-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, P4LhlYKf7ZEt+HFgCfP9jESWvacS4FIOHknDkwgs3aPDJsJIGhXCOYW87K6v66pF Uwpo1vqpkw19tt3fTl6gSQ== 0000277821-95-000005.txt : 19950512 0000277821-95-000005.hdr.sgml : 19950512 ACCESSION NUMBER: 0000277821-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950511 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL EDUCATION CORP CENTRAL INDEX KEY: 0000277821 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 952774428 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06981 FILM NUMBER: 95536941 BUSINESS ADDRESS: STREET 1: 18400 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92715 BUSINESS PHONE: 7144749400 MAIL ADDRESS: STREET 1: 18400 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92715 10-Q 1 LIVE SUBMISSION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 Commission file number 1-6981 NATIONAL EDUCATION CORPORATION (Exact name of registrant as specified in its charter) Delaware I.R.S. No. 95-2774428 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 18400 Von Karman Avenue, Irvine, California 92715-1594 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) 714/474-9400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 29,576,757 common stock shares outstanding at May 1, 1995 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Part I. FINANCIAL INFORMATION Item 1. Financial Statements
Three Months Ended March 31, (amounts in thousands, except per share amounts) 1995 1994 ____________________________________________________ __________ __________ (amount in thousands, except per share amount Tuition and Contract Revenues $ 44,812 $ 39,997 Publishing Revenues 11,147 9,475 _________ _________ Net Revenues 55,959 49,472 Costs and Expenses: Contract course materials and service costs 17,596 13,870 Publishing costs and materials 3,356 2,837 Product development 5,055 4,694 Selling and promotion 30,384 25,433 General and administrative 9,311 8,901 Amortization of prior period deferred marketing 1,311 7,369 Amortization of acquired intangible assets 565 426 Interest expense 1,977 1,498 Investment income (409) (558) Other income (236) (95) _________ _________ Loss Before Tax Benefit, Minority Interest and Discontinued Operations (12,951) (14,903) Tax benefit (4,533) (3,651) _________ _________ Loss Before Minority Interest and Discontinued Operations (8,418) (11,252) Minority interest in consolidated subsidiary 90 122 _________ _________ Loss From Continuing Operations (8,508) (11,374) Loss from discontinued operations - (3,016) Discontinued operations tax benefit - 1,008 _________ _________ Net Loss $ (8,508) $ (13,382) ========= ========= Loss Per Share From Continuing Operations $ (.29) $ (.38) ========= ========= Loss Per Share $ (.29) $ (.45) ========= ========= Weighted Average Number of Shares Outstanding: Primary shares 29,632 29,661 Fully diluted shares 36,932 36,961 Unaudited See accompanying notes and management's discussion and analysis.
2 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued)
March 31, December 31, March 31, (dollars in thousands) 1995 1994 1994 ____________________________________________________________________ _____________ _____________ _____________ ASSETS Current Assets: Cash and cash equivalents $ 25,280 $ 17,297 $ 26,826 Investment securities 2,219 10,833 20,570 Receivables, net of allowance of $1,585, $2,787 and $10,690 31,426 45,186 38,902 Inventories and supplies 25,098 23,827 25,830 Net assets held for disposition 24,411 25,867 - Prepaid and deferred marketing expenses 6,950 3,223 8,575 Other current assets 20,253 18,006 19,749 _________ __________ __________ Total current assets 135,637 144,239 140,452 Deferred Marketing 159 1,470 24,174 Land, Buildings and Equipment, less accumulated depreciation of $63,200, $63,240 and $121,302 26,146 25,404 45,672 Acquired Intangible Assets, less accumulated amortization of $89,590, $89,005 and $96,065 52,307 52,703 51,766 Deferred Income Taxes 28,482 28,482 25,793 Other Assets 5,685 6,778 11,224 _________ __________ __________ $ 248,416 $ 259,076 $ 299,081 ========= ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 7,168 $ 7,771 $ 7,379 Accrued expenses 24,320 29,328 36,334 Accrued salaries and wages 6,750 5,448 9,033 Accrued disposition costs 23,281 25,116 8,271 Deferred contract revenues 12,507 11,905 15,929 Current portion of long-term debt and short-term borrowings 9,382 6,407 654 Accrued and deferred income taxes 1,399 1,297 2,244 _________ __________ __________ Total current liabilities 84,807 87,272 79,844 _________ __________ __________ Liabilities Payable After One Year: Long-term debt, less current portion 6,222 6,389 2,411 Senior subordinated convertible debentures 20,000 20,000 20,000 Convertible subordinated debentures 57,494 57,494 57,494 Other noncurrent liabilities 7,818 7,667 8,176 _________ __________ __________ 91,534 91,550 88,081 _________ __________ __________ Minority Interest in Equity of Consolidated Subsidiary 8,216 8,221 8,168 _________ __________ __________ 3 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) March 31, December 31, March 31, (dollars in thousands) 1995 1994 1994 ____________________________________________________________________ _____________ _____________ _____________ Stockholders' Equity: Preferred stock, $.10 par value; 5,000,000 shares authorized and unissued - - - Common stock, $.01 par value; 50,000,000 shares authorized; 30,275,381 shares, 30,275,381 shares and 30,195,041 shares issued 2,110 2,110 2,109 Additional paid-in capital 133,043 133,043 132,615 Retained (deficit) earnings (58,752) (50,244) 299 Unrealized gain (loss) on available-for-sale securities, net of tax 21 (21) 943 Cumulative foreign exchange translation adjustment (7,655) (7,947) (8,070) _________ __________ __________ 68,767 76,941 127,896 Less common stock in treasury 697,556 shares, 697,556 shares and 697,461 shares (4,908) (4,908) (4,908) _________ __________ __________ Total stockholders' equity 63,859 72,033 122,988 _________ __________ __________ $ 248,416 $ 259,076 $ 299,081 ========= ========== ========== Unaudited See accompanying notes and management's discussion and analysis.
4 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued)
Three Months Ended March 31, _____________________________ (dollars in thousands) 1995 1994 ____________________________________________________ __________ __________ Cash Flows From Operating Activities: Net income (loss) $ (8,508) $ (13,382) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Loss on discontinued operations - 2,008 Tax benefit from discontinued operations - 1,008 Depreciation and amortization 1,372 1,347 Amortization of acquired intangible assets 565 426 Amortization of prior period deferred marketing 1,311 7,369 Provision for doubtful accounts 110 144 (Gain)/loss on foreign currency exchange (239) (95) Change in assets and liabilities: Receivables, net 14,213 14,482 Inventories and supplies (1,131) (378) Prepaid and deferred marketing expenses (3,683) (5,310) Accounts payable and accrued expenses (4,577) (5,926) Accrued and deferred income taxes (245) (1,369) Deferred contract revenues 448 184 Other (981) (1,552) _________ _________ Net Cash From Operating Activities (1,345) (1,044) _________ _________ Cash Flows For Investing Activities: Additions to land, building and equipment (2,072) (1,533) Dispositions of land, buildings and equipment 96 45 Purchases of investment securities - (4,243) Proceeds from the sale or redemption of securities 8,682 1,402 Acquisition of business, net of cash acquired - (3,870) Discontinued operations (379) (2,901) _________ _________ Net Cash For Investing Activities 6,327 (11,100) _________ _________ Cash Flows From Financing Activities: Additions to long-term debt 58 - Reductions of long-term debt (225) (86) Changes in short-term borrowings 2,975 - Minority interest in earnings of consolidated subsidiary (5) 122 Common stock, stock options and related tax benefits - 354 Purchase of common stock for treasury - (53) _________ _________ Net Cash From Financing Activities 2,803 337 _________ _________ Effect of exchange rate changes on cash 198 87 _________ _________ 5 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) Three Months Ended March 31, _____________________________ (dollars in thousands) 1995 1994 ____________________________________________________ __________ __________ Net change in cash and equivalents 7,983 (11,720) Cash and equivalents at the beginning of the period 17,297 38,546 _________ _________ Cash and equivalents at the end of the period $ 25,280 $ 26,826 ========= ========= Unaudited See accompanying notes and management's discussion and analysis.
