SEC Info  
    Home      Search      My Interests      Help      Sign In      Please Sign In

Nobel Learning Communities Inc – ‘10-K405’ for 6/30/99

On:  Tuesday, 9/28/99   ·   For:  6/30/99   ·   Accession #:  1036050-99-1975   ·   File #:  1-10031

Previous ‘10-K405’:  ‘10-K405’ on 9/25/98 for 6/30/98   ·   Next & Latest:  ‘10-K405’ on 9/28/00 for 6/30/00

Find Words in Filings emoji
 
  in    Show  and   Hints

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 9/28/99  Nobel Learning Communities Inc    10-K405     6/30/99    4:190K                                   Donnelley R R & S… 14/FA

Annual Report — [x] Reg. S-K Item 405   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Form 10-K405 for Nobel Learning Communities, Inc.     52    327K 
 2: EX-21       List of Subsidiaries of the Registrant                 1      5K 
 3: EX-23       Consent of Coopers & Lybrand LLP                       1      6K 
 4: EX-27       Financial Data Schedule                                2      7K 


10-K405   —   Form 10-K405 for Nobel Learning Communities, Inc.
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
3Item 1. Business
13Executive Officers of the Company
16Item 2. Properties
"Item 3. Legal Proceedings
"Item 4. Submission of Matters to a Vote of Security Holders
17Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
19Item 6. Selected Financial Data
20Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
26Item 8. Financial Statements and Supplementary Data
"Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
27Item 10. Directors and Executive Officers of the Registrant
"Item 11. Executive Compensation
"Item 12. Security Ownership of Certain Beneficial Owners and Management
"Item 13. Certain Relationships and Related Transactions
28Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
41Earnings Per Share
46Common Stock Warrants
481999
10-K4051st Page of 52TOCTopPreviousNextBottomJust 1st
 

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K [x] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended June 30, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 [No Fee Required] Commission File Number 1-1003 NOBEL LEARNING COMMUNITIES, INC. (Exact name of registrant as specified in its charter) Delaware 22-2465204 (State or other jurisdiction (IRS Employer of incorporation or organization Identification No.) Rose Tree Corporate Center II 1400 N. Providence Road, Suite 3055 Media, PA 19063 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (610) 891-8200 Securities Registered Pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $.001 per share (Title of each class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] As of September 17, 1999, 5,921,365 shares of common stock were outstanding. The aggregate market value of the shares of common stock owned by non-affiliates of the Registrant as of September 17, 1999 was approximately $20,900,000 (based upon the closing sale price of these shares as reported by Nasdaq). Calculation of the number of shares held by non-affiliates is based on the assumption that the affiliates of the Company include the directors, executive officers and stockholders who have filed a Schedule 13D or 13G with the Company which reflects ownership of at least 10% of the outstanding common stock or have the right to designate a member of the board of directors, and no other persons. The information provided shall in no way be construed as an admission that any person whose holdings are excluded from the figure is an affiliate or that any person whose holdings are included is not an affiliate and any such admission is hereby disclaimed. The information provided is included solely for record keeping purposes of the Securities and Exchange Commission. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on November 18, 1999 (the "Proxy Statement") and to be filed within 120 days after the registrant's fiscal year ended June 30, 1999 are incorporated by reference in Part III.
10-K4052nd Page of 52TOC1stPreviousNextBottomJust 2nd
TABLE OF CONTENTS [Download Table] Item No. Page PART I 1. Business............................................................ 1 Executive Officers of the Company................................... 11 2. Properties.......................................................... 14 3. Legal Proceedings................................................... 14 4. Submission of Matters to a Vote of Security Holders................. 14 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................... 15 6. Selected Financial Data............................................. 17 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 18 8. Financial Statements and Supplementary Data......................... 24 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................. 24 PART III 10. Directors and Executive Officers of the Registrant.................. 25 11. Executive Compensation.............................................. 25 12. Security Ownership of Certain Owners and Management................. 25 13. Certain Relationships and Related Transactions...................... 25 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 26 i
10-K4053rd Page of 52TOC1stPreviousNextBottomJust 3rd
PART I "Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995 Our Fiscal 1999 outlook and all other statements in this report other than historical facts are forward-looking statements that involve risks and uncertainties and are subject to change at any time. We derive our forward- looking statements from our operating budgets and forecasts, which are based upon detailed assumptions about many important factors such as market demand, market conditions and competitive activities. While we believe that our assumptions are reasonable, we caution that there are inherent difficulties in predicting the impact of certain factors, especially those affecting the acceptance of our newly developed schools and businesses and performance of recently acquired businesses, which could cause actual results to differ materially from predicted results. Item 1. Business. General We are a leader in providing affordable private education from preschool through eighth grade. Our core business consists of the operation of preschools, elementary schools and middle schools. These schools typically provide summer camps and before-and-after school programs. Recently, we have entered certain related businesses in private education, including schools for learning challenged children, charter schools, specialty high schools and tutorial programs. As of September 15, 1999, we had 138 schools in 13 states, with an aggregate capacity of approximately 21,000 children. Our schools operate under the global brand name "Nobel Learning Communities"; our credo is "Quality Education Maximizing a Child's Life Opportunities." Our schools are located in California, Pennsylvania, New Jersey, Virginia, Florida, Maryland, North Carolina, South Carolina, Illinois, Nevada, Texas, Oregon and Washington. The schools operate under various names, including Chesterbrook Academy, Merryhill School, Evergreen Academy and Another Generation Preschool. Our largest operation is our Merryhill School system in California, comprised of 30 preschools, elementary schools and middle schools. We are pursuing a four-pronged strategy to take advantage of the significant growth opportunities in the private education market: . internal organic growth at existing schools, including expansions of campus facilities . new school development in both existing and new markets . strategic acquisitions . development of new businesses, including schools for learning challenged children, charter schools, tutorial programs and corporate sponsored schools. Our strategy is based on meeting the needs of an educational continuum, from infancy to eighth grade. We encourage our children to stay with Nobel schools as they grow, within our geographic clusters called "Nobel Learning Communities." Our clusters increase market awareness; achieve operating efficiencies; and provide cross-marketing opportunities, particularly by providing feeder populations from preschool to elementary school, and elementary school to middle school. 1
10-K4054th Page of 52TOC1stPreviousNextBottomJust 4th
We seek to distinguish Nobel Learning Communities from our competition with the qualitative and quantitative program outcomes. At each level, we support a child's development with age appropriate curriculum-based programs. We foster learning through small classes, technology use and early introduction of a foreign language. Further, through our new initiatives in tutoring and schools for learning challenged, Nobel Learning Communities will serve those with special needs. Many of our schools operate from 6:30 a.m. to 6:00 p.m., allowing early drop-off and late pick-up by working parents. In most locations, programs are available for children starting at six weeks of age. For a competitive price, parents can feel comfortable leaving their children at a Nobel school knowing they will receive both a quality education and engage in well-supervised activities. Most of our schools complement their programs with before and after school programs and summer camps (both sports and educational). Many of our schools have swimming pools. Our schools also seek to improve margins by providing ancillary services and products, such as book sales, uniform sales and portrait services. Our corporate office is located at Rose Tree Corporate Center II, 1400 North Providence Road, Suite 3055, Media, PA 19063. Our telephone number is (610) 891-8200. We have two Internet sites. The address for our customer site is www.nobellearning.com. The address for our investor site is www.nobeleducation.com. Educational Philosophy and Implementation Our educational philosophy is based on a sound research foundation, innovative instructional techniques and quality practice and proprietary curricula developed by experienced educators. Our programs stress the development of the whole child and are based on concepts of integrated and age- appropriate