-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G0AnbeM3x89lxEIuRcAhs0dKBuRQ2XHOW1COI6hp2VFLGxwMv0OyeTcuVsviTos9 u5gICV+UBrI5w2rXrr5L8A== 0000277821-96-000007.txt : 19961106 0000277821-96-000007.hdr.sgml : 19961106 ACCESSION NUMBER: 0000277821-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961104 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: 96654006 BUSINESS ADDRESS: STREET 1: 2601 MAIN STREET CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 714-474-9400 MAIL ADDRESS: STREET 1: 18400 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92715 10-Q 1 TEST 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 September 30, 1996 Commission file number 1-6981 NATIONAL EDUCATION CORPORATION (Exact name of registrant as specified in its charter) Delaware IRS No. 95-2774428 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2601 Main Street, 7th Floor Irvine, California 92614 (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: 35,540,573 common stock shares outstanding at September 30, 1996 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Part I. FINANCIAL INFORMATION Item 1. Financial Statements
Three Months Ended Nine Months Ended September 30, September 30, ______________________ _______________________ (amounts in thousands, except per share amounts) 1996 1995 1996 1995 ________________________________________________ __________ _________ __________ _________ Tuition and Contract Revenues $ 49,879 $ 51,657 $142,075 $143,455 Publishing Revenues 32,419 20,372 66,176 46,797 __________ _________ __________ _________ Total Net Revenues 82,298 72,029 208,251 190,252 Costs and Expenses: Contract course materials and service costs 16,969 18,703 50,083 56,602 Publishing costs and materials 8,837 5,031 19,728 12,573 Product development 6,390 4,525 17,695 14,450 Selling and promotion 29,594 28,375 76,442 79,523 General and administrative 7,257 7,228 21,463 25,395 Amortization of prior period deferred marketing -- -- -- 1,470 Amortization of acquired intangible assets 710 219 1,709 1,329 Interest expense 2,002 2,352 6,119 6,732 Investment income (1,260) (814) (2,201) (2,030) Other expense (income) (16) (42) 21 (307) Unusual items -- -- 4,100 77,805 __________ _________ __________ _________ Income (Loss) Before Income Taxes and Minority Interest 11,815 6,452 13,092 (83,290) Income taxes 1,772 -- 579 -- __________ _________ __________ _________ Income (Loss) Before Minority Interest 10,043 6,452 12,513 (83,290) Minority interest in consolidated subsidiary 736 625 367 1,065 __________ _________ __________ _________ Net Income (Loss) $ 9,307 $ 5,827 $ 12,146 $(84,355) ========== ========= ========== ========= NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Part I. FINANCIAL INFORMATION Item 1. Financial Statements Three Months Ended Nine Months Ended September 30, September 30, ______________________ _______________________ (amounts in thousands, except per share amounts) 1996 1995 1996 1995 ________________________________________________ __________ _________ __________ _________ Primary Earnings (Loss) Per Share $ .25 $ .18 $ .33 $ (2.77) ======== ========= ========= ========= Fully Diluted Earnings (Loss) Per Share $ .25 $ .17 $ .33 $ (2.77) ======== ========= ========= ========= Weighted Average Number of Shares Outstanding Primary Shares 36,832 31,776 36,650 30,500 Fully diluted shares 39,196 38,267 39,103 37,881 Unaudited See accompanying notes and management's discussion and analysis.
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued)
September 30, December 31, September 30, (dollars in thousands) 1996 1995 1995 ____________________________________________________________________ _____________ _____________ _____________ ASSETS Current Assets Cash and cash equivalents $ 14,671 $ 22,120 $ 22,641 Investment securities 1,399 1,748 1,846 Receivables, net of allowance of $2,823, $2,742 and $3,583 52,215 36,397 31,364 Inventories and supplies 33,261 31,847 28,285 Income tax receivable -- 9,313 9,313 Prepaid and deferred marketing expenses 11,027 2,675 13,759 Other current assets 12,452 10,765 21,908 _________ __________ _________ Total current assets 125,025 114,865 129,116 Land, buildings and equipment, less accumulated depreciation of $24,033, $31,992 and $31,814 28,215 24,028 23,054 Acquired intangible assets, less accumulated amortization of $3,790, $13,333 and $13,226 26,908 13,428 9,453 Deferred income taxes 24,768 24,768 23,073 Other assets 6,536 8,173 11,771 _________ __________ _________ $ 211,452 $ 185,262 $ 196,467 ========= ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 10,201 $ 6,072 $ 9,545 Accrued expenses 25,249 29,022 36,491 Accrued short-term restructuring charges 2,734 8,246 6,722 Accrued salaries and wages 6,379 5,627 5,663 Deferred contract revenues 6,046 7,421 7,883 Current portion of long-term debt and short-term borrowings 8,267 12,338 14,041 Accrued and deferred income taxes 18,336 14,446 12,223 _________ __________ _________ Total current liabilities 77,212 83,172 92,568 _________ __________ _________ Liabilities Payable After One Year Long-term debt, less current portion 27,159 8,839 7,351 Convertible subordinated debentures 54,619 57,494 57,494 Accrued long-term restructuring charges 8,968 10,089 12,151 Other noncurrent liabilities 10,196 8,683 8,090 _________ __________ _________ 100,942 85,105 85,086 _________ __________ _________ Minority Interest in Equity of Consolidated Subsidiary 9,907 9,504 9,190 _________ __________ _________ NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) September 30, December 31, September 30, (dollars in thousands) 1996 1995 1995 ____________________________________________________________________ _____________ _____________ _____________ Stockholders' Equity Preferred stock, $.10 par value; 5,000,000 shares authorized and unissued -- -- -- Common stock, $.01 par value; 65,000,000 shares authorized; 36,239,254, 35,834,124 and 35,820,468 shares issued 2,170 2,166 2,193 Additional paid-in capital 157,351 155,100 154,882 Accumulated deficit (124,338) (136,484) (133,402) Unrealized gain on available-for-sale securities, net of tax 1 10 33 Cumulative foreign exchange translation adjustment (6,312) (7,005) (7,734) Notes receivable under stock option plans (573) (1,398) (1,441) _________ __________ _________ 28,299 12,389 14,531 Less common stock in treasury, 697,555 shares (4,908) (4,908) (4,908) _________ __________ _________ Total stockholders' equity 23,391 7,481 9,623 _________ __________ _________ $ 211,452 $ 185,262 $ 196,467 ========= ========== ========= Unaudited See accompanying notes and management's discussion and analysis.