6 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) Note 1 -- Summary of Accounting Policies In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that these financial statements be read in conjunction with the financial statements, accounting policies, and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for the year. In December 1993, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position No. 93-7 ("SOP"), "Reporting on Advertising Costs". The SOP generally requires advertising costs, other than direct-response advertising, to be expensed as incurred. In the fourth quarter of 1994, ICS adopted the SOP effective January 1, 1994. In adopting the SOP in 1994, ICS' total advertising, selling and promotion costs are expensed as incurred in 1994 rather than deferred and amortized as in prior periods. Adoption of the SOP in 1994 resulted in a first quarter charge of $13,508,000. The charge consists of two components. First, a charge of $7,369,000 results from the amortization of the deferred marketing balance at December 31, 1993 into 1994. Second, a charge of $6,139,000 results from increased selling and promotion spending above the amortization that would have been expensed in accordance with the Company's previous accounting policy. At December 31, 1994, a deferred marketing balance of $1,470,000 remained, of which $1,311,000 was amortized in the first quarter of 1995. A substantial portion of selling and promotion costs at National Education Training Group (NETG) and Steck-Vaughn are deferred and fully amortized within the calendar year to properly match the costs with revenues due to the seasonal nature of revenue realization. Due to the seasonal nature of NETG's and Steck-Vaughn's traditional selling cycle, selling and promotion costs are typically deferred in the first half of the year and amortized in the latter half of the year. Certain prior year amounts have been reclassified to conform with the 1995 presentation. 7 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) NOTE 2 - Business Disposition In June 1994, the Company adopted a plan to dispose of its Education Centers subsidiary. As a result, the Company recorded a second quarter 1994 charge of $40,032,000 to write-down assets to estimated net realizable value and provide for estimated costs of disposing of the operation. No tax benefits were provided on this charge. Based on the current assumptions to close the transaction, management believes that the amount reserved is adequate and no further charges are currently anticipated. The Education Centers are being accounted for as discontinued operations and prior period statements of operations have been reclassified to reflect this treatment. Revenues for the Education Centers' 28 open schools were $22,411,000 and $22,301,000 for the three months ended March 31, 1995 and 1994, respectively. Education Centers' negative cash flow of $379,000 for the three months ended March 31, 1995, improved $2,522,000 from the prior year period due primarily to aggressive cost reductions and control. As of May 3, 1995, the Company has collectively entered into two letters of intent and signed a definitive agreement with interested buyers to sell 18 of its 28 open schools. During the quarter, the Company closed one campus and transferred those students to a nearby educational facility for purposes of completing their course programs. The estimated net realizable value of the Education Centers' assets were segregated during the third quarter of 1994 on the balance sheet as net assets held for disposition. Liabilities associated with the cost of completing the transaction and providing for future obligations retained by the Company have been segregated as accrued disposition costs. Prior period balance sheet information has not been restated to reflect the discontinuance of the Education Centers. For purposes of presenting the statement of cash flows, prior year periods have been reclassified to reflect the discontinued operations. NOTE 3 - Earnings (Loss) Per Share Primary earnings (loss) per share are computed based on the weighted average number of common shares outstanding during the respective periods, including dilutive stock options. Fully diluted earnings (loss) per share are computed based on the assumption that the convertible debentures had been converted to common stock, with a corresponding increase in net income to reflect a reduction in related interest expense, less applicable taxes. 8 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) NOTE 4 - Investment Securities Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (FAS 115), which resulted in a change in the accounting for debt and equity securities held for investment purposes. Prior to January 1, 1994, the Company carried debt and equity securities at the lower of aggregate cost or market value. In accordance with FAS 115, the Company's debt and equity securities are now considered as either held-to-maturity or available-for-sale. Held-to-maturity securities represent those securities that the Company has both the positive intent and ability to hold to maturity and are carried at amortized cost. Available-for-sale securities represent those securities that do not meet the classification of held-to-maturity, not actively traded, and are carried at fair value. Unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of stockholders' equity, net of applicable taxes, until realized. Since the adoption of this standard, the Company recorded increases in available-for-sale securities of $32,000 and a related deferred tax liability of $11,000, resulting in a net increase of $21,000 in stockholders' equity. During the three months ended March 31, 1995 and 1994, the Company did not realize a material gain or loss from the sale of available-for-sale securities. NOTE 5 - Statements of Cash Flows Supplementary Information
Three Months Ended March 31, _____________________________ (dollars in thousands) 1995 1994 ____________________________________________________ __________ __________ Cash Paid During the Period For: Interest expense $ 1,385 $ 1,101 Income taxes, net of income tax refunds $ 249 $ 719
9 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Three Months Ended March 31, _____________________ Percent (dollars in thousands) 1995 1994 Variance Change ______________________________________________ _________ _________ _________ ________ Net Revenues ICS Learning Systems $ 33,944 $ 28,285 $ 5,659 20.0% Steck-Vaughn Publishing 11,147 9,475 1,672 17.6 NETG 10,016 11,039 (1,023) (9.3) Other 852 673 179 26.6 _________ _________ ________ Total Net Revenues $ 55,959 $ 49,472 $ 6,487 13.1
Operating Income (Loss) ICS Learning Systems before amortization $ (4,359) $ (1,065) $ (3,294) (309.3) Amortization of prior year deferred marketing (1,311) (7,369) 6,058 82.2 _________ _________ ________ ICS Learning Systems (5,670) (8,434) 2,764 32.8 Steck-Vaughn Publishing 821 1,225 (404) (33.0) NETG (4,994) (4,549) (445) (9.8) Other 166 (268) 434 n/m _________ _________ ________ Total Segment Operating Loss (9,677) (12,026) 2,349 19.5 General corporate expenses (1,942) (2,032) 90 4.4 Interest expense (1,977) (1,498) (479) (32.0) Investment income 409 558 (149) (26.7) Other income 236 95 141 148.4 _________ _________ ________ Loss Before Tax Benefit, Minority Interest and Discontinued Operations (12,951) (14,903) 1,952 13.1 Tax benefit (4,533) (3,651) (882) (24.1) _________ _________ ________ Loss Before Minority Interest and Discontinued Operations (8,418) (11,252) 2,834 25.2 Minority interest 90 122 (32) (26.2) _________ _________ ________ Loss From Continuing Operations (8,508) (11,374) 2,866 25.2 Loss from discontinued operations, net - (2,008) 2,008 n/m _________ _________ ________ Net Loss $ (8,508) $ (13,382) $ 4,874 36.4 ========= ========= ======== n/m: Not meaningful.
10 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Detailed Segment Operating Results:
(dollars in thousands) Three Months Ended March 31, 1995 _____________________________________________ ______________________________________________________________ ICS Steck- Learning Vaughn Total Systems Publishing NETG Other _________ _________ __________ _________ _________ Net Revenues $ 55,959 $ 33,944 $ 11,147 $ 10,016 $ 852 Costs and Expenses: Contract course materials and service costs 17,596 12,573 20 4,524 479 Publishing costs and materials 3,356 - 3,356 - - Product development 5,055 608 2,306 2,141 - Selling and promotion 30,384 22,445 3,420 4,377 142 General and administrative 7,374 2,635 1,040 3,634 65 Amortization of prior period deferred marketing 1,311 1,311 - - - Amortization of acquired intangible assets 560 42 184 334 - _________ _________ __________ _________ _________ Segment Operating Income (Loss) $ (9,677) $ (5,670) $ 821 $ (4,994) $ 166 ========= ========= ========== ========= =========
(dollars in thousands) Three Months Ended March 31, 1994 _____________________________________________ ______________________________________________________________ ICS Steck- Learning Vaughn Total Systems Publishing NETG Other _________ _________ __________ _________ _________ Net Revenues $ 49,472 $ 28,285 $ 9,475 $ 11,039 $ 673 Costs and Expenses: Contract course materials and service costs 13,870 8,466 15 4,771 618 Publishing costs and materials 2,837 - 2,837 - - Product development 4,694 742 1,603 2,349 - Selling and promotion 25,433 18,009 2,811 4,483 130 General and administrative 6,873 2,125 904 3,651 193 Amortization of prior period deferred marketing 7,369 7,369 - - - Amortization of acquired intangible assets 422 8 80 334 - _________ _________ __________ _________ _________ Segment Operating Income (Loss) $ (12,026) $ (8,434) $ 1,225 $ (4,549) $ (268) ========= ========= ========== ========= =========
11 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Three Months Ended March 31, 1995 Compared to Three Months Ended March 31, 1994 Revenues of $55,959,000 for the three months ended March 31, 1995 were $6,487,000, or 13.1% higher than revenues of $49,472,000 in the prior year. Loss from continuing operations was $8,508,000, or $.29 per share, compared to a loss of $11,374,000, or $.38 per share, in 1994. Net loss for the period was $8,508,000 or $.29 per share compared to a net loss of $13,382,000 or $.45 per share in the prior year. The consolidated statements of operations and cash flows for the first quarter of 1994 have been restated to reflect the Company's Education Centers subsidiary as a discontinued operation due to a plan of disposition adopted during the second quarter of 1994. ICS Learning Systems:
Three Months Ended March 31, _____________________ Percent (dollars in thousands) 1995 1994 Change ______________________________________________ _________ _________ _________ Revenues: Traditional Distance Education - Domestic $ 20,145 $ 15,501 30.0% Traditional Distance Education - International 10,497 9,838 6.7 Industrial and Business 2,048 1,905 7.5 MicroMash 1,254 1,041 20.5 _________ _________ Total Revenues $ 33,944 $ 28,285 20.0 ========= ========= New enrollments 116,358 97,552 19.3 Advertising, selling and promotion spending (traditional business only) $ 21,203 $ 17,142 23.7 Future tuition revenue at March 31 $ 176,194 $ 141,207 24.8 Approximately 45% of future tuition revenue is realized into revenue.
