program, we have repurchased
285,100 shares of our common stock for approximately $498,000. We anticipate
that any further repurchases of shares will be funded through cash from
operations.
Our primary source of operating liquidity is the cash received from
payments of tuition and fees. Most students attending our schools receive some
form of financial aid under Title IV Programs. We receive approximately 71% of
our funding from the Title IV Programs. Disbursements under each program are
subject to disallowance and repayment by the schools.
We believe that with our working capital, our cash flow from operations,
our line of credit 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.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 141 and 142"), effective for
fiscal years beginning after December 15, 2001. Under the new rules, goodwill
(and intangible assets deemed to have indefinite lives) will no longer be
amortized but will be subject to annual impairment tests or more frequently if
impairment indicators arise. Other intangible assets will continue to be
amortized over their useful lives.
Whitman has elected to adopt the provisions of SFAS 141 and 142 effective
April 1, 2001. Application of the nonamortization provision of SFAS 142 resulted
in an increase in net income of $43,000 and $129,000, net of taxes, for the
three and nine months ended December 31, 2001, respectively. Pro forma net
income (loss) and net income (loss) per basic and diluted share amounts, for the
three and nine months ended December 31, 2000, had SFAS 141 and 142 been applied
retroactively, would have been approximately $561,000 and $.04 and $(1,119,000)
and $(.08), respectively.
During September 2001, the Company completed its transitional impairment
test of goodwill in accordance with SFAS 142. As a result of this test, it was
determined that there was no impairment of goodwill.
17
PART II - OTHER INFORMATION
Item 5. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
No reports on Form 8-K were filed by Whitman during the
quarter ended December 31, 2001.
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,
Treasurer and Secretary
Date: February 6, 2002
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