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued)
Three Months Ended Nine Months Ended September 30, September 30, _________________________ ________________________ (dollars in thousands) 1996 1995 1996 1995 ________________________________________________________ __________ _________ _________ _________ Cash Flows From Operating Activities: Net income (loss) $ 9,307 $ 5,827 $ 12,146 $ (84,355) Adjustments to reconcile net income (loss) to net cash used for operating activities: Depreciation and amortization 1,409 1,157 3,851 4,163 Amortization of acquired intangible assets 711 219 1,709 1,329 Amortization of prior period deferred marketing -- -- -- 1,470 Provision for doubtful accounts 170 227 256 2,148 Write-off of acquired intangible assets -- -- -- 47,509 Write-off of in-process research and development -- -- 4,100 -- Loss on sale of property, plant and equipment, net -- -- (91) -- (Gain) loss on foreign currency exchange (17) (42) 10 (307) Change in assets and liabilities: Receivables, net (14,729) (6,552) (11,605) 11,709 Inventories and supplies 790 (1,616) (1,130) (1,949) Prepaid and deferred marketing expenses 1,732 (1,373) (8,360) (10,777) Income tax receivable 9,313 -- 9,313 -- Accounts payable and accrued expenses 3,802 4,342 (1,272) 1,461 Accrued restructuring reserve (2,617) (2,608) (6,914) 26,498 Accrued and deferred income taxes 3,000 838 4,986 255 Deferred contract revenues (1,391) (1,648) (2,816) (4,081) Other (1,564) (181) (1,759) (1,742) ________ ________ _________ _________ Net cash from operating activities 9,916 (1,410) 2,424 (6,669) ________ ________ _________ _________ Cash Flows For Investing Activities: Additions to land, building and equipment (2,597) (610) (6,870) (3,236) Dispositions of land, buildings and equipment 51 44 219 (146) Purchases of investment securities -- -- -- (189) Proceeds from the sale or redemption of securities -- 430 335 9,266 Acquisition of businesses, net of cash acquired -- -- (12,173) -- Discontinued operations -- (651) -- (1,420) ________ ________ _________ _________ Net cash for investing activities (2,546) (787) (18,489) 4,275 ________ ________ _________ _________ NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) Three Months Ended Nine Months Ended September 30, September 30, _________________________ ________________________ (dollars in thousands) 1996 1995 1996 1995 ________________________________________________________ __________ _________ _________ _________ Cash Flows From Financing Activities: Additions to long-term debt -- 1,462 13,000 103 Reductions in long-term debt (1,580) (481) (4,643) (1,076) Changes in short-term borrowings (4,364) (780) (3,742) 6,828 Minority interest in earnings of consolidated subsidiary 750 624 403 969 Common stock, stock options and related tax benefits 203 474 2,255 481 Payments received on notes receivable under stock option plan -- -- 825 -- ________ ________ _________ _________ Net cash from financing activities (4,991) 1,299 8,098 7,305 ________ ________ _________ _________ Effect of exchange rate changes on cash 332 375 518 433 ________ ________ _________ _________ Net change in cash and equivalents 2,711 (523) (7,449) 5,344 Cash and equivalents at the beginning of the period 11,960 23,164 22,120 17,297 ________ ________ _________ _________ Cash and equivalents at the end of the period $ 14,671 $ 22,641 $ 14,671 $ 22,641 ======== ======== ========= ========= Unaudited. See accompanying notes and management's discussion and analysis.
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, all of which are of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows. Certain information and footnote disclosures 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, 1995. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for the year. Due to the seasonal nature of the Company's traditional selling cycle, a substantial portion of selling and marketing costs of the Company are deferred in the first half of the year and fully amortized later in the calendar year to properly match the costs with revenues. The Company follows Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed", in recording and classifying the costs incurred for the development of software products. Such costs are expensed as incurred until the product under development reaches technological feasibility, at which point all such costs are capitalized and amortized over the estimated economic life of the product. These capitalized costs will increase with more software media based training and education products at NETG and Steck- Vaughn. Certain prior year amounts have been reclassified to conform with the 1996 presentation. NOTE 2 - Business Combinations ______________________________ Effective April 30, 1996, the Company, through Steck-Vaughn Publishing Corporation, acquired all of the common stock of Edunetics, Ltd., an Israel corporation engaged in the development of educational software, for cash consideration of $12,000,000, plus out of pocket acquisition expenses. The purchase price was financed under Steck-Vaughn's bank credit agreement and by existing cash and marketable securities. The acquisition was accounted for using the purchase method of accounting. In the second quarter of 1996 the purchase price was allocated to assets and liabilities, including in-process research and development projects, based on their estimated fair values as of the date of acquisition. The estimated value of the in-process research and development projects of $4,100,000 was written-off in the second quarter of 1996. This acquisition increased intangible assets, primarily goodwill, by approximately $7,200,000. NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) NOTE 2 - Business Combinations (continued) __________________________________________ During the second quarter, ICS acquired all of the outstanding common stock of California College for Health Sciences (CCHS) for approximately $833,000 cash and the issuance of $4,340,000 of notes payable, at a 7% interest rate, due June 30, 1997. The notes payable were paid in July 1996 after the receipt of a tax refund (see Note 4). CCHS provides healthcare self-study courses and four-year and master degree distance learning programs. This transaction was accounted for as a purchase and resulted in an increase to intangible assets, primarily goodwill, of $7,518,000. The intangible assets acquired are being amortized over a weighted average life of approximately ten years and 15 years for Edunetics and CCHS, respectively. The operating results of both acquired companies were included in the Company's consolidated financial statements since the effective dates of the acquisitions. The net assets and operating results of the purchased entities were not material to the consolidated financial statements of the Company. NOTE 3 - Unusual and Nonrecurring Items _______________________________________ The unusual item for the nine months ended September 30, 1996 represents the $4,100,000 ($.11 per share) write-off of in-process research and development in connection with the acquisition of Edunetics in the second quarter of 1996 as more fully explained in Note 2. In the second quarter of 1995, the Company restructured NETG, which resulted in an unusual charge of $28,652,000 ($.95 per share), and also recorded a $1,644,000 ($.05 per share) charge at NEC Corporate for restructuring. In the fourth quarter of 1995, NETG further reduced its organization in Germany and recorded a restructure charge of $1,952,000 ($.06 per share). No tax benefits were provided on these charges. The charges included severance related payments, excess facilities costs, the write-down of inventory and fixed assets of certain discontinued products and other restructuring related items, such as charges related to canceled contracts and agreements. In the second quarter of 1995, the Company also wrote-off the goodwill balance at NETG of $47,509,000 ($1.58 per share). Set forth below is a summary of the restructuring activity for the nine months ended September 30, 1996. NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) NOTE 3 - Unusual and Nonrecurring Items (continued) ___________________________________________________
Excess Severance (dollars in thousands) Facilities Payments Other Total _____________________________________________ _________ __________ _____________ _________ Accrued restructuring at December 31, 1995 $ 14,557 $ 2,611 $ 546 $ 17,714 Noncash write-off -- -- 288 288 Cash paid (3,625) (2,083) (851) (6,559) _________ _________ __________ _________ Accrued restructuring at September 30, 1996 $ 10,932 $ 528 $ (17) $ 11,443 ========= ========= ========== =========
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) NOTE 5 - Earnings (Loss) Per Share (continued) ______________________________________________ Effective September 11, 1995, the holders of all $20,000,000 of the Company's 10% senior subordinated convertible debentures converted such debentures, including accrued interest, into 5,021,000 shares of the Company's common stock. Earnings per share on a pro forma basis, assuming the conversion had taken place at January 1, 1995, for the third quarter of 1995 would have been $.17 compared to the reported earnings per share of $.18. Loss per share on a pro forma basis for the nine months ended September 30, 1995 would have been ($2.36) compared to a reported loss per share of ($2.77). NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Part I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) NOTE 6 - Statements of Cash Flows Supplementary Information ___________________________________________________________
Three Months Ended Nine Months Ended September 30, September 30, _________________________ ________________________ (dollars in thousands) 1996 1995 1996 1995 ________________________________________________________ __________ _________ _________ _________ Cash Paid (Received) During the Period For: Interest expense $ 835 $ 2,121 $ 4,395 $ 6,471 Income tax (refunds) payments, net (10,749) 288 (14,153) 338 Detail of Noncash Investing and Financial Activities: Sale of land, building and equipment in exchange for note receivable $ -- $ -- $ 165 $ 416 Assets acquired through capital leases 110 2,032 458 3,366 Notes receivable under stock option plans -- 262 -- 1,441 Acquisition of Businesses: Working capital, other than cash $ -- $ -- $ (6,346) $ -- Property, plant and equipment -- -- (959) -- Other assets -- -- (17,503) -- Liabilities assumed in acquisition, including $4,340,000 of notes payable to sellers -- -- 12,635 -- __________ _________ _________ _________ Net cash used to acquire businesses $ -- $ -- $ (12,173) $ --
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 September 30, _____________________ Percent (dollars in thousands) 1996 1995 Variance Change ________________________________________________________ _________ _________ _________ ________ Net Revenues: ICS Learning Systems $ 35,288 $ 37,946 $ (2,658) (7.0)% Steck-Vaughn Publishing 32,419 20,372 12,047 59.1 NETG 14,017 12,977 1,040 8.0 Other 574 734 (160) (21.8) _________ _________ ________ Total Net Revenues $ 82,298 $ 72,029 $ 10,269 14.3 ========= ========= ======== Operating Income: ICS Learning Systems 5,522 3,681 1,841 50.0 Steck-Vaughn Publishing 7,192 5,528 1,664 30.1 NETG 990 59 931 n/m Other 169 205 (36) (17.6) _________ _________ ________ Total Segment Operating Income 13,873 9,473 4,400 46.4 General corporate expenses (1,332) (1,525) 193 (12.7) Interest expense (2,002) (2,352) 350 (14.9) Investment income 1,260 814 446 54.8 Other income 16 42 (26) (61.9) _________ _________ ________ Income Before Income Taxes and Minority Interest 11,815 6,452 5,363 83.1 Income taxes 1,772 -- 1,772 n/m _________ _________ ________ Income Before Minority Interest 10,043 6,452 3,591 55.7 Minority interest 736 625 111 17.8 _________ _________ ________ Net Income $ 9,307 $ 5,827 $ 3,480 59.7 ========= ========= ========= n/m: Not meaningful.