12 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) ICS Learning Systems (continued): ICS revenues increased 20% in the quarter due primarily to a strong performance in the domestic operation. Increased traditional revenues at the domestic operation resulted primarily from a higher carry-in of active students into 1995 as compared to the carry-in of students into 1994 (437,100 in 1995 versus 357,500 in 1994) and new enrollment increases of 24.8% during the quarter. The domestic new enrollment increase resulted from the expanded telesales efforts, which represented 47.7% of total domestic new enrollments in 1995 as compared to 27.1% in the prior year period. In an effort to better qualify students which is expected to improve student completion rates, the domestic operations initiated higher down payments and instituted credit reviews for new enrollments in certain courses. Although these efforts had an adverse effect on new enrollment conversion rates, ICS expects that these steps will ultimately increase revenues and the profitability of new enrollments. International revenues increased 6.7% during the quarter with revenue increases in Australia/New Zealand, Singapore, Canada and International Mail Sales (IMS), partially offset by revenue decreases in the United Kingdom. Despite the increase in revenue, international new enrollments declined 8.9% during the quarter. ICS operating loss improved $2,764,000 during the period due to the reduction in amortization of prior year deferred marketing of $6,058,000. Absent the effects of the amortization of prior year deferred marketing, ICS operating loss increased $3,294,000. The increase in operating loss is due primarily to an increase in advertising, selling and promotion expenses of $4,436,000 and increased course materials costs primarily related to computer related courses. Selling and promotion expenses increased primarily in the traditional domestic operations, resulting in future tuition revenue increases during the quarter of $13,144,000 or 8.1%; based on historical experience, approximately 45% will be realized into revenue. Historically, ICS' advertising, selling and promotion spending has been the highest in the first quarter. During 1994, the percentage of advertising, selling and promotion spending for the traditional distance education markets was approximately as follows: 1st Quarter - 30%, 2nd Quarter - 22%, 3rd Quarter - 29% and 4th Quarter - 19%. In addition, MicroMash experienced higher selling and promotion expenses due to increased marketing for newly developed products and courses. 13 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Steck-Vaughn Publishing:
Three Months Ended March 31, _____________________ Percent (dollars in thousands) 1995 1994 Change ______________________________________________ _________ _________ _________ Revenues: Elementary/High School $ 5,820 $ 4,934 18.0% Adult Education 2,865 2,454 16.7 Library 2,462 2,087 18.0 _________ _________ Total Revenues $ 11,147 $ 9,475 17.6 ========= =========
Steck-Vaughn revenues increased $1,672,000 or 17.6% over the prior year period due primarily to revenue increases in the northeast and mid-Atlantic states, which experienced adverse weather conditions, significantly disrupting the efforts of the direct sales force during the first quarter of 1994. Steck-Vaughn experienced higher revenues in all major product lines during the quarter with the largest increase in the elementary/high school product line. The El/Hi products benefited from the addition of the Berrent Publications product line and growth in Social Studies, Reading, and Language Arts products. Adult education products also experienced strong increases during the quarter due to growth in sales of Adult Basic Education and English as a Second Language, which have risen as a result of new and revised products introduced late in 1994. 14 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Steck-Vaughn Publishing (continued): Steck-Vaughn operating income decreased in the first quarter as compared to the prior year period primarily due to higher publishing costs and materials and product development expenses. Publishing costs and materials increased during the quarter due to the higher volume and a rise in cost of paper. Publishing costs and materials also increased due to higher trade sales and sales of Magnetic Way products, all of which carry a higher cost of sales. Product development expenses increased during the quarter due to a planned increase in spending partially caused by the addition of Berrent products and higher plant amortization resulting from the increased sales of recently revised products. These plant costs, which include costs associated with text layout and publishing set-up, are deferred and amortized to expense with the sale of the product's first printing. NETG:
Three Months Ended March 31, _____________________ Percent (dollars in thousands) 1995 1994 Change ______________________________________________ _________ _________ _________ Revenues: Domestic revenues $ 5,369 $ 7,875 (31.8)% International revenues 4,647 3,164 46.9 _________ _________ Total Revenues $ 10,016 $ 11,039 (9.3) ========= =========
NETG revenues decreased $1,023,000 during the quarter as a result of lower revenues at the domestic operations, partially offset by increased international revenues. New orders during the period, however, increased $1,280,000 or 15.8% when compared to the prior year period primarily due to increases in the UK. Despite a slight increase in domestic new orders of 5.9%, domestic revenues decreased due primarily to a lower carry-in of deferred revenue backlog into 1995 as compared to the carry-in into 1994. Operating loss of $4,994,000 in the period increased $445,000 when compared to the prior year period primarily as a result of the decrease in revenues. Operating expenses decreased in the period due to continued cost control in all areas. 15 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Operating results of the ICS and NETG foreign operations by geographic region are discussed above. The first quarter foreign currency exchange gains, recorded to other income, were $239,000 compared to gains of $95,000 in the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash, investment securities and cash provided from operations. At March 31, 1995, the Company had $27,499,000 in cash and investment securities of which $16,716,000 was held in the account of Steck-Vaughn. As of March 31, 1995, the Company had a revolving bank credit agreement in the amount of $13,500,000. During the quarter the Company increased its borrowings under the credit facility by $3,000,000 to $8,000,000. The Company also has an intercompany credit facility with Steck-Vaughn in the amount of $10,000,000 of which none was outstanding. For the three months ended March 31, 1995, negative net cash from operating activities of $1,345,000 was $301,000 higher than the prior year period. Net cash flows for 1994 were impacted by the acquisition of MicroMash in the amount of $3,870,000, while cash outflows of $379,000 during the 1995 period at the Education Centers (discontinued operation) improved $2,522,000 over the prior year period. The Company expects that cash, investment securities, the bank and Steck-Vaughn credit facilities, cash provided from operations and the continued funding of the Education Centers' students under government student financial aid programs, subject to the timely disposition of schools, will be sufficient to provide for planned working capital requirements, debt service, and capital expenditures for the foreseeable future. 16 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) See Exhibit Index following this Form 10-Q. (b) No reports on Form 8-K were filed for the period for which this report is filed. 17 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES 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. NATIONAL EDUCATION CORPORATION Date: May 10, 1995 By /s/ Keith K. Ogata ___________________________ Keith K. Ogata Vice President, Chief Financial Officer and Treasurer 18 INDEX TO EXHIBITS (Item 6(a))
Sequentially Exhibit Numbered Number Description Page _______ ___________ ____________ 3.1 Restated Certificate of Incorporation of the Company . . . . . . . . . . . . . . . . . . . 3.2 By-Laws of the Company, as amended . . . . . . . . 10.1 National Education Corporation Retirement Plan (Restated as of January 1, 1989 and as Amended through January 1, 1992) . . . . . . . . . . . . . 10.2 National Education Corporation Retirement Plan Trust . . . . . . . . . . . . . . . . . . . . . . 10.3 Advanced Systems, Incorporated 1984 Stock Option and Stock Appreciation Rights Plan . . . . 10.4 1986 Stock Option and Incentive Plan, as amended . . . . . . . . . . . . . . . . . . . . . 10.5 1990 Stock Option and Incentive Plan . . . . . . . 10.6 1991 Directors' Stock Option Plan . . . . . . . . 10.7 Rights Agreement, dated October 29, 1986, between National Education Corporation and Bank of America National Trust and Savings Association, Rights Agent (including exhibits thereto) . . . . . . . . . . . . . . . . . . . . 10.8 Addendum No. 1 to Rights Agreement, dated August 5, 1991 . . . . . . . . . . . . . . . . . 10.9 Indenture, dated as of May 15, 1986, between National Education Corporation and Continental Illinois National Bank and Trust Company of Chicago, as Trustee . . . . . . . . . . . . . . . 10.10 Tripartite Agreement, dated as of May 31, 1990, among National Education Corporation, Conti- nental Bank as Resigning Trustee, and IBJ Schroder Bank & Trust Company as Successor Trustee . . . . . . . . . . . . . . . . . . . . . 19 Sequentially Exhibit Numbered Number Description Page _______ ___________ ____________ 10.11 National Education Corporation Purchase Agree- ment, Senior Subordinated Convertible Deben- tures, dated as of February 15, 1991 . . . . . . 10.12 National Education Corporation Supplemental Executive Retirement Plan, as amended . . . . . . 10.13 Supplemental Benefit Plan for Non-Employee Directors . . . . . . . . . . . . . . . . . . . . 10.14 Intercompany Agreement between National Education Corporation and Steck-Vaughn Publishing Corporation, dated June 30, 1993 . . . 