learning. Our curricula recognize that each child develops according to his or her own abilities and timetable, but also seek to prepare every student for achievement in accordance with national content standards and goals. Every child's individual educational needs and skills are considered upon entrance into a Nobel school. Progress is regularly monitored in terms of both the curriculum's objectives and the child's cognitive, social, emotional and physical skill development. The result is the opportunity for each of our students to develop a strong foundation in academic learning, positive self- esteem, and emotional and physical well-being, based on a personalized approach. Under the direction of our Vice President - Education, we circulate regular "curriculum updates," a communication to assist staff in planning their daily and weekly programs with current and effective instructional practices and materials. We have also established multi-media products for a "Learning Lending Library" collection. The library, which is managed out of our corporate office, is available to all Nobel schools for student and teacher development and parent interest. Many of these resources support our curriculum and our frameworks (standards and benchmarks). We provide an Education Guide which summarizes our philosophy of education and reviews various "tools" available to principals and teachers. In 1996, we launched our National Education Advisory Board. Under the direction of our Vice President - Education, the Board includes six nationally- known educators each of whom advises Nobel on his or her particular area of expertise: 2
10-K4055th Page of 52TOC1stPreviousNextBottomJust 5th
. Dr. Barbara Presseisen, our retired Vice President of Education (Cognitive Development) . Dr. Zalman Usiskin of the University of Chicago (Mathematics) . Dr. Cathy Collins Block of Texas Christian University (Reading and Language Arts) . Dr. John N. Mangieri of the Institute for Effective Management (Educational Administration) . Dr. Arthur L. Costa of the University of California at Sacramento (Curriculum and Teacher Development) (Professor Emeritus) . Dr. Drew H. Gitomer of Educational Testing Service (Testing and Evaluation). The Advisory Board helps oversee curriculum development in our schools, advises on the most effective teaching methods, and assists in finding the best instructional materials and practices to help our students learn effectively and efficiently. Advisory Board members are also available to work on special projects and services that enhance our school programs. We maintain that small class sizes and qualified teachers are basic ingredients of quality education. Our philosophy is based on personalized instruction that leads to a student's active involvement in learning and understanding. The program for our schools is a skills-based and developmentally appropriate comprehensive curriculum. We implement the curriculum in ways that stimulate the learner's curiosity, enhance students' various learning styles, and employ processes that contribute to lifelong achievement. Academic areas addressed include reading readiness and reading, spelling, writing, handwriting, mathematics, science, social studies, visual and graphic arts, music, physical education and health, and foreign language. Computer literacy and study skills are integrated into the program, as appropriate, in all content areas. Our schools employ state-of-the-art equipment, with interactive software. Most schools in the Nobel Learning Communities introduce a second language between the ages of two and three and continue that instruction into the pre-K, kindergarten and school age programs. We offer sports activities and supplemental programs, which include day field trips coordinated with the curriculum to such places as zoos, libraries, museums and theaters, and, at the middle schools, overnight trips to such places as Yosemite, California and Washington, D.C. Schools also arrange classroom presentations by parents, community leaders and other volunteers, as well as organize youngsters as presenters to community groups and organizations. To enhance better the child's physical, social, emotional and intellectual growth, schools are encouraged to provide fee-based experiences specifically tailored to particular families' interest in such ancillary activities as dance, gymnastics, and instrumental music lessons. Experienced principals and directors and their faculties implement our programs. Our staff members foster open communication, teamwork and the attention to detail required to provide superior programs. School principals and directors work closely with regional and corporate management, particularly in the regular assessment of program quality. We seek to assure that our schools meet or exceed the standards of appropriate accrediting agencies through an internal quality assurance program. Many Nobel schools are accredited, or are currently seeking accreditation, by the National Association for the Education of Young Children (NAEYC), the National Independent 3
10-K4056th Page of 52TOC1stPreviousNextBottomJust 6th
Private Schools Association (NIPSA), or the Commission on International and Trans-Regional Accreditation (CITA). We have programs to recognize and reward our educators for their outstanding performance and achievement. Similarly, we furnish guidance for the continued training and staff development of teaching personnel, using both internal trainers and external consultants. Staff members are recognized for the completion of continuing education experiences and encouraged to pursue formal, advanced learning. Operations / School Systems In order to maintain uniform standards, our schools share consistent educational goals and operating procedures. To respond to local demands, principals are encouraged to tailor curriculums, within Nobel's standards, to meet local needs. Our management visits all schools and centers on a regular basis to review program and facility quality. Each school and center is staffed with a principal or director, teachers and teaching assistants. Principals and directors are supervised by executive directors, who report to three Vice Presidents of Operations. The principal or director is critical to the success of the school and is provided with ongoing training. Principals and directors are responsible to maintain the quality of educational services delivered at their schools; to recommend pricing strategy based upon school location and local area demographics; to manage their personnel; to develop sales and marketing strategies; and to assure fiscal management. Principals and directors are also responsible to raise additional revenues through ancillary programs, such as sales of school uniforms, candy, children's portraits and school stores. In Fiscal 1998, our corporate office began central management of the most significant ancillary programs. This central management has enabled us to obtain more favorable terms from vendors and to encourage more active participation from schools. Principals and directors submit financial reports to our corporate office and to appropriate district and division managers each week. These reports include data on current enrollment, labor costs and cash receipts. Corporate office personnel then review each report and prepare weekly combined reports by district, region and for Nobel in total. Weekly or monthly tuition rates and utilization rates are continually monitored. Each school and center is measured on a monthly basis versus its individual business plan. We are currently implementing new software which will assist us to operate our schools more effectively and efficiently and will provide management with enhanced and timely operational information. We hire qualified individuals and prefer to promote from within. Employment applicants are reviewed with background checks made to verify accurate employment history and establish background, reputation and character. After hiring, our faculty is reviewed and evaluated annually through formal evaluation. All of our principals and directors are eligible for incentive compensation based on the profitability of their schools. Marketing and Customers We generate the majority of new enrollments from our reputation in the community and word-of-mouth recommendations of parents. Further, we group our preschools geographically to 4
10-K4057th Page of 52TOC1stPreviousNextBottomJust 7th
increase local market awareness and to supply a student population for our elementary and middle schools. Our educational continuum from preschool through elementary and middle school also helps demonstrate to parents our educational focus. We market our services through yellow page advertising, print ads in local publications, radio, and through distribution of promotional materials in residential areas. Marketing campaigns are conducted throughout the year, primarily at the local level by our school directors and principals. In addition, the various regional offices conduct targeted marketing programs, such as mass mailings and media advertising. In our marketing, we strive to differentiate ourselves from our competition through the quality of our programs. We emphasize the features and benefits of our schools, including advanced learning, comprehensive curricula, small class sizes, national accreditation, credentialed teachers, before and after school programs and summer camps. We promote our introduction at an early age of foreign language and technology use, and the results of standardized tests, which show that our school age children perform one and one-half to three grade levels above national norms. Corporate Development A significant portion of our growth has been through the opening of new schools and preschools and making strategic acquisitions of existing schools and preschools. We expect this strategy to continue into the immediate future. New School Development New school development offers an attractive growth opportunity for us to expand into both new and existing markets. Proposed development