The discussion in this document contains trend analysis and other forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those projected in the forward-looking statements throughout this document. 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 September 30, 1996 _____________________________________________ ______________________________________________________________ ICS Steck- Learning Vaughn Total Systems Publishing NETG Other _________ _________ __________ _________ _________ Net Revenues $ 82,298 $ 35,288 $ 32,419 $ 14,017 $ 574 Costs and Expenses: Contract course materials and service costs 16,969 12,110 -- 4,592 267 Publishing costs and materials 8,837 -- 8,837 -- -- Product development 6,390 731 3,544 2,115 -- Selling and promotion 29,594 14,200 9,772 5,525 97 General and administrative 5,929 2,575 2,518 795 41 Amortization of acquired intangible assets 706 150 556 -- -- _________ _________ __________ _________ _________ Segment Operating Income $ 13,873 $ 5,522 $ 7,192 $ 990 $ 169 ========= ========= ========== ========= =========
(dollars in thousands) Three Months Ended September 30, 1995 _____________________________________________ ______________________________________________________________ ICS Steck- Learning Vaughn Total Systems Publishing NETG Other _________ _________ __________ _________ _________ Net Revenues $ 72,029 $ 37,946 $ 20,372 $ 12,977 $ 734 Costs and Expenses: Contract course materials and service costs 18,705 14,071 -- 4,219 415 Publishing costs and materials 5,031 -- 5,031 -- -- Product development 4,525 873 2,069 1,583 -- Selling and promotion 28,375 16,672 6,498 5,115 90 General and administrative 5,706 2,620 1,061 2,001 24 Amortization of acquired intangible assets 214 29 185 -- -- _________ _________ __________ _________ _________ Segment Operating Income $ 9,473 $ 3,681 $ 5,528 $ 59 $ 205 ========= ========= ========== ========= =========
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 September 30, 1996 Compared to Three Months Ended September 30, 1995 ____________________________________________________________________ Revenues of $82,298,000 for the three months ended September 30, 1996, were $10,269,000 or 14.3% higher than revenues of $72,029,000 in the prior year. Net income for the period was $9,307,000 or $.25 per share compared to income of $5,827,000 or $.18 per share ($.17 per fully diluted share) in the prior year. The results of Steck-Vaughn reflects approximately $3,200,000 of revenue ($1,440,000 of operating income) which the Company had orders for in the second quarter of 1996, but was unable to ship by the end of the second quarter due to problems encountered in the implementation of a new warehouse management system. During the third quarter, Steck-Vaughn shipped all the excess backlog from the second quarter and all shippable orders received during the third quarter. Income tax provision for the three months ended September 30, 1996, reflects taxes provided on pretax income at an estimated annual effective tax rate of 15%. The operating results for the three months ended September 30, 1996 also contain a nonrecurring charge of approximately $732,000 ($861,000 pretax) or $.02 per share, related to the change in CEO at Steck-Vaughn. The Company also recorded nonrecurring interest income of $990,000 on the income tax refund received in July 1996. 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:
Three Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Change ______________________________________________ _________ _________ _________ Revenues: Traditional Distance Education - Domestic $ 19,001 $ 23,435 (18.9)% Traditional Distance Education - International 10,922 10,744 1.7 Business and Industrial 2,394 1,866 28.3 Professional 2,971 1,901 56.3 _________ _________ Total Revenues $ 35,288 $ 37,946 (7.0) ========= ========= Traditional Distance Education: _______________________________ New Enrollments: Domestic 70,618 74,211 (4.8) International 28,290 29,637 (4.5) _________ _________ Total New Enrollments 98,908 103,848 (4.8) ========= ========= Gross Enrollment Value (GEV): Domestic $ 42,076 $ 58,988 (28.7) International 20,127 20,172 (.2) _________ _________ Total GEV $ 62,203 $ 79,160 (21.4) ========= ========= Selling and Promotion Spending: Domestic $ 8,485 $ 11,842 (28.3) International 5,574 5,122 8.8 _________ _________ Total Selling and Promotion Spending $ 14,059 $ 16,964 (17.1) ========= ========= Estimated realization of future tuition revenue 47% 45%
ICS revenues of $35,288,000 for the third quarter of 1996 were $2,658,000 (7.0%) lower than the comparable quarter in 1995. Professional revenue, which includes MicroMash and California College for Health Sciences (CCHS) increased $1,070,000 (56.3%) due to the acquisition of CCHS. Business and Industrial revenue increased $528,000 (28.3%). Traditional domestic revenue declined $4,434,000 (18.9%) while traditional international revenue increased $178,000 (1.7%). 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): Total revenue, excluding PC hardware revenue, was $33,810,000 and $32,444,000 for the third quarter of 1996 and 1995, respectively, reflecting an increase of 4.2%. Traditional domestic revenue decreased primarily due to the elimination of the sale of computer hardware with PC courses for all enrollments after September 15, 1995. Although new enrollments were lower, revenue realization rates improved. New enrollments, which are an indicator of future revenues, declined 4.8% domestically, due primarily to the reduction in selling and promotional spending. The decline in enrollments was primarily from the PC programs which, in addition to the reduction in selling and promotional spending, was primarily impacted by eliminating the computer hardware from the PC courses. The elimination of the computer hardware has resulted in improved margins by 10.7 percentage points for the operation. International revenue increased $178,000 (1.7%) over the comparable period last year. Revenues in Canada increased over the prior year period due to a year-to-date enrollment increase and a larger mix of higher priced courses. International Mail Sales revenue increased as a result of an increase in enrollments. These increases were partially offset by lower revenue in Australia/New Zealand caused by lower enrollments as a result of telesales understaffing in the first and second quarters and lower revenue in the U.K. as a result of fewer year-to-date enrollments caused by advertising underspending in the first quarter and lower advertising productivity. Course material and service costs decreased $1,961,000 (decreased 2.8% as a percent of revenues) due to the elimination of computer hardware from computer courses, partially offset by the acquisition of CCHS which added $550,000 to costs, volume related increases in International, and increased customer service initiatives. Selling and promotion spending for traditional business decreased $2,905,000 from the comparable prior year period. There is not a corresponding dollar for dollar reduction in selling and promotion expenses because the Company defers a substantial portion of the selling and marketing spending incurred in the first half of the year and fully amortizes the deferral to expense later in the year to properly match the expenses with the related revenues. Selling and promotion expenses deceased $2,472,000 (decreased 3.7% as a percent of revenues) due to a reduction in media spending as a result of concentrating on higher profit media and eliminating spending on lower yield media, partially offset by increased expenses of $173,000 due to the acquisition of CCHS, as well as higher International spending in all markets. 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): General and administrative expenses decreased slightly as reductions in outside consulting expense related to an information systems implementation project and lower payroll related benefits expense more than offset the increase in expense of $139,000 resulting from the acquisition of CCHS. Domestic GEV decreased 28.7% due to the decrease in the average contract price as a result of eliminating the sale of PC hardware from PC courses and an enrollment decrease for the quarter of 4.8%. International GEV deceased .2% due to decreases in Canada and the U.K., partially offset by increases in Australia/New Zealand and IMS. The decrease in GEV is a result of a 4.5% decease in enrollments for the quarter, partially offset by higher average contract price due to a larger mix of higher priced courses. Steck-Vaughn Publishing:
Three Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Change ______________________________________________ _________ _________ _________ Revenues: Steck-Vaughn Core Business: Elementary and High School (El/Hi) $ 18,330 $ 14,167 29.4% Adult Education 4,771 3,373 41.4 Library 4,941 2,832 74.5 _________ _________ 28,042 20,372 37.6 Summit Learning 2,691 -- n/m Edunetics 1,686 -- n/m _________ _________ Total Revenues $ 32,419 $ 20,372 59.1 ========= ========= n/m: Not meaningful.