10.15 Tax Sharing Agreement between National Education Corporation and Its Direct and Indirect Corporate Subsidiaries, dated January 1, 1993 . . . . . . . . . . . . . . . . . 10.16 Asset Purchase Agreement between Steck-Vaughn Company and Creative Edge Inc., dated as of April 26, 1993 . . . . . . . . . . . . . . . . . 10.17 $13,500,000 Amended and Restated Credit Agreement among National Education Corporation, the Banks named therein and Bankers Trust Company as Agent, dated February 28, 1995 (the "Credit Agreement") (Confidential treatment under Rule 24b-2 has been requested for portions of this exhibit) . . . . . 10.18 First Amendment to Intercompany Agreement, dated June 10, 1994, between National Education Corporation and Steck-Vaughn Publishing Corporation . . . . . . . . . . . . . . . . . . . 10.19 $10,000,000 Credit Agreement between Steck-Vaughn Company and NationsBank of Texas, dated as of June 10, 1994 . . . . . . . . . . . . . . . . . . 10.20 Revolving Line of Credit Note and Option Agreement between National Education Corporation and Steck-Vaughn Publishing Corporation, dated February 28, 1995 . . . . . . . . . . . . . . . . 20 Sequentially Exhibit Numbered Number Description Page _______ ___________ ____________ 10.21 Executive Employment Agreement between National Education Corporation and Sam Yau . . . . . . . . 11.1 Calculation of Primary Earnings Per Share . . . . 11.2 Calculation of Fully Diluted Earnings Per Share . 27.1 Financial Data Schedule . . . . . . . . . . . . . incorporated by reference from a previously filed document denotes management contract or compensatory plan or arrangement Incorporated by reference to Exhibit 19-2 filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1987. Incorporated by reference to Exhibit 10 filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990. Incorporated by reference to Exhibit 10.1 filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1992, filed March 22, 1993. Incorporated by reference to Exhibit 10(b) filed with Registrant's Registration Statement on Form S-8 (No. 2-86904), filed October 3, 1983. Incorporated by reference to Exhibit 10.15 filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1987, filed March 30, 1988. Incorporated by reference to Exhibit 10.17 filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, filed April 1, 1991. Incorporated by reference to Exhibit "A" filed with Registrant's 1990 Proxy Statement, filed April 2, 1990. Incorporated by reference to Exhibit "A" filed with Registrant's 1991 Proxy Statement, filed April 1, 1991. Incorporated by reference to Exhibit 4.1 filed with Registrant's Current Report on Form 8-K, dated October 29, 1986, filed October 30, 1986. 21 Incorporated by reference to Exhibit 10.19 filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1991, filed April 1, 1992. Incorporated by reference to Exhibit 4.2 filed with Amendment No. 1 to Registrant's Registration Statement on Form S-3 (No. 33-5552), filed May 16, 1986. Incorporated by reference to Exhibit 4 filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990. Incorporated by reference to Exhibit 4 filed with Registrant's Current Report on Form 8-K, dated February 20, 1991, filed February 27, 1991. Incorporated by reference to Exhibit 10.17 filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1991, filed April 1, 1992. Incorporated by reference to Exhibit 10.18 filed with Registrant's Annual Report on Form 10-K for the year ended December 31, 1991, filed April 1, 1992. Incorporated by reference to Exhibit 10.8 filed with Amendment No. 1 to Steck-Vaughn Publishing Corporation's Registration Statement on Form S-1, File No. 33-62334, filed June 17, 1993. Incorporated by reference to Exhibit 10.9 filed with Amendment No. 1 to Steck-Vaughn Publishing Corporation's Registration Statement on Form S-1, File No. 33-62334, filed June 17, 1993. Incorporated by reference to Exhibit 10.13 filed with Steck-Vaughn Publishing Corporation's Registration Statement on Form S-1, File No. 33-62334, filed May 7, 1993. Incorporated by reference to Exhibit 10.18 filed with Registrant's Annual Report on Form 10-K for the year ended December 13, 1994, filed March 30, 1995. Incorporated by reference to Exhibit 10.23 filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, filed on August 11, 1994. Incorporated by reference to Exhibit 10.14 filed with Steck-Vaughn Publishing Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, filed on August 11, 1994. Incorporated by reference to Exhibit 10.12 filed with Steck-Vaughn Publishing Corporation's Annual Report on Form 10-K for the year ended December 31, 1994, filed March 29, 1995. Filed herewith.
22 EX-10.21 2 EXECUTIVE EMPLOYMENT AGREEMENT EXHIBIT 10.21 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of March 1, 1995, by and between CHING YUEN ("SAM") YAU, currently residing at 10 Hexham, Irvine, California 92715 (hereinafter referred to as "Executive"), and NATIONAL EDUCATION CORPORATION (hereinafter referred to as "Corporation"). WHEREAS: A. The Corporation is a corporation organized under the laws of the State of Delaware, and is engaged in the business of operating training and learning centers, publishing educational and training materials, and the development, sale, and marketing of educational goods and services; and B. Executive is a person whose skills, experience and training are required by the Corporation; and C. Executive wishes to accept the employment offered by the Corporation on the terms and conditions hereinafter set forth. NOW THEREFORE, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. EMPLOYMENT 1.1 Position and Duties The Corporation does hereby employ Executive and Executive hereby accepts such employment as President and Chief Executive Officer of Corporation upon the terms and provisions set forth in this Agreement. Executive shall report only to the Board of Directors of the Corporation ("the Board") and to the Executive Committee of the Board and, subject to the directions of the Board or the Executive Committee, shall have general supervision, direction and control of the business, officers and employees of the Corporation. All officers and employees of the Corporation shall report directly or indirectly to Executive. For the avoidance of doubt, subject to the approval of the Board, Executive shall have full responsibility and authority to hire, discharge, discipline, promote and compensate employees of the Corporation. Furthermore, Executive shall have full general, managerial and financial authority of the Corporation, subject to such directions and control as the Board may specify from time to time. Executive shall devote his full working time and effort to the business and affairs of the Corporation as necessary to faithfully discharge the duties and responsibilities of his office. 1 Executive may participate in other business and act as a director of any profit or nonprofit corporation, so long as such activity is not competitive with the business of the Corporation in any material respect and does not materially detract from the performance of his duties as a full time executive of the Corporation. 1.2 Board Seat During the term hereof, including any extensions, Executive shall be a member of the Board of Directors of the Corporation and a member of the Executive Committee of the Board. 2. TERM This Agreement shall continue in full force and effect for a period (the "Term") which shall commence as of March 1, 1995 (the "effective date") and shall continue for a period of three (3) years, unless sooner terminated as hereafter provided. Thereafter, this Agreement will automatically renew for annual one year periods, unless either party gives to the other written notice at least ninety (90) days prior to the commencement of the next year, of such party's intent not to renew this Agreement. 3. COMPENSATION 3.1 Base Salary As compensation for the services to be performed by Executive during the continuance of this Agreement, the Corporation shall pay Executive a base salary of not less than $350,000 per year for each year of his employment hereunder, payable in accordance with Corporation practices in effect from time to time, but not less often than monthly (the "Base Salary"). For the period from March 1 to April 30, 1995, the Corporation shall be credited with amounts paid to Executive on a consulting basis and Executive agrees to accept adjustment of his consulting fee to an amount equivalent to the pro rata portion of his Base Salary for such period. Base Salary shall be payable in substantially equal installments and reduced on a pro rata basis for any fraction of a year or month during which Executive is not so employed. 3.2 Bonus Executive shall be entitled to earn a bonus in an amount from thirty-five percent (35%) up to one hundred forty percent (140%) of Base Salary per year (the "Bonus"), based upon achievement of financial and other goals established by the Board based on the recommendations of Executive. The target bonus will be seventy percent (70%) of Base Salary upon achievement of the established goals with a lesser or greater amount due in the event the goals are not fully achieved or exceeded, as the case may be. In the event that an agreed percent of the agreed-upon goals is not achieved, Executive shall not be entitled to a bonus unless authorized by the Board in its discretion. For the initial year of this Agreement the Bonus shall be prorated from March 1, 1995, but the minimum bonus for the initial 2 year shall not be less than seventy percent (70%) of Base Salary. Any such Bonus earned by Executive shall be paid annually within ninety (90) days after the conclusion of the Corporation's fiscal year or, upon mutual agreement of the parties, in another fashion. 