sites are presented to us through a network of developers and land realtors across the United States. After site selection, we engage a developer or contractor to build a facility to our specifications. We currently work with several developers who purchase the land, build the facility and lease the premises to us under a long-term lease. Alternatively, we purchase land, construct the building with our own or borrowed funds and then seek to enter into a sale and lease back transaction with an investor. In fiscal 1999, we opened three elementary schools and two preschools; in fiscal 2000 through September 15,2000, we opened two elementary schools (including a charter school) and two preschools, and expanded two of our campuses. We plan to open approximately four new schools (including a replacement school) in the remainder of fiscal 2000 and approximately eight new schools in fiscal 2001. Our development plans are dependent on the continued availability of developer and financing arrangements. Typically, new schools are single-story stand alone structures located near residential neighborhoods on acreage appropriate to the nature of the school. We carefully evaluate all proposed development sites and make a selection based on a variety of criteria, including: the number and age of children living in proximity to the site; family income data; incidence of two- wage earner and single parent families; traffic patterns; wage and fixed cost structure; competition; price elasticity; family educational data; local licensing requirements; and real estate costs. "Nobel On-The-Job" We plan to augment our development efforts through pursuit of corporate sponsored programs and schools, marketed under the name "Nobel On-The-Job." We believe that the curriculum based nature of our programs and the education focus of our company can make us attractive to many 5
10-K4058th Page of 52TOC1stPreviousNextBottomJust 8th
corporations that seek to offer their employees high quality preschool programs. Also, some companies are considering providing elementary grade schools for their employees. Currently, many of our preschools are located in corporate parks, or otherwise accessible to corporate locations. To enhance our relationship with the corporate community, we have negotiated corporate discount programs at some of our facilities. Participants include Marriot Corporation, Circuit City, American Express and Motorola. In 1999, we competed successfully against two market leaders in corporate- affiliated preschools and were awarded a fifteen year contract to operate a preschool in Herndon, Virginia for the Northwest Federal Credit Union. Acquisitions Since 1994, Nobel has acquired 68 schools: 46 preschools, 17 elementary schools and five high schools. We strive to make only acquisitions which are strategic in nature: to enhance our presence within an existing cluster; to establish a base in a new geographic area with growth potential; or to provide an entry into a new business (e.g., learning challenged students). In Fiscal 1999, we acquired, through an 80% joint venture, three schools located in southern Florida which educate children with learning disabilities and a preschool located in Leesburg, Virginia. In September 1999, we acquired all the capital stock of Houston Learning Academy, an operator of five specialty high schools in the Houston, Texas market. Nobel Learning Solutions In Fiscal 1999, Nobel launched several new businesses through its new division, Nobel Learning Solutions. Paladin Academy(Tm) Our Paladin Academy schools serve the needs of learning-challenged and developmentally delayed students. Through these schools, our mission is to improve the learning process and achievement levels of children and adults having dyslexia, attention deficit disorder and other learning difficulties. We offer clinical day schools, tutoring clinics and summer programs, as well as psycho-educational and developmental testing and community outreach programs. Paladin Academy day schools offer full day programs serving the special needs of students from kindergarten throughout high school. The goal of Paladin Academy is to enable students to reenter mainstream school programs within two to three years. We offer one-on-one tutorial clinics to our day school students, as supplemental instruction, and to other children, college students and adults who require an educational therapy program. As of September 15, 1999, we operated six Paladin Academy schools. These include three "stand-alone" private schools in South Florida, acquired in our August 1998 purchase of the assets of Development Resource Centers. Our Paladin Academy schools also include three schools that commenced operations calendar year 1999, conducted in classrooms of other Nobel Learning Communities schools (including two in South Florida and one in Chantilly, Virginia). We plan to undertake a further roll-out of Paladin Academy schools within the Nobel school clusters across the United States, based on the performance of these new schools. 6
10-K4059th Page of 52TOC1stPreviousNextBottomJust 9th
We believe that Nobel school clusters will foster the development of the Paladin Academy schools. Existing schools in a Nobel cluster can refer students requiring special help to Paladin Academy; our marketing efforts can foster name recognition of all services available within the Nobel Learning Community. Also, we can reduce start-up costs for new Paladin Academy schools by utilizing excess capacity at existing Nobel Learning Community schools. Paladin Academy schools can also share soccer fields, basketball courts and gymnasiums of schools at which they are located, or nearby. All Paladin Academy schools are operated through a an 80%-owned joint venture with an entity owned by the seller of Development Resource Centers. Nobel Learning Advantage In late calendar year 1999, we will begin to offer comprehensive tutorial and diagnostic programs under the name Nobel Learning Advantage. These programs will include adaptive (remedial), transitional (enrichment) and gifted components within two major content areas: reading, writing and mathematics. Each program will have a diagnostic and an instructional component that can be delivered in three grade ranges (K - 2, 3 - 5, and 6 - 8). In Fall 1999, we will commence piloting our reading programs at two of our schools; in January 2000, we expect to commence a roll-out of this program. By Spring 2000, we will begin to commence piloting our mathematic tutorial programs; commercial application of these programs is planned to commence in the 2000/2001 school year. We plan to market our tutoring services both to our current students and to students outside the Nobel Learning Community. Initially, we expect to train our elementary and middle school staff to conduct tutoring services. We believe that this approach will be attractive to our teachers, affording them the opportunity to earn income to supplement their salaries. Charter Schools In 1999, Nobel entered the charter school market, by assisting a non-profit entity to apply for a charter from the School District of Philadelphia. The School District of Philadelphia awarded the non-profit entity a charter for 624 children; well in excess of that number of children applied for enrollment. Nobel will provide administrative and construction management services to the charter school pursuant to a five-year management contract. The non-profit entity will fund its own operations, through payments from the School District of Philadelphia. As part of the arrangements with the charter school, Nobel leases the charter school premises from a third party, and subleases the premises to the non-profit entity. We believe that our experience in developing and operating schools was an important factor in the decision of the non-profit entity to seek our management services and of the School District of Philadelphia to approve the charter. We are actively pursuing other charter school opportunities in states which have the student fees and management flexibilities to make the charter school management arrangements economically viable. Houston Learning Academy In September 1999, we acquired all the capital stock of Houston Learning Academy, an operator of five specialty high schools in the Houston, Texas market. The Houston Learning 7
10-K40510th Page of 52TOC1stPreviousNextBottomJust 10th
Academy schools offer a half day fully accredited high school program, as well as tutorial and summer school programs. These schools' programs feature very small class sizes and individualized attention. Many students who attend Houston Learning Academy desire to engage in other activities in the afternoons or are attracted to the flexibility of the schools' curriculum. Industry and Competition Annual spending in education and training is estimated to exceed $740 billion annually in the United States or approximately 10% of gross domestic product. Estimates of spending in education for preprimary grades (preschools and child care) are $34 billion while estimates of spending for kindergarten through twelfth grade ("K -12") are $358 billion. Spending is projected to continue to grow through a combination of increasing per pupil expenditures and increasing school enrollments. It is estimated there are over 100,000 schools in the $34 billion preschool/child care segment, of which $11.5 billion is spent in the for-profit segment. Likewise, it is estimated there are 85,000 schools in the $358 billion K - 12 segment, of which $18.5 billion is spent in the for-profit segment. The public school market is estimated to be 110,000 schools in total, of which 76,000 are elementary, 23,000 are secondary and 11,000 are combined schools. The private school market is estimated to be 26,000 schools, of which 15,500 are elementary, 2,500 are secondary and 8,000 are combined. Of the 26,000 schools in the private school market, an estimated 20,500 are religiously affiliated and 5,500 are secular. Of the 5,500 secular schools, less than 1,000 are for-profit schools. The market for learning