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): The above revenues reflect Steck-Vaughn's actual shipments for the quarter ended September 30, 1996 including $3,200,000 of shipments in the third quarter related to orders in backlog at the end of the second quarter which could not be shipped then due to problems encountered in the implementation of a new warehouse management system. These orders would have been shipped in the second quarter had the difficulties in implementing the new warehouse management system not occurred. Accordingly, management believes that analysis of the revenues for the period is more meaningful on a pro forma presentation basis reflecting the exclusion of the $3,200,000 of unshipped orders as set forth below.
Three Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Change ______________________________________________ _________ _________ _________ Pro forma Net Revenues by Product Line (excluding $3,200,000 of second quarter excess backlog): Steck-Vaughn Core Business: Elementary and High School (El/Hi) $ 16,474 $ 14,167 16.3% Adult Education 4,124 3,373 22.3 Library 4,244 2,832 49.9 _________ _________ 24,842 20,372 21.9 Summit Learning 2,691 -- n/m Edunetics 1,686 -- n/m _________ _________ Total Pro forma Revenues $ 29,219 $ 20,372 43.4 ========= ========= n/m: Not meaningful.
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):
Three Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Change ______________________________________________ _________ _________ _________ Operating Income (Loss) by Product Line: Steck-Vaughn Core Business $ 7,966 $ 5,528 44.1% Summit Learning (156) -- n/m Edunetics (618) -- n/m _________ _________ Operating income $ 7,192 $ 5,528 30.1 ========= ========= n/m: Not meaningful.
Three Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Change ______________________________________________ _________ _________ _________ Pro forma Operating Income (Loss) by Product Line (excluding $1,440,000 estimated effect on operating income related to $3,200,000 of second quarter excess backlog): Steck-Vaughn Core Business $ 6,526 $ 5,528 18.1% Summit Learning (156) -- n/m Edunetics (618) -- n/m _________ _________ Pro forma Operating Income $ 5,752 $ 5,528 4.1 ========= ========= n/m: Not meaningful.
Revenues increased 59.1% for the three months ended September 30, 1996. Of the 59.1% increase for the quarter, 21.5% is attributable to the acquisition of Summit Learning and Edunetics, 15.7% is due to the carryover into the third quarter of the second quarter's excess backlog, and 21.9% is attributable to the increase in the third quarter of Steck-Vaughn's core business. 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): El/Hi sales increased 29.4% (16.3% without the excess backlog) during the third quarter, as compared to last year, as sales of traditional skills and test preparation products continued to be strong. This growth was driven by the continued interest among educators in returning to basic skills instruction. Best selling products in the El/Hi market segment address such key curriculum areas as phonics, spelling, reading, math, science, and social studies. The strong performance of test preparation and assessment products, bolstered by the product line acquired from Berrent Publications, Inc. in November 1994, reflects the increased use of standardized tests in public schools. Sale of adult education products increased 41.4% (22.3% without the excess backlog) due to the acquisition of the Educational Development Laboratories, Inc. (EDL) technology product in October 1995. Library sales increased, with sales for the third quarter up 74.5% (49.9% without the excess backlog) compared to the prior year. Exclusive distribution agreements entered into in 1995 and early 1996 with Wayland Publishers, Abdo and Daughters, and Larousse Kingfisher Chambers, Inc., were responsible for much of the increase. The release of two major revised Steck-Vaughn series, the 53-volume Portrait of America and the 24-volume Raintree Illustrated Science Encyclopedia, also contributed to the increase. With the growth of the library product line, Steck-Vaughn restructured its sales force during the third quarter to expand its coverage of the library market. Steck-Vaughn has engaged 97 independent sales reps to carry the entire library product line, allowing Steck-Vaughn's dedicated sales force to focus exclusively on the elementary 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): curriculum and newly-acquired Edunetics lines. In addition, Steck-Vaughn expanded its telemarketing sales force, creating rep teams for each of its three main library product lines. Summit Learning sales during the third quarter of $2,691,000 were incremental to Steck-Vaughn, following the acquisition of Summit in December 1995. Summit has a direct response marketing channel (catalog), enabling Steck-Vaughn to increasingly reach decision makers within the schools. The Company has added selected Steck-Vaughn print and Edunetics CD-ROM products and included significant new products in the Summit catalogs. The Young Explorers catalog is distributed to consumers in the fall to coincide with holiday gift buying, providing entry to the home market. Edunetics revenue was attributable primarily to contractual obligations for systems installations. During the third quarter, Edunetics recognized its first revenue under the three-year, $3,800,000 contract entered into in June 1996 with the Detroit public school system to provide Edunetics' proprietary educational software programs to 60 schools within the district. Steck-Vaughn acquired Edunetics, Ltd. in April 1996 to move into the educational software market. Edunetics launched eight new titles in the summer of 1996, with eleven new titles planned for release in 1997. Publishing costs increased $3,806,000 (75.7%) primarily due to the acquisitions of Edunetics and Summit, as well as the increased volume in the core business. Publishing costs as a percentage of revenues increased for the third quarter ended September 30, 1996, as compared to 1995, primarily due to the inclusion of the Summit business. Publishing costs of the Steck-Vaughn core business, which excludes Summit and Edunetics, for the third quarter ended September 30, 1996, represented 24.6% of core business revenues as compared to 24.5% for the same period in the previous year. Increases in the cost of printed products resulted from the increase in products acquired through distribution agreements as opposed to internal development and the increased use of wholesalers to sell library titles, partially offset by the increased sales of technology and testing products, which carry higher gross margins, and the decline in royalty expense due to the increase in products acquired through distribution agreements. Fulfillment expenses were also higher due to increases in labor costs necessary to implement the new warehouse management system and eliminate the excess backlog. Summit Learning's product and fulfillment costs, at 62.0% of revenues, reflect the non-propriety nature of the product line. Product development expense increased $1,475,000 (increased .8% as a percent of revenues) due to increased investments in new product lines of the recently acquired EDL and Edunetics businesses and the expansion of the library line. 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): Selling and promotion costs increased $3,274,000 (decreased 1.8% as a percent of revenues) for the third quarter ended September 30, 1996, as compared to the prior year, due to higher commissions resulting from increased revenues and the expansion of the telemarketing sales force. Catalog expense increased in part due to the acceleration of the recognition of catalog expenses in accordance with Steck-Vaughn's adoption in 1995 of accounting standard SOP 93-7, and due to the acquisition of Summit, a catalog marketer, in December 1995. General and administrative expenses increased in the third quarter due to the inclusion of $861,000 in costs attributable to the change in chief executive officer at Steck-Vaughn. This nonrecurring expense included obligations under the previous CEO's employment contract, as well as expenses incurred in the employment of the new chief executive. General and administrative expenses also increased during the third quarter with the inclusion of Edunetics' operations for a full quarter. Amortization expense increased due to the acquisitions of Edunetics in April 1996, of EDL in October 1995, and Summit in December 1995. Operating income for the quarter ended September 30, 1996, as compared to 1995, increased for Steck-Vaughn's core business due to the carryover into the third quarter of the second quarter's excess backlog and as a result of the increase in El/Hi, adult education and library product lines, as previously explained in the discussion on revenues. Operating income for the quarter was negatively impacted by the $861,000 nonrecurring charge for the change in CEO at Steck-Vaughn. The operating results of Summit and Edunetics reflect the start-up phase of both divisions. Pro forma operating income for the quarter ended September 30, 1996, as compared to 1995, increased for Steck-Vaughn's core business due to the increases in El/Hi, adult education and library product lines. Pro forma operating income of the core business as a percentage of revenues for the three months ended September 30, 1996, as compared to 1995, was slightly lower due to the $861,000 nonrecurring charge for the change in CEO at Steck-Vaughn. Excluding this nonrecurring charge, pro forma operating income of the core business as a percentage of revenues increased due to economies resulting from the increase in sales. NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) NETG:
Three Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Change ______________________________________________ _________ _________ _________ Revenues: Domestic $ 6,845 $ 6,806 .6% International 7,172 5,914 21.3 Spectrum -- 257 n/m _________ _________ Total Revenues $ 14,017 $ 12,977 8.0 ========= ========= n/m: Not meaningful.