3.3 Additional Benefits Executive shall be entitled to all rights and benefits for which Executive is otherwise entitled under any pension plan, profit sharing plan, life, medical, dental, disability or other insurance plan or policy or other similar plan or benefit the Corporation may provide for senior executives generally and for employees of the Corporation generally from time to time in effect during the term of this Agreement (collectively, "Additional Benefits"). Executive shall receive financial planning benefits, private club memberships, participation in the Executive Medical Plan and the Supplemental Executive Retirement Plan and shall commence such participation immediately as of May 1, 1995. For the avoidance of doubt, the benefits granted or afforded to Executive under any such plans shall be not less than the most favorable benefits granted to the most favored employee of the Corporation and not less than those provided to Executive's predecessor as Chief Executive Officer. 3.4 Stock Options As an additional element of compensation to Executive in consideration of the services to be rendered hereunder, Employer shall grant to Executive options to acquire shares of Corporation's common stock as follows: (A) An initial option to acquire up to Five Hundred Thousand (500,000) shares at the closing price on March 17, 1995 vesting in thirty-five (35) equal monthly increments of 13,889 each commencing June 1, 1995 and continuing on the first of each month thereafter and concluding with a final installment of 13,885 shares on May 1, 1998. If there is a change of control as defined below, the option shall fully vest as of that date. The options shall be treated as incentive stock options to the maximum extent permissible under the Internal Revenue Code and regulations thereunder and otherwise as non-qualified stock options and, so long as Executive remains employed by the Corporation, shall remain exercisable for a period of ten (10) years from March 17, 1995. (B) In addition to the foregoing option, for a 30 day period commencing on May 8, 1995, Executive shall be offered the following opportunities for equity accumulation: (i) The Corporation shall offer to Executive the right to purchase from the Corporation up to Two Hundred Forty Thousand (240,000) shares of Corporation common stock at the closing price as of March 17, 1995. The purchase price shall be funded by a loan from the Corporation bearing interest at the higher of i) Corporation's cost of funds from time to time or ii) the minimum interest rate required under Internal Revenue Code Regulations for the month of May, 1995; provided, however, that the interest rate equivalent to the Corporation's cost of funds shall apply only in the case where Corporation incurs indebtedness for the 3 specific purpose of funding the loan to Executive. The loan shall be secured by the Corporation common stock acquired but with full recourse to Executive. The loan shall provide for simple interest payable annually and shall further provide that twenty-five percent (25%) of any bonus payment shall be applied in satisfaction of principal on the loan until the loan is fully repaid; provided however, any such payment from bonus proceeds shall be reduced to the extent that Executive has prepaid all or any portion of such amount prior to the payment of a bonus award to Executive. Otherwise, the loan shall not require repayment prior to the earlier of the disposition of the securities or ninety (90) days following the termination of Executive's employment with the Corporation. The terms of the loan shall be substantially in accordance with the form of Note and Stock Pledge Agreement attached hereto as Exhibit A. (ii) For each share of Corporation common stock purchased by Executive pursuant to paragraph 3.4(B)(i) above, the Corporation shall grant an option to purchase two and one half (2-1/2) shares of Corporation common stock at the closing price per share as of March 17, 1995 up to an aggregate of Six Hundred Thousand (600,000) shares. Subject to Executive's continued employment with the Corporation: (x) The first one-third (1/3) of such option (up to 200,000 shares) shall vest when the closing market price per share of the Corporation's common stock (as adjusted for stock splits, stock dividends, recapitalizations, mergers and similar events) for a period of four (4) consecutive weeks ("Average Stock Price") equals Six Dollars ($6) or more per share; (y) An additional one-third (1/3) of such option shares shall vest when the Average Stock Price equals Nine Dollars ($9) or more per share; and, (z) The final one-third (1/3) of such option shares shall vest when the Average Stock Price equals Twelve Dollars ($12) or more per share. In all events, subject to Executive's continued employment with the Corporation, such option shall fully vest on November 1, 2004, and shall remain exercisable for six (6) months thereafter. (C) The specific terms of the above-referenced options and purchase arrangements shall be as set forth in the separate option and purchase agreements. To the extent that Corporation does not have available options in its option plans to grant to Executive as contractually committed hereinabove, Corporation agrees to amend its plans and/or adopt new plans as promptly as possible to provide sufficient options for such option grants. Corporation shall use its best efforts to prepare and submit for approval by its directors and its shareholders at the 1995 Annual Meeting of Shareholders a new option plan which would provide sufficient options to allow Corporation to meet its contractual obligations to Executive herein and to provide for potential grants of options to other key employees. (D) Executive shall be considered for additional grants of options, SARs, phantom stock rights and any similar option or securities compensation when and as such grants are considered for other executives or employees of the Corporation, but any grant is wholly at the discretion of the Board. 4 (E) For all purposes of this Agreement, a "change of control" shall mean and shall be deemed to have occurred if: (1) There shall be consummated (x) any consolidation or merger of the Corporation with another corporation or entity and as a result of such consolidation or merger, a majority of the outstanding voting securities of the surviving or resulting corporation or entity shall be owned in the aggregate by persons who were not stockholders of the Corporation prior to the merger or consolidation (excluding the affiliates of the acquiror who acquired their shares within one hundred eighty (180) days prior to such merger or consolidation), or (y) any sale, lease, exchange or other transfer (or in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, or (2) the stockholders of the Corporation shall have approved any plan or proposal for the liquidation or dissolution of the Corporation; or (3) any "person" (as such term is used in the Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), shall have become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of forty percent (40%) or more of the Corporation's outstanding common stock, without the prior approval of the Board, or (4) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the entire Board of Directors shall have ceased for any reason to constitute a majority thereof unless the election, or the nomination for election by the Corporation's stockholders, of each new Director was approved by vote of the Directors then still in office who were Directors at the beginning of the period. 3.5 Periodic Review The Corporation shall review Executive's Base Salary, Bonus, Stock Options, and Additional Benefits then being provided to Executive not less frequently then every twelve (12) months. Following such review, the Corporation may, in its discretion, increase the Base Salary, Bonus, Stock Options and Additional Benefits, but Corporation shall not decrease the Base Salary, Bonus, Stock Options, and Additional Benefits during the time Executive serves as an employee of this Corporation. 3.6 Reimbursements 3.6.1 General. Executive shall be promptly reimbursed by the Corporation for amounts actually expended by Executive in the course of performing duties for the Corporation where Executive tenders receipts or other documentation reasonably substantiating the amounts as required by the Corporation. As a condition of employment hereunder, Executive shall entertain business prospects, provide and maintain an appropriate automobile, maintain and improve Executive's professional skills by participating in continuing education courses and seminars, and maintain 5 memberships in civic groups, professional societies and fraternal organizations and Corporation agrees to reimburse Executive therefor consistent with criteria under the Internal Revenue Code. The Corporation shall pay directly, or reimburse Executive for all Executive's legal fees and costs up to a maximum of $20,000.00, in connection with this Agreement, his consulting and prior agreements with the Corporation, the terms of employment and related agreements and related negotiations. 3.6.2 Business Expenses. During the term of this Agreement to the extent that such expenditures satisfy the criteria under the Internal Revenue Code for deductibility by the Corporation (whether or not fully deductible by the Corporation) for federal income tax purposes as ordinary and necessary business expenses, Corporation agrees to and shall reimburse Executive promptly for all reasonable business expenditures including travel, entertainment, parking, business meetings, professional dues and the costs of and dues associated with maintaining club memberships and expenses of education, made or substantiated in accordance with policies, practices and procedures established from time to time by the Corporation generally with respect to other senior executives/managers and other employees of the Corporation and incurred in the pursuit and furtherance of the Corporation's business and good will. 3.6.3 Travel. In connection with any travel by Executive in the performance of his duties hereunder, Corporation shall advance to Executive an amount equivalent to the reasonable and necessary expenses of such travel and appropriate to Executive's position in Corporation. For this purpose, airline travel arrangements shall be deemed reasonable, necessary and appropriate for domestic United States travel (except coast to coast flights) if Executive travels standard "business class" or equivalent; all international or coast to coast (U.S.) flights shall be at least "business class" or equivalent. 