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 September 30, 2001
Commission File Number 1-13722
WHITMAN EDUCATION GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
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 October 31, 2001, there were 13,676,269 shares of common stock
outstanding.
1
WHITMAN EDUCATION GROUP, INC.
Form 10-Q
September 30, 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 4. Submission of Matters to a Vote of Security Holders.... 20
Item 5. Exhibits and Reports on Form 8-K....................... 20
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Whitman Education Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, March 31,
2001 2001
--------------- --------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents.... $ 3,796,386 $ 5,892,779
Accounts receivable, net..... 27,744,935 26,134,128
Inventories.................. 1,485,527 1,516,439
Deferred income taxes........ 3,742,038 3,742,038
Other current assets......... 1,571,318 1,551,714
--------------- --------------
Total current assets....... 38,340,204 38,837,098
Property and equipment, net...... 10,972,336 11,727,583
Deposits and other assets, net... 2,375,539 2,165,024
Goodwill, net.................... 9,306,922 9,306,922
--------------- --------------
Total assets............... $60,995,001 $62,036,627
=============== ==============
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable.............. $ 1,337,743 $ 2,356,996
Accrued expenses.............. 4,401,294 3,106,146
Current portion of capitalized
lease obligations........... 1,847,556 1,859,195
Current portion of capital
expenditure note payable.... 1,191,667 541,667
Deferred tuition revenue...... 23,453,988 22,500,137
--------------- --------------
Total current liabilities.. 32,232,248 30,364,141
Capitalized lease obligations.... 2,753,786 3,379,826
Capital expenditure note payable. 5,308,333 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
13,676,269 at September 30,
2001 and 13,642,472 shares at
March 31, 2001................ 22,778,163 22,748,613
Additional paid-in capital.... 674,173 674,173
Accumulated deficit........... (2,751,702) (2,878,356)
--------------- --------------
Total stockholders' equity. 20,700,634 20,544,430
--------------- --------------
Total liabilities and
stockholders' equity...... $60,995,001 $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
September 30,
--------------------------------------
2001 2000
------------- -------------
Net revenues..................... $21,384,299 $18,521,239
Costs and expenses:
Instructional and educational
support...................... 14,036,833 12,959,896
Selling and promotional........ 3,837,463 3,940,677
General and administrative..... 3,298,585 2,886,692
------------ --------------
Total costs and expenses......... 21,172,881 19,787,265
------------ --------------
Income (loss) from operations.... 211,418 (1,266,026)
Other (income) and expenses:
Interest expense............... 245,273 306,043
Interest income................ (83,233) (75,089)
------------ --------------
Income (loss) before income tax
provision (benefit)............ 49,378 (1,496,980)
Income tax provision (benefit)... 19,751 (596,397)
------------ --------------
Net income (loss)................ $ 29,627 $ (900,583)
============ ==============
Net income (loss) per share:
Basic and diluted.............. $ .00 $ (.07)
============ ==============
Weighted average common shares
outstanding:
Basic.......................... 13,668,586 13,344,562
============ ==============
Diluted........................ 14,050,324 13,344,562
============ ==============
See accompanying notes to financial statements.
4
Whitman Education Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
For the Six Months Ended
September 30,
------------------------------------
2001 2000
------------ ------------
Net revenues..................... $41,902,415 $37,400,669
Costs and expenses:
Instructional and educational
support...................... 27,775,521 25,877,710
Selling and promotional........ 7,200,216 7,307,300
General and administrative..... 6,394,283 5,845,401
------------ -------------
Total costs and expenses......... 41,370,020 39,030,411
------------ -------------
Income (loss) from operations.... 532,395 (1,629,742)
Other (income) and expenses:
Interest expense............... 513,986 528,500
Interest income................ (192,681) (159,657)
------------ -------------
Income (loss) before income tax
provision (benefit) and
cumulative effect of change in
accounting principle........... 211,090 (1,998,585)
Income tax provision (benefit)... 84,436 (796,236)
------------ -------------
Income (loss) before cumulative
effect of change in accounting
principle...................... 126,654 (1,202,349)
Cumulative effect of change in
accounting principle, net of
tax............................ - (563,971)
------------ -------------
Net income (loss)................ $ 126,654 $(1,766,320)
============ =============
Basic and diluted net income
(loss) per share:
Income (loss) before
cumulative effect of change
in accounting principle...... $ .01 $ (.09)
Cumulative effect of change in
accounting principle, net
of tax....................... - (.04)
------------ -------------
Net income (loss).............. $ .01 $ (.13)
============ =============
Weighted average common shares
outstanding:
Basic.......................... 13,658,737 13,355,811
============ =============
Diluted........................ 13,990,198 13,355,811
============ =============
See accompanying notes to financial statements.