challenged schools (part of the over-all K-12 market) is very fragmented and is estimated to be $9.6 billion and servicing approximately 8 million children. The market for tutorial and diagnostic services is estimated to be $12 to $18 billion, with Sylvan Learning Centers and Huntington Learning Centers being the principal competitors. Corporate sponsored schools, which are currently almost entirely preschools, with 8,300 workplace childcare centers, is estimated to be a $2 billion market, and has grown at 20% to 25% per year since 1992. The largest competitor is Bright Horizons, with annual revenue of approximately $250 million. We believe that these markets have significant potential, and we intend to pursue actively growth in these markets. But, our efforts may not be successful. Between 1985 and 1995, it is estimated that the public school K - 8 grade enrollment increased 19.8% from 27.03 million students to 32.38 million students while the private school K - 8 grade enrollments increased 5.6% from 4.19 million students to 4.43 million students over the same time period. The U.S. Department of Education projects public school and private school K - 8 enrollment growth between 1996 and 2006 to slow to 2%, a 700,000 enrollment increase in public schools and a 100,000 enrollment increase in private schools, respectively. While this increase may not seem large, there is significant concern that the nation's already overcrowded schools are ill-prepared to handle it. It is estimated that in excess of 4,000 new K - 8 schools must be built to relieve current overcrowding and handle the growth. Also, this growth will vary significantly in different regions of the United States. States such as California, Florida, Washington and Oregon are projected to experience high growth. These states are targeted in our expansion plans. 8
10-K40511th Page of 52TOC1stPreviousNextBottomJust 11th
During the 1996 presidential elections, education was the politically "hot issue" in national and state contests. The broad public debate has shifted from whether our existing K - 12 system has failed in terms of performance to which reform movements promise the best and quickest improvements. Taxpayers have experienced high costs in education expenditures without positive results. According to a 1995 Gallup poll, 71% of Americans give the nation's schools a grade of C, D or F generally and 54% give their own schools a low grade as well. Quality is low; yet, the average annual cost of educating a Kindergarten through 12/th/ grade student in the United States has risen to over $6,000 in 1995. Dismal student achievement, a growing minority gap in school completion rates and student misbehavior causing unsafe school environments are three commonly mentioned quality measurements that are lacking. Also, corporate America has become increasingly frustrated by insufficiently equipped students produced by the nation's public school systems. Education reform movements in the United States are posing alternatives to the public schools. These include charter schools, private management of public schools, vouchers, home schooling and private schools. Our strategy is to provide parents a quality alternative through Nobel's privately owned and operated schools utilizing a proven curriculum in a safe and challenging environment. For school age children, we compete with other for-profit private schools, with non-profit schools and, in a sense, with public school systems. We anticipate that, given the perceived potential of the education market, well- financed competition may emerge, including possible competition from the large for-profit child care companies. The only for-profit competitor of which Nobel is aware which currently competes beyond a regional level is Children's World, a subsidiary of Aramark Corporation. We believe that the structure of the large for-profit child care companies may make it difficult for them to implement and develop programs which are based upon curriculum-intensive goals, which would require significant cultural changes. The preschool/child care market is a $34 billion highly fragmented industry, with diverse competition from both public and private sectors. Approximately eight million children are enrolled in 90,000 centers/schools, of which less than nine percent are managed by for-profit chains. Revenues of the 45 largest child care/preschool providers represent approximately five percent of total segment revenues. Also seeking enrollments of pre-school age children are in-home individual child care providers and corporations that provide child care for their employees. Only one out of seven early care/education programs is rated good or excellent by the Carnegie Corporation report; four out of five programs fail quality standards. We believe that persons in its target market -- parents seeking curriculum-based programs for their children -- seek services not provided by child care providers without a curriculum base. We believe these parents desire to give their child the best educational advantage available, since, as educators have found, the learning process should start earlier, preferably somewhere between the ages of two and three. We offer a national curriculum based program with excellent standards. The demand for quality preschools is increasing. More than 60% of married mothers with children under six years of age are in the workplace. Both single parents and dual income families are on the rise. From 1980 to 1990, the percentage of dual income families rose from 50% to 60%. 9
10-K40512th Page of 52TOC1stPreviousNextBottomJust 12th
From 1970 to 1997, the percentage of women who worked full time increased 39% to 57%. Combined, approximately 80% of U.S. families are either dual income or single parent households. While price is an important factor in competition in both the school age and preschool markets, we believe that other competitive factors also are important, including: professionally developed educational programs, well equipped facilities, trained teachers and a broad range of ancillary services, including transportation and infant care. Particularly in the preschool market, many of these services are not offered by many of our competitors. Regulation Schools and preschools are subject to a variety of state and local regulations and licensing requirements. These regulations and licensing requirements vary greatly from jurisdiction to jurisdiction. Governmental agencies generally review the safety, fitness and adequacy of the buildings and equipment, the ratio of staff personnel to enrolled children, the dietary program, the daily curriculum, compliance with health standards and the qualifications of our personnel. Insurance We currently maintain comprehensive general liability, workers' compensation, automobile liability, property, excess umbrella liability and student accident insurance. The policies provide for a variety of coverage and are subject to various limits. Companies involved in the education and care of children, however, may not be able to obtain insurance for the total risks inherent in their operations. In particular, general liability coverage can have sublimits per claim for child abuse. We believe we have adequate insurance coverage at this time. There can be no assurance that in future years we will not again become subject to lower limits. Service Marks We have registered various service marks, including Chesterbrook Academy(R), Merryhill Country School(R) and The Rocking Horse Child Care Center(R), in the United States Patent and Trademark Office. We believe that certain of our service marks have substantial value in our marketing in the respective areas in which our schools operate. Seasonality Our elementary and middle schools historically have lower operating revenues in the summer due to lower summer enrollments. Summer revenues of preschools tend to remain more stable or, in some cases, increase. We continue to seek to improve summer results through camps and other programs. Employees On September 15, 1999, we employed approximately 3,800 persons, approximately 1,000 of whom were employed on a part-time basis. We believe that our relationship with our employees is satisfactory. 10
10-K40513th Page of 52TOC1stPreviousNextBottomJust 13th
EXECUTIVE OFFICERS OF THE COMPANY Our executive officers are as follows: [Enlarge/Download Table] Name Age Position ----------------------------------------------------------------------------------------------- A. J. Clegg 60 Chairman of the Board of Directors and Chief Executive Officer; Director Daryl A. Dixon 39 President and Chief Operating Officer John R. Frock 56 Executive Vice President -- Corporate Development; Assistant Secretary; Director William E. Bailey 40 Vice President and Chief Financial Officer B. Robin Eglin 43 Executive Vice President -- Nobel Learning Solutions Yvonne DeAngelo 41 Vice President -- Administration and Finance; Secretary Lynn A. Fontana 52 Vice President -- Education Emily Louviere 55 Vice President -- Western Operations Joy McAndrew 39 Vice President -- Marketing Denise Price 45 Vice President -- Southern Operations Barry S. Swirsky 43 General Counsel Daniel Wallace 46 Vice President -- Real Estate Development Debora A. Wood 37 Vice President -- Northern Operations The following description contains certain information concerning the foregoing persons: A.J. Clegg. Mr. Clegg was named Chairman of the Board and Chief Executive Officer of Nobel on May 29, 1992. Since 1989, Mr. Clegg has also served on the Advisory Board of Drexel University and, in 1996, was named as a member of the Board of Trustees of Drexel University. From June 1990 to December 1997 (but involving immaterial amounts of time since 1994), Mr. Clegg also served as the Chairman and CEO of JBS Investment Banking, Ltd., which provided investment management and consulting services to businesses, including Nobel. In 1979, he formed Empery Corporation, an operator of businesses in the cable television and printing industries, and held the offices of Chairman, President and CEO during his tenure (1979-1993). In addition, Mr. Clegg served as Chairman and CEO of TVC, Inc. (1983-1993), a distributor of cable television components; and Design Mark Industries (1988-1993), a manufacturer of electronic senswitches. Mr. Clegg has also served on the board of directors of Ferguson International Holdings, PLC, 11