Three Months Ended September 30, _____________________ 1996 1995 ______________________________________________ _________ _________ Number of Internally Developed Products Completed: Client/Server 40 5 Mainframe 6 -- Desktop 15 4 Business Skills 3 -- _________ _________ Total 64 9 ========= =========
Three Months Ended September 30, _____________________ 1996 1995 ______________________________________________ _________ _________ Number of Third Party Developed Products Completed: Client/Server 14 3 Mainframe -- -- Desktop 16 14 Business Skills 17 3 _________ _________ Total 47 20 ========= ========= /TABLE NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) NETG (continued): NETG revenues of $14,017,000 increased $1,040,000 (8.0%) for the third quarter of 1996 compared to the comparable period in 1995. Excluding Spectrum, revenues increased 10.2%. Domestic revenues increased slightly as revenues for desktop and client/server processing courses, which experienced a 41.7% increase, more than offset the decline in mainframe computer courses and certain business skills courses. International revenue increased $1,258,000 (21.3%) as a result of a 79.7% increase in revenues for desktop and client/server courses, partially offset by a decline in revenue due to a reduction in mainframe computer and business skills courses. Also contributing to the increase was $450,000 of revenue from early renewals of contracts. Operating income was $990,000 for the third quarter of 1996 compared to operating income for the same period in 1995 of $59,000. Course service costs increased $373,000 (increased .2% as a percent of revenues) from the 1995 comparable quarter. The discontinuance of Spectrum reduced costs by $299,000. The most significant contributing factors to the increased expenses were higher royalty expense as a result of sales in Europe of more third party products and higher material cost of sales as a result of increased volume in Europe. These increases more than offset the savings in the U.S. of outsourcing the shipping and distribution function. Because NETG is significantly increasing the number of internally developed courses, NETG should experience lower royalty expense in the future. Product development expense increased $532,000 (increased 2.9% as a percent of revenues) due to more products being developed in 1996. Approximately $3,500,000 of product development expense for a substantial number of the internally developed courses released in the current year was incurred and charged to expense in the fourth quarter of 1995. Selling and promotion expense increased $410,000 (remained unchanged as a percent of revenues). Most of the increase was due to increased headcount in the field sales force, partially offset by lower expenses due to the discontinuance of Spectrum. General and administrative expense decreased $1,206,000 (decreased 9.7% as a percent of revenues) due to favorable outcomes of certain legal disputes, a reduction in headcount and overhead expenses such as facilities costs as a result of the restructuring actions and renegotiation of leased facilities in the U.K., and the discontinuance of Spectrum. Operating results of ICS and NETG foreign operations by geographic region are discussed above. The third quarter foreign currency exchange gains, recorded to other income, were $16,000 compared to gains of $42,000 in the prior year. NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Corporate and Other: General corporate expenses decreased $193,000 (.5% as a percent of revenues) as a result of lower facilities costs and ongoing cost control. Interest expense decreased due to the conversion on September 11, 1995, of all $20,000,000 of the Company's 10% senior subordinated convertible debentures into shares of the Company's common stock. Investment income includes nonrecurring interest income of $990,000 on the IRS tax refund received in July 1996. NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Nine Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Variance Change ______________________________________________ _________ _________ _________ ________ Net Revenues: ICS Learning Systems $ 107,072 $ 107,611 $ (539) (.5)% Steck-Vaughn Publishing 66,176 46,797 19,379 41.4 NETG 33,322 33,348 (26) (0.1) Other 1,681 2,496 (815) (32.7) _________ _________ ________ Total Net Revenues $ 208,251 $ 190,252 $ 17,999 9.5 ========= ========= ======== Operating Income (Loss): ICS Learning Systems before amortization $ 13,349 $ 9,562 $ 3,787 39.6 Amortization of prior period deferred marketing -- (1,470) 1,470 n/m _________ _________ ________ ICS Learning Systems 13,349 8,092 5,257 65.0 Steck-Vaughn Publishing before unusual items 9,993 9,079 914 10.1 Unusual items (4,100) -- (4,100) n/m _________ _________ ________ Steck-Vaughn Publishing 5,893 9,079 (3,186) (35.1) NETG before unusual items 1,342 (13,803) 15,145 n/m Unusual items -- (76,161) 76,161 n/m _________ _________ ________ NETG 1,342 (89,964) 91,306 n/m Other 378 638 (260) (40.8) _________ _________ ________ Total Segment Operating Income (Loss) 20,962 (72,155) 93,117 n/m General corporate expenses (3,931) (5,096) 1,165 (22.9) Interest expense (6,119) (6,732) 613 (9.1) Investment income 2,201 2,030 171 8.4 Unusual items -- (1,644) 1,644 n/m Other (expense) income (21) 307 (328) n/m _________ _________ ________ Income (Loss) Before Income Taxes and Minority Interest 13,092 (83,290) 96,382 n/m Income taxes 579 -- 579 n/m _________ _________ ________ Income (Loss) Before Minority Interest 12,513 (83,290) 95,803 n/m Minority interest 367 1,065 (698) (65.5) _________ _________ ________ Net Income (Loss) $ 12,146 $ (84,355) $ 96,501 n/m ========= ========= ======== n/m: Not meaningful. /TABLE 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) Nine Months Ended September 30, 1996 _____________________________________________ ______________________________________________________________ ICS Steck- Learning Vaughn Total Systems Publishing NETG Other _________ _________ __________ _________ _________ Net Revenues $ 208,251 $ 107,072 $ 66,176 $ 33,322 $ 1,681 Costs and Expenses: Contract course materials and service costs 50,083 39,276 -- 9,993 814 Publishing costs and materials 19,728 -- 19,728 -- -- Product development 17,695 2,845 9,408 5,442 -- Selling and promotion 76,442 42,131 20,559 13,400 352 General and administrative 17,545 9,142 5,121 3,145 137 Amortization of acquired intangible assets 1,696 329 1,367 -- -- Unusual items 4,100 -- 4,100 -- -- _________ _________ __________ _________ _________ Segment Operating Income $ 20,962 $ 13,349 $ 5,893 $ 1,342 $ 378 ========= ========= ========== ========= =========