3.6.4 Automobile Expenses. During the term of this Agreement, Corporation shall provide Executive with a monthly vehicle allowance but shall not treat Executive less favorably than his predecessor as Chief Executive Officer or other senior executives. In addition, Corporation shall pay or reimburse Executive for reasonable and necessary costs of all automobile insurance (liability or otherwise), fuel, lubricants and automobile maintenance and repair incurred by Executive hereunder. 3.6.5 Entertainment. Executive shall be expected to entertain those with whom the Corporation conducts business both at Executive's home and at public restaurants, bars, theaters, etc. The Corporation shall pay Executive for or promptly reimburse Executive for the reasonable and necessary costs of such entertainment. 3.6.6 Credit Cards. To assist Executive in the performance of his duties, Corporation shall provide Executive with a Corporation credit card or cards for use in paying for any and all reimbursable expenses. 6 3.6.7 Relocation. In the event that the Corporation relocates its headquarters from Orange County, California, Executive shall in no event be required to move his residence from Orange County, California, and shall be allowed to function as Chief Executive Officer from an appropriate and satisfactory office and staff provided to him in Orange County. In such event, Executive will increase his travel as necessary to carry out his functions. The Corporation will provide a satisfactory apartment and automobile for Executive's use in its new headquarters location and will reimburse all expenses of his stays in such location. The provision of such benefits will be tax protected and grossed up to the extent necessary to avoid tax or other cost to Executive. 3.7 Deductions There shall be deducted from Executive's gross compensation appropriate amounts for standard employee deductions (e.g., income tax withholding, social security and state disability insurance) and any other amounts authorized for deduction by Executive. 4. VACATION Executive shall be entitled to not less than the amount of paid vacation enjoyed by his predecessor for each twelve (12) month period of employment which shall accrue on a pro rata basis from the date employment commences under this Agreement. Subject to the foregoing minimum vacation, Executive shall be entitled to paid vacation, holidays and leave time in accordance with the plans, policies, programs and practices in effect generally with respect to other senior employees of the Corporation. Executive shall not forfeit or cease to accrue any paid vacation, if he is unable to or does not use it, in any year or period of years during the term hereof, or any extensions thereof, up to the maximum vacation accrual currently permitted by the Corporation for its Chief Executive Officer. 5. INDEMNIFICATION The Corporation shall, to the maximum extent permitted by law, indemnify and hold Executive harmless from and against any expenses, including reasonable attorney's fees, judgements, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising out of, or related to, Executive's employment by the Corporation. The Corporation shall advance to Executive any expenses, including reasonable attorneys' fees and costs of settlement, reasonably incurred in defending any such proceeding to the maximum extent permitted by law. The Corporation will include Executive under all directors' and officers' liability insurance policies and will use its best efforts to maintain existing coverage levels, assuming continuation of insurance availability at commercially reasonable rates. 7 6. TERMINATION OF EMPLOYMENT Employment shall terminate upon the occurrence of any of the following events: 6.1 Expiration of Term Upon at least ninety (90) days prior written notice by Corporation to Executive terminating this Agreement prior to the expiration of the original term or an extended term as specified in Section 2; upon such termination, Executive shall be entitled to the compensation provided in paragraph 6.4 payable as provided therein. 6.2 Mutual Agreement Whenever the Corporation and Executive mutually agree in writing to termination; 6.3 Termination for Cause At any time for cause. For purposes of this Agreement, "cause" shall be defined as any of the following, provided however, that the board of directors of the Corporation by a duly adopted resolution has determined the presence of such cause in good faith: (i) Executive's material breach of any of his duties and responsibilities under this Agreement (other than as a result of incapacity due to disability); (ii) Executive's conviction by, or entry of a plea of guilty in, a court of competent jurisdiction for a felony; or, (iii) Executive's commission of an act of fraud or willful misconduct or gross negligence in the performance of his duties. Notwithstanding the foregoing, Executive shall not be terminated for "cause" pursuant to the clauses above, unless and until Executive has received notice of the proposed termination for cause including details on the bases for such termination and has had an opportunity to be heard before at least a majority of members of the board of directors of the Corporation. Executive shall be deemed to have had such an opportunity if written or telephonic notice is given at least ten (10) days in advance of a meeting. 6.4 Termination without Cause Without cause. Notwithstanding any other provision of this section, the Corporation shall have the right to terminate Executive's employment with the Corporation without cause at any time, but any such termination shall be without prejudice to Executive's rights to receive Base Salary, Bonus compensation and Additional Benefits provided under this Agreement for two (2) years and, except as provided in the proviso below, Executive shall be vested in all options granted to him pursuant to paragraph 3.4(A) above, and shall have one (1) month for each month of Executive's tenure, with a minimum of six (6) months and a maximum of one (1) year, to exercise all vested options; provided, further, if the Board determines that Executive's employment is being terminated for the reason 8 that the shared expectations of Executive and the Board are not being met, in the Board's judgment, then Executive's vesting rights in options shall be limited to such additional vesting as shall occur during a period following the date of termination of Executive's employment equal to the number of months of Executive's tenure with the Corporation, with a minimum of six (6) months and a maximum of one (1) year, with the right to exercise for the same period plus thirty (30) days. The continued vesting and exercise rights relative to the options granted under paragraph 3.4(B)(ii) shall be subject to the same limitations as set forth in the immediately preceding sentence and the further limitation in that the Average Stock Price shall be met. The Corporation shall provide Executive with senior executive outplacement at an outplacement or executive search firm of Executive's selection (and reasonably acceptable to Corporation). If Executive is terminated without cause, Executive may elect to receive a lump sum payment representing the aggregate cash compensation (including salary, bonus, auto allowance and any other cash or equivalent compensation, other than continued vacation accrual). Such lump sum payment shall be made not later than ten (10) days after Executive makes such election. In the event of such lump sum election, all insurance and other noncash benefits shall cease but Executive shall continue to receive outplacement. Executive shall have the right to "gross up" protection against any parachute tax treatment of such severance payments. 6.5 Death/Disability The death or disability of Executive. For the purposes of this Agreement, disability shall mean the absence of Executive performing Executive's duties with the Corporation on a full time basis for a period of six (6) consecutive months, as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Corporation or its insurers and reasonably acceptable to Executive or Executive's legal representative. If Executive shall become disabled, Executive's employment may be terminated by written notice to Executive. In the event of the death of Executive, all compensation hereunder shall continue for a period of one (1) year after his death and shall be paid to his estate or other proper beneficiary at his death. 6.6 By Executive Without Cause By Executive at any time upon ninety (90) days' notice to Corporation. Executive shall not be entitled to any severance in the event of such a termination. 7. CHANGE OF CONTROL If there should occur a "change of control" of the Corporation (or any successor), as defined in paragraph 3.4(E) hereof, and Executive's employment is terminated (other than by Executive) or Executive is adversely affected in terms of overall compensation, benefits, title, authority, reports, reporting relationships, location of employment or similar matters, then Executive, without limitation on any other rights 9 hereunder, may, within six (6) months after receiving notice of such event, elect to resign from full time service to the Corporation. In the event of such election by Executive, Executive shall be provided with senior executive outplacement services at an outplacement or executive search firm of Executive's selection (and reasonably acceptable to Corporation), and the cash compensation and all benefits to which Executive is entitled hereunder shall be discontinued twenty-four (24) months after the date of election (or earlier, if a lump sum payment of cash compensation is specified). Executive, at his election, shall have the right to request and, if requested, shall be paid the full cash value of all amounts of cash compensation due for the 24-month period (including salary, bonus, auto allowance, and any other cash or equivalent compensation) in a lump sum, such lump sum payment shall be made not later than ten (10) days after Executive gives notice to the Corporation of his lump sum election. In the event of such election, all insurance and noncash benefits shall cease but Executive shall receive outplacement as provided in this paragraph. Executive shall have the right to "gross up" protection against any parachute tax treatment of such payment. The options granted to Executive under paragraph 3.4(B)(ii) shall vest to the extent provided in paragraph 6.4 above. In addition, if an acquiror of 100% of the Corporation stock is itself a publicly held company, the Corporation shall make reasonable efforts to negotiate that Executive shall have the right, but not the obligation, to convert all his Corporation vested options (but with respect to the options granted under paragraph 3.4(B)(ii)), only such options as to which the applicable Average Stock Price has been met, into options on the acquiror's stock and shall have two (2) years to exercise those options, but Corporation shall have no obligation to Executive if it fails to secure such rights or concludes that pursuing such rights would materially prejudice the interests of the shareholders of the Corporation. 