10-K40514th Page of 52TOC1stPreviousNextBottomJust 14th
a United Kingdom company, from March 1990 to April 1991; and was Chairman and CEO of Globe Ticket and Label Company from December 1984 to February 1991. Daryl A. Dixon. Mr. Dixon joined Nobel as President and Chief Operating Officer in February 1999. Mr. Dixon was formerly an executive with NovaCare, Inc., where he served as President and General Manager of NovaCare, Inc.'s Long-term Care Services (formerly, the Contract Rehabilitation Division) from January 1994 to January 1999 and Vice President, Operations of the Contract Rehabilitation Division from November 1992 until January 1994. Mr. Dixon spent ten years in various management positions with Manor Health Care, including three years of Vice President - Operations. John R. Frock. Mr. Frock was named Executive Vice President - Corporate Development on August 1, 1994. Mr. Frock was elected to the Board of Directors of Nobel on May 29, 1992. In March 1992, Mr. Frock became the President and Chief Operating Officer of JBS Investment Banking, Ltd., which provided investment management and consulting services to businesses, including Nobel. During the past five years, Mr. Frock also served as the Chairman and Chief Executive Officer of Avant Garde Enterprises, Ltd.; President and Chief Operating Officer of SBF Communications Graphics, a business forms printer located in Philadelphia, Pennsylvania; President of Globe Ticket and Label Company; and President of the Graphics Group of Empery Corporation. William E. Bailey. Mr. Bailey joined Nobel as Vice President and Chief Financial Officer in January 1998. Prior to joining Nobel, Mr. Bailey was Vice President / Controller for KinderCare Learning Centers, Inc. (a national child care company) from 1993 to 1997, Corporate Controller from 1991 to 1993, and Director of Planning and Analysis from June 1989 to October 1991. B. Robin Eglin. Mr. Eglin joined Nobel in April 1995, and currently serves as Executive Vice President of Nobel Learning Solutions. Previously, he served as Nobel's Vice President - Real Estate Development and Executive Vice President - Real Estate Development. Mr. Eglin was formerly Vice President of Carefree Learning Centers, Inc. and Keystone Real Estate Development Company, Inc., wholly-owned for-profit subsidiaries of Pennsylvania Blue Shield, where he was in charge of all real estate, finance and accounting activities. Mr. Eglin joined Carefree in 1989. Yvonne DeAngelo. Ms. DeAngelo was appointed Vice President - Finance and Administration in December 1995. She had served as Controller since March 1989. Ms. DeAngelo has also served as Secretary since May 1992. Before joining Nobel, she served as Senior Auditor for Coopers and Lybrand from 1986 to 1989. Dr. Lynn A. Fontana. Dr. Fontana joined Nobel as Vice President - Education in August 1999. Dr. Fontana has been actively involved in education and training for more than twenty years. As President of Fountain Communications Inc. (1990- 1998), and Thoughtful Technologies, LLC (1998-1999), Dr. Fontana provided consulting and production services for educational organizations, publishers, and government agencies. As a research associate professor at George Mason University (GMU) from 1990-1997, she directed externally funded educational research and development projects. She also served as an advisor to the University's Provost on distance education and chaired the university-wide distance education task force. Prior to joining the research faculty at GMU, 12
10-K40515th Page of 52TOC1stPreviousNextBottomJust 15th
Dr. Fontana was the Chief Education Officer for WETA, the public television station for Washington, D.C. From 1983 to 1984, she directed the Global Understanding project at National Public Radio and from 1980 to 1983 was director of research and development for the CloseUp/ C-Span project in Washington, D.C., which provided public affairs programming to schools nationwide. From 1994 through 1997, Dr. Fontana was Vice President of the National History Day Board of Trustees on which she has served since 1990. She currently chairs the nominating committee of the National History Day Board. Dr. Fontana has a BA in history and political science from Juniata College and a Ph.D. in education from Indiana University. Joy McAndrew. Ms. Andrew joined Nobel as Vice President - Marketing in May 1997. Prior to joining Nobel, Ms. Andrew held several executive positions with Nutri/System, Inc., a national weight loss company, from 1987 to 1993 and 1994 to 1997. During the interim 1993 to 1994 period, Ms. McAndrew was Account Director at Thomas J. Paul, Inc., a national advertising/marking/ public relations agency, where she assumed sole responsibility for the account of Johnson and Johnson's Personal Products Division. Emily Louviere. Ms. Louviere joined Nobel as Vice President - West Operations in November 1997. Ms. Louviere has over fourteen years of experience in the education industry, including managing multi-site educational operations, both preschool and elementary schools. Immediately prior to joining Nobel, from November 1996 to November 1997, Ms. Louviere served as Regional Vice President of Operations of Children's World. From October 1982 to March 1995, Ms. Louviere held various positions, including District Manager, Region Manager and Western Divisional Vice President at KinderCare, where she managed up to 400 schools with over $185 million in aggregate revenue. Denise Price. Ms. Price joined Nobel as National Director of Training in July 1997 and was named Vice President - Southern Operations in November 1998. Prior to joining Nobel, from June 1983 to June 1997, Ms. Price held various position at KinderCare KinderCare Learning Centers, Inc., including Regional Operations Manager managing multi-site educational operations, National Director of Accreditation supervising the accreditation process for over 1,200 preschools, and Business Development Manager developing on-site schools for corporate clients. In addition, Ms. Price's professional experience includes being a certified validator for the National Association for the Education of Young Children (NAEYC) and a current board member on the NAEYC National Advisory Board, NAEYC Commission Decision Board and the National Child Care Association (NCCA) Commission Decision Board. Barry S. Swirsky. Mr. Swirsky been the General Counsel of Nobel since September 1995 (serving as an officer since September 1997). Mr. Swirsky was previously engaged in private legal practice advising corporations and other business entities, primarily in corporate, transactional and securities matters. Mr. Swirsky commenced his legal career as an associate with Reavis & McGrath in New 13
10-K40516th Page of 52TOC1stPreviousNextBottomJust 16th
York, New York (since merged with Fulbright & Jaworski) (1981 to 1984), then was an associate with Dechert Price & Rhoads in Philadelphia, Pennsylvania (1984 to 1992), and then counsel to Bray Berry Martin & Reardon and a shareholder of Berry & Martin, P.C in Philadelphia, Pennsylvania (1992 to 1995). Mr. Swirsky received his J.D. from Harvard Law School in 1981. Daniel J. Wallace. Mr. Wallace joined Nobel as Vice President - Real Estate Development in June 1999. Prior to joining Nobel, from August 1997 to March 1999, Mr. Wallace was Director of Development for Balanced Care Corporation, an east coast operator of assisted living and seniors housing facilities. In his two years with Balanced Care, Mr. Wallace developed 24 projects in six states. Mr. Wallace also has over 16 years of retail development experience, serving as Director of Real Estate for Uni-Marts, Inc., a regional operator of convenience stores and fast food restaurants. At Uni-Marts, Mr. Wallace was responsible for the development of over 400 sites in six Mid-Atlantic states. Mr. Wallace is a graduate of Penn State University. Debora A. Wood. Ms. Wood joined Nobel as Vice President - North Operations in August 1999. Before joining Nobel, from 1984 to 1999, Ms. Wood was employed by NovaCare, Inc., where she held several operations positions of progressive responsibility, including District Manger, Area Manager and Regional Vice President in the Contract Rehabilitation Division, as well as Vice President of Occupational Health Services. Item 2. Properties. At September 15, 1999, we operated 138 schools on ten owned and 118 leased properties in 13 states. Our schools are geographically distributed as follows: 30 in California, 19 in North Carolina, 19 in Pennsylvania, 17 in Virginia, 11 in New Jersey, 15 in Florida, seven in Illinois, six in Nevada, five in Texas, four in Washington, two each in South Carolina and Oregon and one in Maryland. Our schools generally are located in suburban settings. The land and buildings which we own are subject to mortgages on the real property. Our leased properties are leased under long-term leases which are typically triple-net leases requiring us to pay all applicable real estate taxes, utility expenses and insurance costs. These leases usually contain inflation related rent escalators. From time to time, we purchase undeveloped land for future development. At June 30, 1999, we owned one such property in North Carolina. We also own the land and building of three properties in Florida and Maine at which we formerly operated day care centers; two of these properties are leased to third parties. We lease 13,837 square feet of space for our corporate offices in Media, Pennsylvania. Item 3. Legal Proceedings. We are engaged in legal actions arising in the ordinary course of its business. We believe that the ultimate outcome of all such matters will not have a material adverse effect on our consolidated financial position or results of operations. The significance of these matters on our future operating results and cash flows depends on the level of future results of operations and cash flows as well as on the timing and amounts, if any, of the ultimate outcome. Item 4. Submission of Matters to a Vote of Security Holders. None. 14