(dollars in thousands) Nine Months Ended September 30, 1995 _____________________________________________ ______________________________________________________________ ICS Steck- Learning Vaughn Total Systems Publishing NETG Other _________ _________ __________ _________ _________ Net Revenues $ 190,252 $ 107,611 $ 46,797 $ 33,348 $ 2,496 Costs and Expenses: Contract course materials and service costs 56,602 39,891 -- 15,307 1,404 Publishing costs and materials 12,573 -- 12,573 -- -- Product development 14,450 2,529 6,444 5,477 -- Selling and promotion 79,523 47,976 14,602 16,606 339 General and administrative 20,314 7,562 3,545 9,092 115 Amortization of prior period deferred marketing 1,470 1,470 -- -- -- Amortization of acquired intangible assets 1,314 91 554 669 -- Unusual items 76,161 -- -- 76,161 -- _________ _________ __________ _________ _________ Segment Operating Income (Loss) $ (72,155) $ 8,092 $ 9,079 $ (89,964) $ 638 ========= ========= ========== ========= =========
NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30, 1995 __________________________________________________________________ Revenues of $208,251,000 for the nine months ended September 30, 1996, were $17,999,000 (9.5%) higher than revenues of $190,252,000 in the prior year. Net income for the period was $12,146,000 or $.33 per share compared to a loss of ($84,355,000) or ($2.77) per share in the prior year. The operating results for the nine months ended September 30, 1996 and 1995 include the write-off of in-process research and development in 1996, and unusual items representing restructuring charges and write-off of goodwill in 1995. The 1996 operating results also contain a nonrecurring charge of approximately $732,000 ($861,000 pretax) or $.02 per share, related to the change in CEO at Steck-Vaughn. The Company also recorded nonrecurring interest income of $990,000 on the income tax refund received in July 1996. Excluding unusual items and the benefit of a $2,000,000 tax refund in 1996, net income (loss) would have been $13,553,000 or $.37 per share for the nine months ended September 30, 1996, and ($6,550,000) or ($.21) per share for the nine months ended September 30, 1995. Income tax provision for the nine months ended September 30, 1996 reflects taxes provided on pretax income, excluding the $4,100,000 write-off of in- process research and development at Edunetics which is not deductible for tax purposes, at an estimated annual effective tax rate of 15%, reduced by a $2,000,000 tax benefit of a tax refund received and recognized in the second quarter of 1996. ICS Learning Systems:
Nine Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Change ______________________________________________ _________ _________ _________ Revenues: Traditional Distance Education - Domestic $ 58,789 $ 64,767 (9.2)% Traditional Distance Education - International 32,956 32,161 2.5 Business and Industrial 7,692 5,963 29.0 Professional 7,635 4,720 61.8 _________ _________ Total Revenues $ 107,072 $ 107,611 (.5) ========= ========= Traditional Distance Education: ------------------------------- New Enrollments: Domestic 218,801 226,057 (3.2) 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): Nine Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Change ______________________________________________ _________ _________ _________ International 87,050 91,936 (5.3) _________ _________ Total New Enrollments 305,851 317,993 (3.8) ========= ========= Gross Enrollment Value (GEV): Domestic $ 129,537 $ 179,752 (27.9) International 63,301 58,901 7.5 _________ _________ Total GEV $ 192,838 $ 238,653 (19.2) ========= ========= Selling and Promotion Spending: Domestic $ 27,465 $ 34,706 (20.9) International 16,057 15,735 2.0 _________ _________ Total Selling and Promotion Spending $ 43,522 $ 50,441 (13.7) ========= =========
ICS experienced similar changes in revenues and operating results as occurred for the three month period previously discussed, except as follows. Product development expense increased $316,000 (increased .3% as a percent of revenues) due to more courses under development in 1996 compared to 1995. The 1995 year-to-date results include $1,470,000 of amortization of prior period deferred marketing due to the adoption in 1994 of a new accounting pronouncement. There was no amortization of prior period deferred marketing in 1996. General and administrative expenses increased $1,580,000 (1.5% as a percent of revenues) due to higher expenses of information systems due to implementation of a new integrated information system, the acquisition of CCHS which added $344,000 to expenses and increased costs in the Business and Industrial products. 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:
Nine Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Change ______________________________________________ _________ _________ _________ Revenues: Steck-Vaughn Core Business: Elementary and High School $ 32,482 $ 28,731 13.1% Adult Education 10,931 9,936 10.0 Library 12,932 8,130 59.1 _________ _________ 56,345 46,797 20.4 Summit Learning 7,025 -- n/m Edunetics 2,806 -- n/m _________ _________ Total Revenues $ 66,176 $ 46,797 41.4 ========= ========= n/m: Not meaningful.
Nine Months Ended September 30, _____________________ Percent of Revenue (dollars in thousands) 1996 1995 Year-to-Date 1996 1995 ______________________________________________ _________ _________ _______ _______ Operating Income (Loss) by Product Line: Steck-Vaughn Core Business $ 11,155 $ 9,079 19.8% 19.4% Summit Learning (356) -- (5.1) -- Edunetics (806) -- (28.7) -- _________ _________ 9,993 9,079 15.1 19.4 Write-off of in-process research and development (4,100) -- _________ _________ Operating income $ 5,893 $ 9,079 ========= =========
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 experienced similar changes in revenues and operating results as occurred for the three month period previously discussed, except there is no impact for the nine month period of second quarter backlog shipped in the third quarter. Operating income as a percentage of revenues for the nine months ended September 30, 1996, as compared to 1995, was up slightly for the core business as economies resulting from the increase in sales more than offset the reduction in operating income caused by the $861,000 nonrecurring charge for the change in CEO at Steck-Vaughn. Also, operating income for the nine month period includes a $4,100,000 write-off of in-process research and development in connection with the acquisition of Edunetics in the second quarter of 1996. NETG:
Nine Months Ended September 30, _____________________ Percent (dollars in thousands) 1996 1995 Change ______________________________________________ _________ _________ _________ Revenues: Domestic $ 16,018 $ 16,041 (.1)% International 17,304 15,707 10.2 Spectrum -- 1,600 n/m _________ _________ Total Revenues $ 33,322 $ 33,348 (.1) ========= ========= n/m: Not meaningful.