8. BREAKUP AND DISPOSITION OF CORPORATION ASSETS If within the first year of Executive's employment, the Board determines to maximize shareholder value through disposition of a significant amount of assets or business units of the Corporation, Executive shall assist Corporation through such disposition and shall thereafter be entitled to terminate this Agreement within six (6) months of such event (completion of such disposition) and receive all benefits provided under section 6.4 hereof but the number of options vested shall be limited to Five Hundred Thousand (500,000) plus as many additional options as shall vest pursuant to paragraph 3.4(B)(ii) as determined by the highest Average Stock Price achieved following announcement of such disposition. As used herein, the term "significant amount of assets or business units of the Corporation" shall mean either fifty percent (50%) or more of the gross revenues of Corporation, or fifty percent (50) or more of the operating income of the Corporation (but calculating total operating income by excluding losses from business units of the Corporation which are operating at a loss.) 10 9. BUSINESS DISCLOSURES AND SOLICITATION OF EMPLOYEES Executive agrees during the term of his employment by the Corporation and thereafter that he will not disclose, other than to an authorized employee, officer, director or agent of the Corporation, any information relating to the Corporation's business, trade, practices, trade secrets or knowhow or proprietary information without the Corporation's prior express written consent. Following termination of Executive's employment, Executive shall be permitted to continue in his usual occupation and shall not be prohibited from competing with the Corporation except during the two (2) year severance period and in the specific industry market segments in which the Corporation competes and which represent twenty percent (20%) or more of its revenues. Executive agrees that for a period of one (1) year following the termination of Executive's employment with the Corporation for any reason, Executive shall not directly or indirectly solicit, induce, recruit or encourage any of the Corporation's employees to leave their employment or take away such employees or attempt to solicit, induce, recruit, encourage or take away employees of the Corporation. 10. MISCELLANEOUS 10.1 Arbitration Any dispute, controversy or claim arising out of or in respect of this Agreement (or its validity, interpretation or enforcement), the employment relationship or the subject matter hereof shall, at the request of either party, be settled by binding arbitration in Orange County, California in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The parties shall have rights to discovery as provided in section 1283.05 of the California Code of Civil Procedure. The prevailing party in any such matter shall recover all of its costs and expenses, including reasonable attorney's fees. 10.2 No Third-Party Beneficiaries This Agreement shall not confer any rights or remedies upon any person other than the parties and their respective successors and permitted assigns. 10.3 Entire Agreement This Agreement (including the documents referred to herein) constitutes the entire agreement between the parties and supersedes any prior understandings, agreements, or representations between the parties, written or oral, to the extent they have related in any way to the subject matter hereof. 11 10.4 Succession and Assignment This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. No party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the Corporation and Executive; provided, however, that the Corporation may (i) assign any or all of its rights and interests hereunder to one or more of its affiliates and (ii) designate one or more of its affiliates to perform its obligations hereunder (in any or all of which cases the Corporation nonetheless shall remain responsible for the performance of all of its obligations hereunder). 10.5 Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 10.6 Headings The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this agreement. 10.7 Notices All notices, requests, demands, claims, and other communications required or permitted hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If To Corporation: National Education Corporation 18400 Von Karman Avenue Irvine, California 92715 Attention: General Counsel Facsimile Number: (714) 474-9488 If To Executive: Sam Yau 10 Hexham Irvine, California 92715 Facsimile Number: (714) 509-1918 12 Any party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving notice in the manner herein set forth. 10.8 Governing Law This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California without giving effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California. 10.9 Amendments and Waivers No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by Corporation and the Executive. No waiver by any party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 10.10 Severability Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 13 / / / / / / / / / / / / / IN WITNESS THEREOF, the parties hereto have executed this Agreement as of the date first above written. "CORPORATION": NATIONAL EDUCATION CORPORATION By:______________________________ Its:__________________________ "EXECUTIVE": ________________________________ SAM YAU 14 EXHIBIT A FORM OF NOTE AND STOCK PLEDGE AGREEMENT $720,000.00 Irvine, California May ___, 1995 PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises to pay to NATIONAL EDUCATION CORPORATION, a Delaware corporation, or order ("Holder") at Irvine, California, the sum of Seven Hundred Twenty Thousand Dollars ($720,000.00), together with interest from the date hereof on the unpaid principal at the rate of _________________ percent (___%) per annum as follows: a) Interest only annually on May 1 of 1996 and May 1 of each year thereafter; b) Principal shall be paid upon the payment of bonus income from Holder to the extent of twenty-five percent (25%) of the gross amount of such bonus; provided, however, Maker shall be credited with the amount of any principal prepaid by Maker during the year prior to the bonus payment and not previously credited to Maker, and to such extent the payment from any bonus income shall be reduced; c) Principal and accrued interest shall be paid upon sale of all or any portion of the underlying security in an amount equal to the proceeds of said sale, up to the principal balance owed and accrued interest thereon: and d) Principal and accrued interest shall be paid in full upon the earlier of: (i) Ninety (90) days following the date of termination of Maker's employment with Holder; or (ii) on May 1, 2001. The undersigned shall have the right to prepayment of principal and interest in full or in part at any time or from time to time without premium or penalty. Should default be made in any payment when due which shall remain uncured thirty (30) days after notice in writing to Maker from Holder, the whole sum of principal and interest shall become due immediately at the option of Holder of this Note. Principal is payable in the lawful money of the United States and such payment shall be made to Holder at Irvine, California, or such other place as Holder shall designate in writing. 1 This Note is secured by a Pledge Agreement of even date herewith by and between Maker, as Pledgor, and Holder, as Pledgee and is entered into pursuant to that Stock Purchase and Option Agreement between Maker and Holder dated as of May ____, 1995. The undersigned further agrees that in the event that Holder exercises its rights under the Pledge Agreement due to default on this Note and if upon disposition of the collateral there is a deficiency owing, Holder shall have the right to offset compensation and other amounts due Maker from Holder to satisfy any such deficiency of principal, interest and other amounts due under this Note. The undersigned promises to reimburse Holder hereof for any and all costs, including reasonable attorneys' fees and court costs, which Holder may incur in collecting the obligation due hereunder, whether or not suit is filed thereon. The undersigned does hereby waive presentment, demand, protest and notice of protest. /s/ Sam Yau _________________________ SAM YAU 2 STOCK PLEDGE AGREEMENT SAM YAU, as "PLEDGOR", does hereby deposit with _________________________________, as "PLEDGE HOLDER" for the pledgee herein and does hereby pledge to NATIONAL EDUCATION CORPORATION as "PLEDGEE", as collateral security for the payment and full, faithful, true and exact performance and observance of all of the covenants and conditions of PLEDGOR with regard to that certain Promissory Note ("Note") dated May_________, 1995, delivered pursuant to the terms of that Stock Purchase and Option Agreement among PLEDGOR and PLEDGEE, INC., dated May________, 1995, with respect to Two Hundred Forty Thousand (240,000) shares of common stock of PLEDGEE, represented by Certificate No. _______ (the "Collateral") and PLEDGOR, PLEDGEE and PLEDGE HOLDER further agree as follows: 1. PLEDGOR, upon the default of the PLEDGOR in