5
Whitman Education Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
September 30,
--------------------------------------
2001 2000
------------ -------------
Cash flows from operating
activities:
Net income (loss)................ $ 126,654 $(1,766,320)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.. 1,979,719 2,018,706
Bad debt expense............... 2,329,326 1,894,380
Deferred tax benefit........... - (1,172,217)
Changes in operating assets
and liabilities:
Accounts receivable.......... (3,940,133) (3,403,965)
Inventories.................. 30,912 256,473
Other current assets......... (20,263) (62)
Deposits and other assets.... (210,515) 97,548
Accounts payable............. (1,019,253) 16,135
Accrued expenses............. 1,295,148 (1,860,246)
Deferred tuition revenue..... 953,851 1,955,339
------------ -------------
Net cash provided by (used in)
operating activities........... 1,525,446 (1,964,229)
------------ -------------
Cash flows from investing
activity:
Purchase of property and
equipment...................... (710,705) (1,168,181)
------------ -------------
Net cash used in investing
activity....................... (710,705) (1,168,181)
------------ -------------
Cash flows from financing
activities:
Proceeds from line of credit and
long-term debt................. 8,868,314 11,729,179
Principal payments on line of
credit, long-term debt and
capitalized lease obligations (11,808,998) (13,582,775)
Repurchase of treasury shares.... - (127,936)
Proceeds from exercise of options 29,550 -
------------ -------------
Net cash used in financing
activities..................... (2,911,134) (1,981,532)
------------ -------------
Decrease in cash and cash
equivalents.................... (2,096,393) (5,113,942)
Cash and cash equivalents at
beginning of period............ 5,892,779 6,056,738
------------ -------------
Cash and cash equivalents at
end of period.................. $ 3,796,386 $ 942,796
============ =============
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 Six Months Ended
September 30,
-----------------------------------
2001 2000
-------------- ---------------
Supplemental disclosures of
noncash financing and investing
activities:
Equipment acquired under capital
leases......................... $ 513,108 $ 1,030,426
============ ==============
Supplemental disclosures of cash
flow information:
Interest paid.................... $ 513,986 $ 528,500
============ ==============
Income taxes paid................ $ 5,000 $ -
============ ==============
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 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,
reference 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 Six Months Ended
September 30, September 30,
----------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ----------- -----------
Numerator:
Income (loss) before
cumulative effect of
change in accounting
principle........... $ 29,627 $ (900,583) $ 126,654 $(1,202,349)
Cumulative effect of
change in accounting
principle, net of
tax................. - - - (563,971)
--------- ----------- ----------- ------------
Net income (loss)... $ 29,627 $ (900,583) $ 126,654 $(1,766,320)
========= =========== =========== ============
Denominator:
Denominator for
basic earnings per
share-weighted
average shares.... 13,668,586 13,344,562 13,658,737 13,355,811
Effect of dilutive
securities:
Employee stock
options........... 381,738 - 331,461 -
---------- ----------- ----------- -----------
Dilutive potential
common shares....... 381,738 - 331,461 -
Denominator for
diluted earnings
per share-
adjusted weighted-
average shares and
assumed conversions 14,050,324 13,344,562 13,990,198 13,355,811
========== =========== =========== ===========
Basic and diluted
income (loss) before
effect of change in
accounting
principle.......... $ .00 $ (.07) $ .01 $ (.09)
Cumulative effect of
change in accounting
principle, net of
tax................ - - - (.04)
---------- ----------- ------------ -----------
Basic and diluted net
income (loss) per
share.............. $ .00 $ (.07) $ .01 $ (.13)
========== ============ ============ ==========
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.