Course service costs decreased $5,314,000 (decreased 15.9% as a percent of revenues) from the 1995 comparable period. Most of the decrease occurred because in 1995 NETG recorded a $1,946,000 increase in the allowance for doubtful accounts. The discontinuance of Spectrum reduced costs by $2,082,000. The other most significant contributing factors to the reduced expenses were a reduction in headcount and related expenses as a result of the 1995 restructure actions. Selling and promotion expense decreased $3,206,000 (decreased 9.6% as a percent of revenues). Most of the decrease was due to reduced headcount and related expenses compared to the first half of 1995 as a result of the 1995 restructure actions; lowered sales and marketing expense as NETG reduced spending to bring the expenses in line with the new business model; nonrecurring expense charges of $731,000 in the second quarter of 1995 in the U.K. and Germany and lower expenses due to the discontinuance of Spectrum. NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) NETG (continued): General and administrative expense decreased $5,947,000 (decreased 17.8% as a percent of revenues) due principally to a reduction in headcount and overhead expenses, such as facilities costs as a result of the restructuring actions in the second quarter of 1995 and the renegotiation of leased facilities in the U.K.; the discontinuance of Spectrum and due to favorable outcomes of certain legal disputes. In the second quarter of 1995, the Company restructured NETG, which resulted in an unusual charge of $28,652,000 ($.95 per share). In the fourth quarter of 1995, NETG further reduced its organization in Germany and recorded a restructure charge of $1,952,000 ($.06 per share). No tax benefits were provided on these charges. The charges included severance related payments, excess facilities costs, the write-down of inventory and fixed assets of certain discontinued products and other restructuring related items, such as charges related to canceled contracts and agreements. In the second quarter of 1995, the Company also wrote-off the goodwill balance at NETG of $47,509,000 ($1.58 per share). NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) NETG (continued):
Nine Months Ended September 30, _____________________ 1996 1995 ______________________________________________ _________ _________ Number of Internally Developed Products Completed: Client/Server 83 8 Mainframe 11 2 Desktop 36 6 Business Skills 4 -- _________ _________ Total 134 16 ========= =========
Nine Months Ended September 30, _____________________ 1996 1995 ______________________________________________ _________ _________ Number of Third Party Developed Products Completed: Client/Server 25 38 Mainframe 8 14 Desktop 35 29 Business Skills 72 14 _________ _________ Total 140 95 ========= =========
ICS and NETG foreign operations by geographic region experienced similar changes in revenues and income as discussed above. Foreign currency exchange losses of $21,000 were recorded during the period as compared to gains of $307,000 in the prior year. NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Corporate and Other: General corporate expenses and interest expense experienced similar changes as occurred for the three month period previously discussed. In the second quarter of 1995, the Company recorded a $1,644,000 ($.05 per share) charge at Corporate for restructuring. Liquidity and Capital Resources _______________________________ The Company's primary sources of liquidity are cash, investment securities and cash provided from operations. At September 30, 1996, the Company had $16,070,000 in cash and investment securities of which $7,035,000 was held in the account of Steck-Vaughn. The Company has a revolving bank credit agreement in the amount of $20,000,000 which expires January 1998. As of September 30, 1996, $12,100,000 was outstanding under this credit agreement. Additionally, Steck-Vaughn has a revolving bank credit agreement in the amount of $15,000,000 which expires June 1998. As of September 30, 1996, $10,000,000 was outstanding under this credit agreement. During July 1996, the Company terminated its credit facility with Steck- Vaughn in the amount of $5,000,000. On April 30, 1996, Steck-Vaughn acquired all of the stock of Edunetics Ltd., a corporation engaged in the development of educational software, for cash consideration of $12,000,000. At closing, the purchase price was funded by cash on hand of Steck-Vaughn and Steck-Vaughn's bank line of credit. Also, during the second quarter of 1996, ICS acquired all of the outstanding common stock of California College for Health Sciences (CCHS) for approximately $833,000 cash and the issuance of $4,340,000 of notes payable bearing interest at 7%. During July 1996, the notes were fully paid after receipt of a tax refund from the IRS. Additionally, ICS acquired the product line of SMH, a provider of legal bar review distance education materials, for $696,000. Net cash flow from operating activities for the quarter ended September 30, 1996 of $9,916,000 was $11,326,000 favorable compared to the prior year period due primarily to the tax refund from the IRS in the amount of $11,516,000 and improved operating performance, partially offset by increased receivables of $14,729,000 of which $8,835,000 and $5,638,000 are attributable to Steck-Vaughn and NETG, respectively. The increases in accounts receivable are due to increased revenues during September 1996, as compared to 1995, at Steck-Vaughn and NETG. NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Part I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) ___________________________________________ Net cash flow from operating activities for the nine months ended September 30, 1996 of $2,424,000 was $9,093,000 favorable compared to the prior year period due to similar factors explained above. Net cash for investing activities for the nine months ended September 30, 1996 of $18,489,000 was $22,764,000 unfavorable compared to the prior year period primarily due to acquisition payments of $12,173,000 during 1996 and the net change in proceeds from the sale of securities in the amount of $9,077,000. The Company expects that cash, investment securities, bank credit facilities, and cash provided from operations will be sufficient to provide for planned working capital requirements, product development, debt service, and capital expenditures for the foreseeable future. Additionally, the Company expects to buy back five percent of its $57,500,000 subordinated convertible debentures in the open marketplace in order to satisfy its 1997 sinking fund obligations under the indenture. At the 1996 stockholders' meeting, the shareholders approved an increase in the number of authorized common shares from 50,000,000 to 65,000,000 shares. PAGE> 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. PAGE> 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. Date: November 4, 1996 By /s/ Keith K. Ogata ___________________________ Keith K. Ogata Vice President, Chief Financial Officer and Treasurer NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS (Item 6(a))
Sequentially Exhibit Numbered Number Description Page _______ ___________ ____________ 3.1 Restated Certificate of Incorporation of of National Education Corporation (1). . . . . . . . . * 3.2 Amendment to Restated Certificate of Incorporation of National Education Corporation (31). . . . . . . . . . * 3.3 By-Laws of the Company, as amended (2) . . . . . . . . * 10.1** National Education Corporation Retirement Plan (Restated as of January 1, 1989 and as Amended through January 1, 1992) (3) . . . . . . . . . . . . . * 10.2** Advanced Systems, Incorporated 1984 Stock Option and Stock Appreciation Rights Plan (4). . . . . * 10.3** 1986 Stock Option and Incentive Plan, as amended (5). . . . . . . . . . . . . . . . . . . . . . * 10.4** Amended and Restated 1990 Stock Option and Incentive Plan (6) . . . . . . . . . . . . . . . . . . * 10.5** Amended and Restated 1991 Directors' Stock Option and Award Plan (7). . . . . . . . . . . . . . . * 10.6 Rights Agreement, dated October 29, 1986, between National Education Corporation and Bank of America National Trust and Savings Association, Rights Agent (including exhibits thereto) (8) . . . . . . . . . . . . . . . . . . . . . * 10.7 Addendum No. 1 to Rights Agreement, dated August 5, 1991 (9) . . . . . . . . . . . . . . . . . . * 10.8 Indenture, dated as of May 15, 1986, between National Education Corporation and Continental Illinois National Bank and Trust Company of Chicago, as Trustee (10) . . . . . . . . . . . . . . . * NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Sequentially Exhibit Numbered Number Description Page _______ ___________ ____________ 10.9 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 (11) . . . . . . . . . . . . . . . . . . . . . * 10.10** National Education Corporation Supplemental Executive Retirement Plan, as amended (12) . . . . . . * 10.11** Supplemental Benefit Plan for Non-Employee Directors (13) . . . . . . . . . . . . . . . . . . . . * 10.12** Executive Employment Agreement between National Education Corporation and Sam Yau (14) . . . . . . . . * 10.13 Intercompany Agreement between National Education Corporation and Steck-Vaughn Publishing Corporation, dated June 30, 1993 (the "Intercompany Agreement") (15). . . . . . . . . . * 10.14 First Amendment to Intercompany Agreement, dated June 10, 1994 (16) . . . . . . . . . . . . . . . * 10.15 Tax Sharing Agreement between National Education Corporation and Its Direct and Indirect Corporate Subsidiaries, dated January 1, 1993 (17) . . . . . . . . . . . . . . . . . * 10.16 $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 granted for portions of this exhibit) (18) . . . . . . * 10.17 First Amendment and Limited Waiver to Credit Agreement, dated