10-K40517th Page of 52TOC1stPreviousNextBottomJust 17th
PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Market Information Our common stock trades on The Nasdaq Stock Market under the symbol NCLI. "The Nasdaq Stock Market" or "Nasdaq" is a highly-regulated electronic securities market comprised of competing market makers whose trading is supported by a communications network linking them to quotation dissemination, trade reporting, and order execution systems. This market also provides specialized automation services for screen-based negotiations of transactions, on-line comparison of transactions, and a range of information services tailored to the needs of the securities industry, investors and issuers. The Nasdaq Stock Market consists of two distinct market tiers: the Nasdaq National Market(R) (on which our common stock trades) and the Nasdaq SmallCap Market(SM). The Nasdaq Stock market is operated by The Nasdaq Stock Market, Inc., a wholly- owned subsidiary of the National Association of Securities Dealers, Inc. The table below sets forth the quarterly high and low sales prices for our common stock as reported by Nasdaq for each quarter during the period from January 1, 1997 through June 30, 1999 and for the first quarter to date in Fiscal 2000. High Low Fiscal 1997 (January 1, 1997 to December 31, 1997) First Quarter...................................... 12 5/8 7 7/8 Second Quarter..................................... 10 3/8 7 1/2 Third Quarter...................................... 9 3/4 8 1/4 Fourth Quarter..................................... 9 7/16 4 1/2 Fiscal 1998 (January 1, 1998 to June 30, 1998) First Quarter...................................... 9 3/8 4 7/8 Second Quarter..................................... 9 1/8 7 7/8 Fiscal 1999 (July 1, 1998 to June 30, 1999) First Quarter...................................... 9 3/4 5 7/8 Second Quarter..................................... 7 7/8 5 1/32 Third Quarter...................................... 6 1/4 4 1/4 Fourth Quarter..................................... 6 1/16 4 1/2 Fiscal 2000 First Quarter (as of September 11, 1999)........... 6 1/8 4 1/4 Holders At September 10, 1999, there were approximately 400 holders of record of shares of common stock. 15
10-K40518th Page of 52TOC1stPreviousNextBottomJust 18th
Dividend Policy We have never paid a dividend on our common stock and do not expect to do so in the foreseeable future. Although the payment of dividends is at the discretion of the Board of Directors, we intend to retain our earnings in order to finance our ongoing operations and to develop and expand our business. Our credit facility with our lenders prohibits us from paying dividends on our common stock or making other cash distributions without the lenders' consent. Further, our financing documents relating to our private placement of our $10,000,000 Subordinated Note with Allied Capital Corporation prohibit us from paying cash dividends on our common stock without Allied's approval, and our financing documents relating to our private placement of the Series C Convertible Preferred Stock to Edison Venture Fund II, L.P. prohibit us from paying cash dividends on our common stock, unless the dividend is permitted under our bank agreement and the amount of the dividend is less than or equal to 50% of our operating income less income tax. 16
10-K40519th Page of 52TOC1stPreviousNextBottomJust 19th
Item 6. Selected Financial Data (In thousands except per share data) The following table sets forth selected historical financial data of the Company, this data should be read in conjunction with the Company's Financial Statements and the Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations". [Enlarge/Download Table] Year Ended Six Months Ended For the Year Ended December 31, OPERATING DATA June 30, 1999 June 30, 1998 1997 1996 1995 1994 -------------------------------------------------------------------------------------------------------------------------------- Revenue $ 109,762 $ 48,995 $ 80,980 $ 58,909 $ 44,154 $ 34,372 School operating expenses 95,957 42,142 69,858 48,871 35,762 28,032 -------------------------------------------------------------------------------------------------------------------------------- School operating profit 13,805 6,853 11,122 10,038 8,392 6,340 New school development 518 501 400 207 146 129 General and administrative expenses 7,717 3,391 5,973 4,190 3,396 2,696 Restructuring expense - - 2,960 - - - Litigation expense - - - - 500 200 -------------------------------------------------------------------------------------------------------------------------------- Operating income 5,570 2,961 1,789 5,641 4,350 3,315 Interest expense 2,998 1,044 2,047 2,004 1,840 1,223 Other (income) expense (248) (102) (158) (482) (126) 107 Minority interest 74 35 86 94 86 83 -------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 2,746 1,984 (186) 4,025 2,550 1,902 Income tax (benefit) expense 1,153 833 250 1,562 (1,356) (438) -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) before extraordinary item 1,593 1,151 (436) 2,463 3,906 2,340 Extraordinary item - - 449 - 62 - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) 1,593 1,151 (885) 2,463 3,844 2,340 Preferred dividends 83 51 102 109 184 199 -------------------------------------------------------------------------------------------------------------------------------- Net income available to common stockholders $ 1,510 $ 1,100 $ (987) $ 2,354 $ 3,660 $ 2,141 ================================================================================================================================ EBITDA/(1)/ (earnings before interest, taxes, depreciation and amortization expense) $ 11,123 $ 5,243 $ 4,803 $ 8,313 $ 6,020 $ 4,426 -------------------------------------------------------------------------------------------------------------------------------- Basic earnings per share (post split): Net income (loss) before extraordinary item $ 0.25 $ 0.18 $ (0.09) $ 0.42 $ 0.79 $ 0.57 Extraordinary item - - (0.07) - (0.01) - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.25 $ 0.18 $ (0.16) $ 0.42 $ 0.78 $ 0.57 ================================================================================================================================ Dilutive earnings per share (post split) Net income (loss) before extraordinary item $ 0.22 $ 0.15 $ (0.09) $ 0.34 $ 0.64 $ 0.46 Extraordinary item - (0.07) - (0.01) - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 0.22 $ 0.15 $ (0.16) $ 0.34 $ 0.63 $ 0.46 ================================================================================================================================ BALANCE SHEET DATA: Working capital deficit $ (12,087) $ (10,221) $ (7,946) $ (1,351) $ (831) $ (4,197) Cost in excess of net assets acquired 45,725 41,753 37,439 25,601 17,274 8,888 Total assets 81,025 75,020 74,398 56,833 44,937 23,234 Short-term debt and Current portion of long-term debt 2,209 2,031 2,793 3,448 1,371 1,768 Long-term debt and obligations 29,147 26,477 28,470 14,226 20,272 7,846 Stockholders' equity 34,145 32,736 31,636 32,323 16,121 8,298 (1) EBITDA includes depreciation expense included in general and administrative expenses of $370,000 for the year ended June 30, 1999, $125,000 for the six months ended June 30, 1998 and $153,000, $73,000, $181,000, $238,000, for the years ended December 31, 1997, 1996, 1995 and 1994, respectively.
10-K40520th Page of 52TOC1stPreviousNextBottomJust 20th
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Fiscal Year ended June 30, 1999 ("1999") compared to the twelve months ended June 30, 1998 ("1998 period") On December 19, 1997, the Company changed its fiscal year end to the last Friday in June closest to June 30. To facilitate a discussion of the Company's operating performance for 1999, the corresponding period for the twelve months ended June 30, 1998 is presented. During 1999, the Company acquired the assets or stock of companies owning four schools. These acquisitions include: three schools for the learning challenged in Dade County, Florida and one preschool in Leesburg, Virginia. In addition, the Company opened six new schools, of which three were preschools and three were elementary schools. The Company also closed seven schools. Following is a chart which breaks down revenues, school operating profit and school operating profit margins for 1999 and the 1998 period into three categories: Baseline Schools, Schools Acquired Within the Year and New School Development (dollars in thousands). [Enlarge/Download Table] Twelve months % of Twelve months % of 1999-1998 June 30, 1999 revenue June 30, 1998 revenue Variance ($) -------------------------------------------------------------------------------------------- BASELINE SCHOOLS (1) Revenues $ 92,967 100.0 $ 75,895 100.0 $ 17,072 Operating profit $ 15,467 16.6 $ 12,739 16.8 $ 2,728 -------------------------------------------------------------------------------------------- SCHOOLS ACQUIRED WITHIN THE YEAR (2) Revenue 1,743 100.0% 4,127 100.0 (2,384) Operating profit 650 37.3% 565 13.7 84 -------------------------------------------------------------------------------------------- NEW SCHOOL DEVELOPMENT (3) Revenues 15,052 100.0 10,288 100.0 4,764 Operating profit (Loss) (478) (3.2) (744) (7.2) 267 -------------------------------------------------------------------------------------------- Total Revenues $ 109,762 100.0 $ 90,310 100.0% $ 19,452 ============================================================================================ School operating profit before amortization of goodwill 15,639 14.2 12,560 13.9 3,079 Less amortization of goodwill 1,834 1.7 1,370 1.5 464 -------------------------------------------------------------------------------------------- School operating profit $ 13,805 12.6 $ 11,190 12.4 $ 2,615 ============================================================================================ (1) Baseline Schools is defined as all schools, except schools included in Schools Acquired Within the Year or New School Development (see footnotes (2) and (3)).