9
Whitman Education Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)
New Accounting Pronouncements - (Continued)
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 $86,000, net of taxes, for the three
and six months ended September 30, 2001, respectively. Pro forma net loss and
net loss per basic and diluted share amounts, for the three and six months ended
September 30, 2000, had SFAS 141 and 142 been applied retroactively, would have
been approximately $858,000 and $0.07 and $1,680,000 and $0.13, 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 September 30, 2001 and September 30, 2000,
comprehensive income was $29,627 and comprehensive loss was $900,583,
respectively. For the six months ended September 30, 2001 and September 30,
2000, comprehensive income was $126,654 and comprehensive loss was $1,766,320,
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 Ended For the Six Months Ended
September 30, September 30,
---------------------------- --------------------------
2001 2000 2001 2000
------------- ------------ ------------ -----------
Net revenues:
Associate
Degree
Division..... $ 17,400,635 $ 14,761,363 $ 32,688,843 $28,946,478
University
Degree
Division..... 3,983,664 3,759,876 9,213,572 8,454,191
-------------- ------------- ------------- ------------
Total.......... $ 21,384,299 $ 18,521,239 $ 41,902,415 $37,400,669
============== ============= ============= ============
Income (loss)
before income
tax provision
(benefit) and
cumulative
effect of
change in
accounting
principle:
Associate
Degree
Division..... $ 1,458,389 $ (507,241) $ 1,527,244 $(1,105,830)
University
Degree
Division..... (797,795) (398,861) (93,371) 221,190
Other........ (611,216) (590,878) (1,222,783) (1,113,945)
---------------- -------------- -------------- ------------
Total........ $ 49,378 $ (1,496,980) $ 211,090 $(1,998,585)
================ ============== ============== ============
September 30, March 31,
2001 2001
-------------- -------------
Total assets:
Associate
Degree
Division..... $ 48,107,085 $ 48,327,713
University
Degree
Division..... 7,727,197 11,895,647
Other........ 5,160,719 1,813,267
-------------- -------------
Total........ $ 60,995,001 $ 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, projections of revenues, income and cash flows, and 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.
13
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 Six Months Ended
September 30, September 30,
--------------------- --------------------
2001 2000 2001 2000
---------- ---------- --------- ---------
Net revenues................ 100.0% 100.0% 100.0% 100.0%
---------- ---------- --------- ---------
Costs and expenses:
Instructional and
educational support..... 65.7 70.0 66.3 69.2
Selling and promotional... 17.9 21.2 17.2 19.5
General and administrative 15.4 15.6 15.2 15.6
---------- ---------- --------- ---------
Total costs and expenses.... 99.0 106.8 98.7 104.3
---------- ---------- --------- ---------
Income (loss) from
operations................ 1.0 (6.8) 1.3 (4.3)
Other (income) and expenses:
Interest expense.......... 1.1 1.7 1.2 1.4
Interest income........... (0.3) (0.4) (0.4) (0.4)
---------- ---------- --------- ---------
Income (loss) before income
tax provision (benefit)
and cumulative effect of
change in accounting
principle................. 0.2 (8.1) 0.5 (5.3)
Income tax provision
(benefit)................. 0.1 (3.2) 0.2 (2.1)
---------- ---------- --------- ---------
Income (loss) before
cumulative effect of change
in accounting principle... 0.1 (4.9) 0.3 (3.2)
Cumulative effect of change
in accounting principle,
net of tax................ - - - (1.5)
---------- ---------- --------- ---------
Net income (loss)........... 0.1% (4.9)% 0.3% (4.7)%
========== ========== ========= =========
Three months ended September 30, 2001 compared to the three months ended
September 30, 2000
Net revenues increased by $2.9 million, or 15.5%, to $21.4 million for the
three months ended September 30, 2001 from $18.5 million for the three months
ended September 30, 2000. This increase was primarily due to a 4.1% increase in
average student enrollment and an increase in tuition rates.