the timely payment of principal or interest due pursuant to the Note, hereby authorizes and empowers PLEDGEE, at its option and without notice to PLEDGOR, except as specifically herein provided, to collect, sell, assign and deliver, the whole or any part of the Collateral, or any substitute therefor, or any addition thereto, at public or private sale, or at any broker's board or stock exchange, for cash, upon credit, or for future delivery, without the necessity of the Collateral being present at any such sale, or in view of prospective purchasers thereof, and without any presentment, demand for performance, protest, notice of protest, or notice of dishonor, or advertisement, any such demand or advertisement being expressly waived. PLEDGEE shall give PLEDGOR and the PLEDGE HOLDER of the Collateral thirty (30) days notice at the addresses specified herein, of the time and place of any public or private sale. Upon such sale, PLEDGEE may become the purchaser of the whole or any part of the Collateral sold, discharged from all claims and free from any right of redemption. The foregoing is hereby made subject to the following provisions, to wit: That PLEDGEE shall include in such notice of the time and place of such sale a statement of the grounds upon which such default(s) is (are) based; and, that during such thirty (30) day period, PLEDGOR may cure such default, in which event said sale shall not be held and it shall be deemed that no such default occurred. In the event of a sale as described in this paragraph 1, PLEDGOR shall remain obligated for any deficiency in PLEDGOR's obligation following such sale. 2. In case of any sale or disposal of the Collateral, the proceeds thereof shall first be applied to the payment of the expenses of such sale, commissions, attorneys' fee and all charges paid or incurred by PLEDGEE pertaining to said sale, including any taxes or other charge imposed by law upon the Collateral and/or the owning, holding or transferring thereof. Secondly, to pay, satisfy and discharge the duties and obligations of PLEDGOR as set forth in said Note, and thirdly, to pay the surplus, if any, to PLEDGOR. 1 3. PLEDGEE specifically and expressly reserves the right and remedy to disregard the security hereof, and to sue on the obligations secured hereby, and expressly declares that its remedies under this Pledge Agreement, to cause the sale of the Collateral at public or private sale in the manner as hereinabove set forth, or to bring an action of foreclosure and have the Collateral sold at judicial sale, are cumulative, and in addition to all other remedies that it may possess under the Uniform Commercial Code. PLEDGEE shall have the right to recover, as a part of any judgment in an action of foreclosure, commissions, attorneys' fees and all charges and expenses paid or incurred by it in connection with any such foreclosure sale. PLEDGEE reserves the right to recover any deficiency judgment arising from such sale or sales, whether judicial or by any way of pledge sale. In case of any such sale by PLEDGEE of all or any of said Collateral on credit, or for future delivery, such property so sold may be retained by PLEDGEE or the PLEDGE HOLDER hereof until the selling price is paid by the purchaser. The PLEDGE HOLDER and/or PLEDGEE shall incur no liability in case of the failure of the purchaser to take up and pay for the property so sold. In case of any such failure, the said Collateral may be again, and from time to time, sold. 4. Any stock splits or distributions of stock dividends or other securities with respect to the Shares, which PLEDGOR may hereafter become entitled to receive on account of the Shares, shall be and become a part of the Collateral, and in the event that PLEDGOR shall receive any such property, he will immediately deliver it to the PLEDGE HOLDER to be held by him in the same manner as the Collateral originally pledged hereunder. 5. The PLEDGOR hereby irrevocably appoints PLEDGE HOLDER as his true and lawful attorney, until such time as this Pledge Agreement shall be cancelled by payment of all of the obligations under the Note or as herein provided, in order to transfer the Collateral and has executed such lawful instruments as may be required, in order to effect the same. 6. In case of any adverse claims in respect to the Collateral or any portions thereof, arising out of any act done or suffered by PLEDGOR, PLEDGOR promises and agrees to hold harmless and to indemnify PLEDGEE and PLEDGE HOLDER from and against any losses, liabilities, damages, expense, costs and reasonable attorneys' fees incurred in or about defending, protecting or prosecuting the security interest hereby created. 7. PLEDGOR agrees to pay, prior to delinquency, all taxes, liens and assessments against the Collateral, and upon their failure to do so, PLEDGEE, at his option may pay any of them, and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge same. 8. Any foreclosure or failure, or delay by PLEDGEE in exercising any right, power or remedy hereunder shall not be deemed to be a waiver of such right, power or remedy, and any single or partial exercise of any right, power or remedy of PLEDGEE shall continue in full force and effect until such right, power or remedy is specifically waived by an instrument in writing, executed by PLEDGEE. 2 9. When all of said obligations under the Note shall have been fully performed and satisfied and PLEDGEE shall have received payment in full of said obligations, and only then, this Pledge Agreement shall be cancelled and of no further force and effect, and PLEDGEE shall thereupon cause to be delivered to PLEDGOR the Collateral free and clear of the lien of this pledge. 10. All provisions of law, in equity, and by statute providing for, relating to, or pertaining to pledges and the sale of pledged property, or which prescribe, prohibit, limit or restrict the right to, or conditions, notice or manner of sale, together with all limitations of law, in equity or by statute on the right of attachment in the case of secured obligations, are hereby expressly waived by PLEDGOR. 11. Any notice or demand to be given hereunder shall be in writing and shall be served personally, by facsimile, or by registered or certified mail. If served by registered or certified mail, it shall be deemed given or made twenty-four (24) hours after the deposit thereof in the United States mail, postage prepaid. Any notice or demand unto PLEDGOR shall be given to SAM YAU, 10 Hexham, Irvine, California 92715; Facsimile No. (714) 509-1918. Any notice or demand unto PLEDGEE shall be given to NATIONAL EDUCATION CORPORATION located at 18400 Von Karman Avenue, Irvine, California 92715; Attention: General Counsel; Facsimile No. (714) 474-9488. Any notice or demand unto PLEDGE HOLDER shall be given to ___________________ located at ___________________________________ _____________________________________________________________. Any party may designate in writing from time to time such other place or places that such notices and demands may be given. 3 12. This Pledge Agreement and all of its terms and provisions shall be binding upon the heirs, successors, transferees and assigns of each of the parties hereto. PLEDGOR: _________________________ SAM YAU Accepted this _____ day of ____________________, 19__ PLEDGEE: NATIONAL EDUCATION CORPORATION by__________________________ PLEDGE HOLDER: __________________________ 4 EX-11.1 3 CALCULATION OF PRIMARY EARNINGS PER SHARE EXHIBIT 11.1 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CALCULATION OF PRIMARY EARNINGS PER SHARE (Amounts in thousands, except per share amounts)
Three Months Ended March 31, ________________________ 1995 1994 _________ _________ LOSS FROM CONTINUING OPERATIONS $ (8,508) $(11,374) ======== ======== NET LOSS $ (8,508) $(13,382) ======== ======== COMMON STOCK: Shares outstanding from beginning of period 29,578 29,405 Pro rata shares: Stock options exercised - 76 Shares purchased for treasury, from date of purchase - - Assumed exercise of stock options, using treasury stock method 54 180 ________ _________ Weighted average number of shares outstanding 29,632 29,661 ======== ======== LOSS PER SHARE FROM CONTINUING OPERATIONS $ (.29) $ (.38) ======== ======== LOSS PER SHARE $ (.29) $ (.45) ======== ========
EX-11.2 4 CALCULATION OF FULLY DILUTED EARNINGS PER SHARE EXHIBIT 11.2 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CALCULATION OF FULLY DILUTED EARNINGS PER SHARE (Amounts in thousands, except per share amounts)
Three Months Ended March 31, __________________________ 1995 1994 _________ _________ NET LOSS $ (8,508) $(13,382) Add back senior debenture interest 300 241 Add back junior debenture interest 380 570 ________ ________ NET LOSS FOR FULLY DILUTED COMPUTATION $ (7,828) $(12,571) ======== ======== COMMON STOCK: Shares outstanding from beginning of period 29,578 29,405 Stock options exercised -- 76 Shares purchased for treasury, from date of purchase -- -- Assumed exercise of stock options, using treasury stock method 54 180 Assumed conversion of senior subordinated debentures, from the latter of the beginning of the period or the date of issue 5,000 5,000 Assumed conversion of junior subordinated debentures, from the latter of the beginning of the period or the date of issue 2,300 2,300 ________ ________ Weighted average number of shares outstanding 36,932 36,961 ======== ======== FULLY DILUTED LOSS PER SHARE FROM CONTINUING OPERATIONS $ (.29) $ (.38) ======== ======== FULLY DILUTED LOSS PER SHARE $ (.29) $ (.45) ======== ========
EX-27 5 ARTICLE 5 FIN. DATA SCHEDULE FOR 1ST QTR 10-Q
5 This schedule contains summary financial information extracted from the Company's unaudited consolidated financial statements included in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1995, and is qualified in its entirety by reference to such unaudited consolidated financial statements. 1,000 3-MOS DEC-31-1994 JAN-01-1995 MAR-31-1995 25,280 2,219 33,011 1,585 25,098 135,637 89,346 63,200 248,416 84,807 93,098 2,110 0 0 61,749 248,416 55,959 55,959 26,007 67,578 1,332 110 1,977 (12,951) (4,533) (8,508) 0 0 0 (8,508) (.29) (.29)
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