(Schools which were acquired in the 1998 period are included in "Baseline Schools" for 1999 results and "Schools Acquired Within the Year" for 1998 results. Schools which opened during the twelve months ended June 30, 1996 are included in "Baseline Schools" for 1999 results and "New Development" for 1998 period results.) (2) Schools Acquired Within the Year is defined as (i) schools acquired during the 12 months ended June 30, 1998 for the 1998 period results and (ii) schools acquired during the 12 months ended June 30, 1999 for 1999 results. (3) New School Development is defined as schools which have not been opened for two full fiscal years (i.e. schools opened between June 30, 1996 to June 30, 1998 for 1998 period results and (ii) schools opened between June 30, 1997 to June 30, 1999 for 1999 period results). Revenues in the Baseline Schools increased $17,072,000 or 22.5% from the 1998 period to 1999. The increase is a result of the combination of several factors: (1) An increase in revenues of $10,030,000 related to acquisitions completed in the 1998 period. (2) a $5,085,000 increase related to new schools opened during the twelve months ended June 1996, and (3) an increase of revenues of $1,957,000 in all other schools due to increased tuitions and enrollments. Operating profit of the Baseline Schools increased $2,728,000 as a result of (1) a $492,000 increase in operating profit related to the schools acquired in the 1998 period, (2) a $486,000 increase related to new schools opened during the twelve months ended June 1996, and (3) a $1,750,000 increase related to all other schools. The Company acquired four schools during 1999 which contributed total revenues of $1,743,000 and school operating profits of $650,000. The Company acquired eight schools during the 1998 period which in such period contributed revenues of $4,127,000 and operating profit of $565,000. Operating profit margin before goodwill of the schools acquired in 1999 was 37.3% or 23.6% above the schools included in the 1998 period. Three of the four schools acquired in 1999 were a part of the acquisition of an 80% interest in schools for the learning challenged. Operating margins in these schools are higher as a result of the higher tuition the Company can charge for this specialized service. In 1999, revenues related to new schools opened during the period between July 1, 1997 to June 30, 1999 totaled $15,052,000 or an increase of $4,764,000 or 46.3% compared to the schools opened during the period between July 1, 1996 to June 30, 1998. During 1999, the Company opened six schools, three of which were elementary schools and during the 12 months ended June 30, 1998, the Company opened twelve schools, five of which were elementary schools. Operating loss totaled $478,000 in 1999 compared to operating losses of $744,000 in 1998 period. The decrease in the loss is a result of the mix in the type of schools opened and the timing and number of school openings. Elementary and middle schools take longer to become profitable compared to preschools. Elementary schools typically take 24 to 36 months to become profitable compared to 18 to 24 months in a preschool. Overall, in 1999 the Company's total revenues increased $19,452,000 or 21.5% and school operating profits (after goodwill) increased $2,615,000 as compared to 1998 period. School operating profit margins increased from 12.4% in the 1998 period to 12.6% in 1999, as explained above. New school development costs decreased $286,000 in 1999 primarily because of the decrease in the number of schools opened. During 1999, the Company opened three elementary and three preschools as compared to five elementary schools and seven preschools in the 1998 period. Elementary schools typically have higher start up costs than preschools. Start up costs average $225,000 for an elementary school and $125,000 for a preschool. Start up and development costs include personnel, marketing and supplies. General and administrative expenses increased $1,170,000 or 17.9% to $7,717,000 in the 1999. The increase is attributable to the increase in the Company's infrastructure to support its revenue growth. In February 1999, the Company added a President/Chief Operating Officer. As a percentage of revenue, general and administrative expenses decreased from 7.2% of revenues in 1998 period to 7.0% of revenues in 1999. Management is continuing to build
10-K40521st Page of 52TOC1stPreviousNextBottomJust 21st
the infrastructure needed for growth of the Company and anticipates maintaining the current level of such general and administrative expenses as a percentage of revenues. During the 1998 period, the Company recorded a restructuring charge totaling $2,960,000 attributable to a combination of factors. Of the $2,960,000, $2,000,000 was related to the write-off of goodwill recorded in connection with the acquisition of nine schools located in Indianapolis, $789,000 was related to the write down of the book value of tangible assets and an accrual for lease obligations of several non-performing schools held for sale or that are scheduled to close when their leases expire, and $171,000 was related to the restructuring of management that took place in 1997 and early 1998. As a result of the factors mentioned above, operating income increased $4,691,000 to $5,570,000 for 1999 as compared to the 1998 period. Excluding the restructuring charge incurred in the 1998 period, operating income in 1999 increased $1,731,000 or 45.1%. EBITDA (defined as earnings before interest, income taxes, depreciation and amortization), totaled $11,123,000 for 1999 which was $6,910,000 above the 1998 period. EBITDA for the 1998 period, adjusted to exclude restructuring expense and extraordinary loss was $7,625,000. EBITDA for 1999 was $3,501,000 above the adjusted EBITDA for the 1998 period. As a percentage of revenue, EBITDA for 1999 equaled 10.1% versus 8.4% for the adjusted EBITDA in the 1998 period. EBITDA is not a measure of performance under generally accepted accounting principles, however the Company and the investment community consider it an important indicator. Interest expense increased by $867,000 or 40.7% for 1999 as compared to the 1998 period. The increase in interest expense is a result of increased borrowings under the Company's senior debt facility and subordinated debt issued in connection with Company's acquisitions. In addition, interest expense increased due to the issuance by the Company in July 1998 of a $10,000,000 senior subordinated note. The net proceeds were used to reduce the borrowings under the Company's senior debt facility. The senior subordinated note bears interest at 10% and is approximately 200 basis points higher than the floating rate debt on the Company's senior debt facility. In connection with this transaction, the Company also issued warrants to acquire shares of the Company's common stock. The Company recorded a debt discount and allocated $900,000 of the proceeds of the transaction to the value of the warrants. This debt discount is being amortized to interest expense over the term of the senior subordinated note. The provision for income taxes of $1,153,000 for 1999 was in excess of amounts computed by applying statutory federal income tax rates to income before income taxes due primarily to non-deductible goodwill incurred with acquisitions for stock and state income taxes. For acquisitions of stock of a company, purchase accounting applies for accounting purposes; but, for tax purposes, the Company inherits the historic basis of the purchased company in its assets, without any goodwill. SIX MONTHS ENDED JUNE 30, 1998 ("1998 PERIOD") COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997 ("1997 PERIOD") The Company's transition period, which ended June 30, 1998, includes the six months from January 1 to June 30, 1998. To facilitate a discussion of the Company's operating performance for the 1998 period, the corresponding period in 1997 is presented. During the twelve months subsequent to June 30, 1997, the Company acquired the assets or stock of companies owning eight schools. These acquisitions included: two preschools and one elementary school in Las Vegas, Nevada; two elementary and one preschool located in Seattle, Washington; one elementary school in Portland, Oregon and one elementary school in North Lauderdale, Florida. In addition, the Company opened 12 new schools, of which six were preschools and six were elementary schools. The Company also closed nine schools whose leases expired. Following is a chart which breaks down revenues, school operating profit and school operating profit margins for the 1998 and 1997 periods into three categories: Baseline Schools, Schools Acquired Within the Year and New School Development (dollars in thousands) [Enlarge/Download Table] Six months % of Six months % of 1999-1998 June 30, 1998 revenue June 30, 1997 revenue Variance ($) -------------------------------------------------------------------------------------------- BASELINE SCHOOLS (1) Revenues $ 41,113 100.0% $ 28,517 100.0% $ 12,596 Operating Profit $ 7,534 18.3% $ 5,491 19.3% 2,043 -------------------------------------------------------------------------------------------- SCHOOLS ACQUIRED WITHIN THE YEAR (2) Revenues 3,263 100.0% 7,491 100.0% (4,228) Operating Profit 460 14.1% 1,551 20.7% (1,091) -------------------------------------------------------------------------------------------- NEW SCHOOL DEVELOPMENT (3) Revenues 4,619 100.0% 3,656 100.0% 963 Operating Profit (Loss) (396) (8.6)% 261 7.1% (657) -------------------------------------------------------------------------------------------- Total Revenues $ 48,995 100.0% $ 39,664 100.0% 9,331 ============================================================================================ School Operating Profit Before