The Associate Degree Division experienced a 5.6% increase in average
student enrollment and the University Degree Division experienced a 0.4%
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 and health information specialist programs offered by the
Ultrasound Diagnostic Schools and the information technology programs offered at
Sanford-Brown College. The increase in student enrollment 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.
14
Results of Operations - (Continued)
Instructional and educational support expenses increased by approximately
$1.0 million, or 8.3% to approximately $14.0 million for the three months ended
September 30, 2001 from approximately $13.0 million for the three months ended
September 30, 2000. As a percentage of net revenues, instructional and
educational support expenses decreased to 65.7% for the three months ended
September 30, 2001 as compared to 70.0% for the three months ended September 30,
2000. The increase in instructional and educational support expenses was
primarily due to an increase in payroll 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 education support expenses to support an increased revenue
base.
Selling and promotional expenses decreased by $0.1 million, or 2.6%, to
$3.8 million for the three months ended September 30, 2001 from $3.9 million for
the three months ended September 30, 2000. As a percentage of net revenues,
selling and promotional expenses decreased to 17.9% for the three months ended
September 30, 2001 as compared to 21.2% for the three months ended September 30,
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 $0.4 million, or 14.3%, to
$3.3 million for the three months ended September 30, 2001 from $2.9 million for
the three months ended September 30, 2000. As a percentage of net revenues,
general and administrative expenses decreased to 15.4% for the three months
ended September 30, 2001 as compared to 15.6% for the three months ended
September 30, 2000. The increase in general and administrative expenses was
primarily due to an increase in administrative payroll expenses to support the
growth in student population and an increase in bad debt expense in the
Associate Degree Division. For the three months ended September 30, 2001, bad
debt expenses as a percentage of net revenues increased to 5.6% from 5.5% for
the three months ended September 30, 2000. The increase in bad debt expense was
primarily due to the increase in net revenues for the three months September 30,
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.
We reported income from operations of $0.2 million for the three months
ended September 30, 2001 as compared to a loss from operations of $1.3 million
for the three months ended September 30, 2000. This increase in profitability
was primarily due to an increase in income from operations of $2.0 million in
the Associate Degree Division.
We reported net income of $29,627 for the three months ended September 30,
2001 and a net loss of $0.9 million for the three months ended September 30,
2000. The increase in net income was primarily due to an increase in
profitability in the Associate Degree Division.
15
Resutls of Operations - (Continued)
Six months ended September 30, 2001 compared to the six months ended
September 30, 2000
Net revenues increased by $4.5 million, or 12.0%, to $41.9 million for the
six months ended September 30, 2001 from $37.4 million for the six months ended
September 30, 2000. This increase was primarily due to a 4.2% increase in
average student enrollment and an increase in tuition rates.
The University Degree Division experienced a 5.5% increase in average
student enrollment and the Associate Degree Division experienced a 3.6% 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 Colorado Springs campus. 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 programs offered at Sanford-Brown College. The increase
in student enrollment 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.
Instructional and educational support expenses increased by $1.9 million,
or 7.3%, to $27.8 million for the six months ended September 30, 2001 from $25.9
million for the six months ended September 30, 2000. As a percentage of net
revenues, instructional and educational support expenses decreased to 66.3% for
the six months ended September 30, 2001 as compared to 69.2% for the six months
ended September 30, 2000. The increase in instructional and educational support
expenses was primarily due to an increase in payroll 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 decreased by $0.1 million, or 1.5%, to
$7.2 million for the six months ended September 30, 2001 from $7.3 million for
the six months ended September 30, 2000. As a percentage of net revenues,
selling and promotional expenses decreased to 17.2% for the six months ended
September 30, 2001 as compared to 19.5% for the six months ended September 30,
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 $0.6 million, or 9.4%, to
$6.4 million for the six months ended September 30, 2001 from $5.8 million for
the six months ended September 30, 2000. As a percentage of net revenues,
general and administrative expenses decreased to 15.2% for the six months ended
September 30, 2001 as compared to 15.6% for the six months ended September 30,
2000. The increase in general and administrative expenses was primarily due to
an increase in administrative payroll expenses to support the growth of the
student population and an increase in bad debt expense in the Associate Degree
Division. For the six months ended September 30, 2001, bad debt expense as a
percentage of net revenues increased to 5.6% from 5.1% for the six months ended
September 30, 2000. The increase in bad debt expense was primarily 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.