July 31, 1995 (19). . . . . . . . . . * 10.18 Second Amendment to Credit Agreement, dated December 21, 1995 (20) . . . . . . . . . . . . . . . . * NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES Sequentially Exhibit Numbered Number Description Page _______ ___________ ____________ 10.19 Revolving Line of Credit Note and Option Agreement between National Education Corporation and Steck-Vaughn Publishing Corporation, dated February 28, 1995 (21) . . . . . . . . . . . . . . . . * 10.20 Renewal and Extension Agreement between National Education Corporation and Steck-Vaughn Publishing Corporation, effective December 31, 1995 (22). . . . . * 10.21 First Amendment to Stock Option Agreement between National Education Corporation and Steck-Vaughn Publishing Corporation, effective December 31, 1995 (23) * 10.22 Letter Amendment to Stock Option Agreement between National Education Corporation and Steck-Vaughn Publishing Corporation, dated February 1, 1996 (24). . * 10.23 Second Renewal and Extension Agreement and Second Amendment to Stock Option Agreement, dated March 31, 1996 between National Education Corporation and Steck-Vaughn Publishing Corporation (27) . . . . . . . * 10.24 Debenture Conversion Agreement among National Education Corporation and the Holders identified therein, dated August 31, 1995 (25). . . . . . . . . . * 10.25 Credit Agreement among National Education Corporation, certain banks and BZW Division of Barclays Bank PLC, as Agent, dated January 19, 1996 (the "BZW Credit Agreement") (26) . . . . . . . . . . . . . . . . . . . * 10.26 Waiver and First Amendment to BZW Credit Agreement, dated April 9, 1996 (28) . . . . . . . . . . . . . . . * 10.27 Loan Agreement dated April 29, 1996, between Steck- Vaughn Company and NationsBank of Texas, N.A. (29) . . * 10.28 Third Renewal and Extension Agreement and Third Amendment to Stock Option Agreement, dated June 30, 1996 between National Education Corporation and Steck-Vaughn Publishing Corporation (30). . . . . . . . . . . . . . * 11.1 Calculation of Primary Earnings Per Share (32) . . . . 11.2 Calculation of Fully Diluted Earnings Per Share (32) . 27.1 Financial Data Schedule (32) . . . . . . . . . . . . . NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES ________________________________ * incorporated by reference from a previously filed document ** denotes management contract or compensatory plan or arrangement 1) Incorporated by reference to Exhibit 3.1 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, filed March 19, 1996. 2) Incorporated by reference to Exhibit 10 filed with National Education Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990. 3) Incorporated by reference to Exhibit 10.1 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 31, 1992, filed March 22, 1993. 4) Incorporated by reference to Exhibit 10.15 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 31, 1987, filed March 30, 1988. 5) Incorporated by reference to Exhibit 10.17 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 31, 1990, filed April 1, 1991. 6) Incorporated by reference to Exhibit "B" filed with National Education Corporation's Proxy Statement, furnished in connection with the Annual Meeting of Stockholders held June 27, 1995, filed May 22, 1995. 7) Incorporated by reference to Exhibit "A" filed with National Education Corporation's Proxy Statement, furnished in connection with the Annual Meeting of Stockholders held June 27, 1995, filed May 22, 1995. 8) Incorporated by reference to Exhibit 4.1 filed with National Education Corporation's Current Report on Form 8-K, dated October 29, 1986, filed October 30, 1986. 9) Incorporated by reference to Exhibit 10.19 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, filed April 1, 1992. 10) Incorporated by reference to Exhibit 4.2 filed with Amendment No. 1 to National Education Corporation's Registration Statement on Form S-3 (No. 33-5552), filed May 16, 1986. 11) Incorporated by reference to Exhibit 4 filed with National Education Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990. 12) Incorporated by reference to Exhibit 10.17 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 31, 1991, filed April 1, 1992. 13) Incorporated by reference to Exhibit 10.18 filed with National Education Corporations Annual Report on Form 10-K for the year ended December 31, 1991, filed April 1, 1992. NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES 14) Incorporated by reference to Exhibit 10.21 filed with National Education Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. 15) Incorporated by reference to Exhibit 10.8 filed with Amendment No. 1 to Steck-Vaughn Publishing Corporation's Registration Statement on Form S-1 (No. 33-62334), filed June 17, 1993. 16) Incorporated by reference to Exhibit 10.23 filed with National Education Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, filed August 11, 1994. 17) Incorporated by reference to Exhibit 10.9 filed with Amendment No. 1 to Steck-Vaughn Publishing Corporation's Registration Statement on Form S-1 (No. 33-62334), filed June 17, 1993. 18) Incorporated by reference to Exhibit 10.18 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 13, 1994, filed March 31, 1995. 19) Incorporated by reference to Exhibit 10.22 filed with National Education Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, filed on November 9, 1995. 20) Incorporated by reference to Exhibit 10.18 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, filed on March 19, 1996. 21) 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. 22) Incorporated by reference to Exhibit 10.22 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, filed March 19, 1996. 23) Incorporated by reference to Exhibit 10.23 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, filed March 19, 1996. 24) Incorporated by reference to Exhibit 10.24 filed with National Education Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, filed March 19, 1996. 25) Incorporated by reference to Exhibit 10.23 filed with National Education Corporation's Quarterly Report on Form 10-Q for the first quarter ended September 30, 1995, filed November 9, 1995. 26) Incorporated by reference to Exhibit 10.26 filed with National Education Corporation's Annual Report on Form 10-K/A, Amendment No.1, for the year ended December 31, 1995, filed July 26, 1996. 27) Incorporated by reference to Exhibit 10.23 filed with National Education Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, filed May 8, 1996. NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES 28) Incorporated by reference to Exhibit 10.26 filed with National Education Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, filed May 8, 1996. 29) Incorporated by reference to Exhibit 10.27 filed with National Education Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, filed May 8, 1996. 30) Incorporated by reference to Exhibit 10.28 filed with National Education Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, filed August 7, 1996. 31) Incorporated by reference to Exhibit "A" filed with National Education Corporation's Proxy Statement, furnished in connection with the Annual Meeting of Stockholders held May 29, 1996, filed April 15, 1996. 32) Filed herewith.
EX-11 2 EXHIBIT 11.1 NATIONAL EDUCATION CORPORATION AND SUBSIDIARIES CALCULATION OF PRIMARY EARNINGS PER SHARE (Amounts in thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, ______________________ _______________________ 1996 1995 1996 1995 __________ _________ _________ _________ NET INCOME (LOSS) $ 9,307 $ 5,827 $ 12,146 $(84,355) __________ _________ _________ _________ COMMON STOCK: Shares outstanding from beginning of period 35,137 29,578 35,137 29,578 Pro rata shares: Stock options exercised 392 429 220 253 Assumed exercise of stock options, using treasury stock method 1,303 732 1,293 320 Conversion of senior subordinated debentures -- 1,037 -- 349 _________ ________ ________ ________ Weighted average number of shares outstanding 36,832 31,776 36,650 30,500 _________ ________ ________ ________ EARNINGS (LOSS) PER SHARE $ .25 $ .18 $ .33 $ (2.77) ========= ======== ======== ========
EX-11 3 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 Nine Months Ended September 30, September 30, ______________________ _______________________ 1996 1995 1996 1995 __________ _________ _________ _________ NET INCOME (LOSS) $ 9,307 $ 5,827 $ 12,146 $(84,355) Add back senior debenture interest, net of applicable taxes -- 237 -- 837 Add back junior debenture interest, net of applicable taxes 570 570 1,709 1,709 _________ ________ ________ ________ NET INCOME (LOSS) FOR FULLY DILUTED COMPUTATION $ 9,877 $ 6,634 $ 13,855 $(81,809) --------- -------- -------- -------- COMMON STOCK: Shares outstanding from beginning of period 35,137 29,578 35,137 29,578 Stock options exercised 392 429 220 253 Assumed exercise of stock options, using treasury stock method 1,367 939 1,446 729 Assumed conversion of senior subordinated debentures, from the beginning of the period -- 5,021 -- 5,021 Assumed conversion of junior subordinated debentures, from the beginning of the period 2,300 2,300 2,300 2,300 _________ ________ ________ ________ Weighted average number of shares outstanding 39,196 38,267 39,103 37,881 _________ ________ ________ ________ FULLY DILUTED EARNINGS (LOSS) PER SHARE $ .25 $ .17 $ .33 $ (2.77) ========= ======== ======== ========
For the nine month periods, fully diluted earnings (loss) per share is the same as primary earnings (loss) per share because inclusion of the convertible debentures is antidilutive. EX-27 4
5 1,000 9-MOS DEC-31-1995 JAN-01-1996 SEP-30-1996 14,671 1,399 55,038 2,823 33,261 125,025 52,248 24,033 211,452 77,212 81,778 0 0 2,170 21,221 211,452 208,251 208,251 69,811 187,120 8,039 256 6,119 13,092 579 12,146 0 0 0 12,146 .33 .33
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