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Results of Operations - (Continued)
We reported income from operations of $0.5 million for the six months ended
September 30, 2001 as compared to a loss from operations of $1.6 million for the
six months ended September 30, 2000. This increase in profitability was
primarily due to an increase in income from operations of $2.6 million in the
Associate Degree Division.
We reported net income of $0.1 million and a net loss of $1.8 million for
the six months ended September 30, 2001 and 2000, respectively. 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 six months ended September 30, 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 September 30, 2001 and March 31, 2001 were
$3.8 million and $5.9 million, respectively. Our working capital totaled $6.1
million at September 30, 2001 and $8.5 million at March 31, 2001. The decrease
in cash and cash equivalents was primarily due to net repayment of long-term
borrowings of $2.9 million.
Net cash of $1.5 million was provided by operating activities for the six
months ended September 30, 2001 compared to net cash of $2.0 million used in
operating activities for the six months ended September 30, 2000. The increase
in cash provided by operating activities of $3.5 million was primarily due to an
increase in net profits and an increase in accrued expenses.
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Liquidity and Capital Resources - (Continued)
Net cash of $0.7 million and $1.2 million were used for investing
activities for the six months ended September 30, 2001 and 2000, respectively.
The decrease in cash used of $0.5 million was primarily due to a decrease in
cash used for capital expenditures.
Net cash of $2.9 million and $2.0 million were used in financing activities
for the six months ended September 30, 2001 and 2000 respectively. The increase
in cash used was due to an increase of $1.1 million in net payments on long-term
debt and capital lease obligations.
We have a $2.0 million line of credit which expires on June 30, 2002. At
September 30, 2001, we had no outstanding balance 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 six months ended
September 30, 2001 were primarily used for operations, repayment of debt and
capital expenditures.
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
six months ended September 30, 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.
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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 $86,000, net of taxes, for the three
and six months ended September 30, 2001, respectively. Pro forma net loss and
net loss per basic and diluted share amounts, for the three and six months ended
September 30, 2000, had SFAS 141 and 142 been applied retroactively, would have
been approximately $858,000 and $0.07 and $1,680,000 and $0.13, 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.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Annual Shareholders' Meeting
On August 9, 2001, Whitman held its annual meeting of shareholders. At the
meeting, all of the nominees for director were elected by the vote set forth
opposite their names in the table below:
Election of Directors For Withheld
Phillip Frost, M.D. 13,171,581 486,665
Richard C. Pfenniger, Jr. 13,170,681 487,565
Jack R. Borsting, Ph.D 13,171,581 486,665
Peter S. Knight 13,170,581 487,665
Lois F. Lipsett, Ph.D. 13,171,581 486,665
Richard M. Krasno, Ph.D. 13,170,481 487,765
Percy A. Pierre, Ph.D. 13,171,581 486,665
Neil Flanzraich 13,174,681 483,565
A. Marvin Strait, C.P.A. 13,171,581 486,665
In addition, the shareholders of Whitman approved an increase in the number
of shares of our common stock reserved for issuance under the 1996 Whitman
Education Group, Inc. Stock Option Plan from 2,500,000 shares to 3,250,000
shares. A total of 7,159,511 shares were voted in favor of the increase, 849,236
shares were voted against the increase, 11,629 shares abstained from the vote
and 5,637,870 shares were not voted.
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
September 30, 2001.
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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: November 7, 2001
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