Amortization of Goodwill 7,598 15.5% 7,303 18.4% 295 Less Amortization of Goodwill 745 1.5% 517 1.3% 228 -------------------------------------------------------------------------------------------- School Operating Profit $ 6,853 14.0% $ 6,786 17.1% $ 67 ============================================================================================ (1) Baseline Schools is defined as all schools, except schools included for the year in Schools Acquired Within the Year or New School Development (see footnotes (2) and (3). (Schools which were acquired in 1997 are included in "Baseline Schools" for 1998 period results and "Schools Acquired Within the Year" for 1997 period results. Schools which were first opened in 1996 are included in "Baseline Schools" for 1998 period results and "New Development" for 1997 period results). (2) Schools Acquired Within the Year is defined as (i) schools acquired during the 12 months ended June 30, 1997 for 1997 period results and (ii) schools acquired during the 12 months ended June 30, 1998 for 1998 period results. (3) New School Development is defined as schools which have not been opened for two full fiscal years (i.e. schools opened between July 1, 1995 and June 30, 1997 for 1997 period results and schools opened between July 1, 1996 and June 30, 1998 for 1998 period results). Revenues in the Baseline Schools increased $12,596,000 or 44.2% from the 1997 to the 1998 period. The increase is a result of the combination of several factors, including (1) an increase in revenues of $9,440,000 related to acquisitions completed in fiscal 1997, (2) a $2,803,000 increase related to New Schools opened in fiscal 1996, and (3) an increase of revenues of $353,000 in all other schools. Operating profit of the Baseline Schools increased $2,043,000 as a result of (1) a $1,994,000 increase in operating profit related to the schools acquired in fiscal 1997, (2) a $213,000 increase related to the operating profit of the fiscal 1996 New Schools offset by (3) a $164,000 decrease related to the decrease in all other schools. The Company acquired eight schools during the 12 months ended June 30, 1998 which contributed total revenues of $3,263,000 and school operating profits of $460,000. The Company acquired thirteen schools during the 12 months ended June 30, 1997 which contributed revenues of $7,491,000 and operating profit of $1,551,000. The operating profit margins of schools included in the 1998 period was 14.1% or 6.6% below the schools included in the 1997 period. One of the eight schools included in the 1998 period was a new
10-K40522nd Page of 52TOC1stPreviousNextBottomJust 22nd
school that opened subsequent to the acquisition. The start-up losses associated with opening new schools contributed to this decline in operating margin. Revenues related to the New Schools opened during the period between July 1, 1996 and June 30, 1998 totaled $4,619,000 in the 1998 period or an increase of $963,000 or 26.3% compared to the schools opened during the period between July 1, 1995 and June 30, 1997 in the 1997 period. During the 12 months ended June 30, 1998, the Company opened 12 schools, five of which were elementary schools, and during the 12 months ended June 30, 1997, the Company opened eight schools, three of which were elementary schools. Operating losses totaled $396,000 in the 1998 period compared to operating income of $261,000 in the 1997 period. The increase in the losses is a result of the mix in the type of schools opened and the timing and number of the openings. Elementary and middle schools take longer to become profitable compared to preschools. Elementary schools typically take 24 to 36 months to become profitable compared to 18 to 24 months in a preschool. Overall, in the 1998 period, the Company's total revenues increased $9,331,000 or 23.5% and school operating profits increased $67,000, compared to the 1997 period. Meanwhile, school profit margins (after goodwill) decreased from 17.1% in 1996 to 14.0% in the 1997 period as explained above. New school development costs increased $403,000 in the 1998 period primarily because of the increase in the number of schools opened. During the 1998 period, the Company opened four elementary and one preschool as compared to two preschools in the 1997 period. Elementary schools typically have higher start-up costs than preschools. Start-Up costs average $225,000 for an elementary school and $125,000 for a preschool. Start-Up and development costs include personnel, marketing and supplies. General and administrative expenses increased $574,000 or 20.4% to $3,391,000 in the 1998 period. The increase is attributable to the increase in the Company's infrastructure to support its revenue growth. During 1997 and 1998, the Company added a Vice President of Marketing, a Human Resources Manager, a Vice President of Eastern Operations, a Vice President of Western Operations, a Summer Camp Manager, a Training Manager, several Executive Directors and other support staff. As a percentage of revenue, general and administrative expenses decreased from 7.1% of revenues in the 1997 period to 6.9% of revenues in the 1998 period. As a result of the factors mentioned above, operating income decreased $910,000 or 23.5% to $2,961,000 for the 1998 period as compared to the 1997 period. EBITDA (defined as earnings before interest, income taxes, depreciation and amortization), totaled $5,243,000 for the 1998 period which was $309,000 or 5.6% below the 1997 period. As a percentage of revenue, EBITDA for the 1998 period equaled 10.7% versus 13.3% for the 1997 period. EBITDA is not a measure of performance under generally accepted accounting principals, however the Company and the investment community consider it an important indicator. Interest expense increased by $200,000 or 23.4% for the 1998 period compared to the 1997 period. The increase in interest expense is a result of increased borrowings under the Company's senior debt facility and subordinated debt issued in connection with the Company's acquisitions. The provision for income taxes of $833,000 for the 1998 period was in excess of amounts computed by applying statutory federal income tax rates to income before income taxes due primarily to non-deductible goodwill incurred with acquisitions for stock and state income taxes. For acquisitions of stock of a company, purchase accounting applies for accounting purposes; but, for tax purposes, the Company inherits the historic basis of the purchased company in its assets, without any goodwill. The fiscal year ended December 31, 1997 ("1997") compared to the fiscal year ended December 31, 1996 ("1996") During 1997, the Company acquired the assets or stock of companies owning 17 schools. These acquisitions include: six preschools in Florida and a 20% interest in an elementary school; two preschools and one elementary school in Las Vegas, Nevada and two elementary and three preschools located in San Jose, California. Also considered for the purposes hereof as being acquired in 1997 are one elementary school in Southern California and a preschool and elementary school in Seattle, Washington acquired at the end of December 1996. In addition, the Company opened 12 new schools in 1997 of which eight were preschools and four were elementary schools (two of which were replacement schools). During 1997, the Company closed seven schools whose leases expired. Following is a chart which breaks down revenues, school operating profit and school operating profit margins for the years ended 1997 and 1996 into three categories: Baseline Schools, Schools Acquired Within the Year and New School Development (dollars in thousands). [Enlarge/Download Table] Six months % of Six months % of 1999-1998 June 30, 1998 revenue June 30, 1997 revenue Variance($) -------------------------------------------------------------------------------------------- BASELINE SCHOOLS(1) Revenues $59,567 100.0 % $49,977 100.0% $ 9,590 Operating Profit $10,176 17.1 % $ 9,312 18.6% $ 864 -------------------------------------------------------------------------------------------- SCHOOLS ACQUIRED WITHIN THE YEAR(2) Revenue 14,232 100.0 % 3,437 100.0% 10,795 Operating Profit 2,345 16.5 % 775 22.6% 1,570 -------------------------------------------------------------------------------------------- NEW SCHOOL DEVELOPMENT(3) Revenues 7,181 100.0 % 5,495 100.0% 1,686 Operating Profit (Loss) (410) (5.7)% 586 10.7% (996) --------------------------------------------------------------------------------------------- Total Revenues $80,980 100.0 % $58,909 100.0% $22,071 ============================================================================================= School Operating Profit Before Amortization of Goodwill 12,111 15.0 % 10,673 18.1% 1,438 Less Amortization of Goodwill (989) 1.2 % (635) 1.1% (354) --------------------------------------------------------------------------------------------- School Operating Profit $11,122 13.7 % $10,038 17.0% $ 1,084 ============================================================================================= (1) Baseline Schools is defined as all schools, except schools included for the year in Schools Acquired Within the Year or New School Development (see footnotes (2) and (3), (Schools which were acquired in 1996 are included in "Baseline Schools" for 1997 results and "Schools Acquired Within the Year" for 1996 results. Schools which were first opened in 1995 are included in "Baseline Schools" for 1997 results and "New Development" for 1996 results.) (2) Schools Acquired Within the Year is defined as (i) schools acquired in 1996 for 1996 results and (ii) schools acquired in 1997 for 1997 results. (3) New School Development is defined as schools which have not been opened for two full fiscal years (i.e. schools opened in 1995 or 1996 for 1996 results and schools opened in 1996 or 1997 for 1997 results). Revenues in the Baseline Schools increased $9,590,000 or 19.2% from 1996 to 1997. The increase is a result of the combination of several factors, including (1) an increase in revenues of $6,173,000 increase related to acquisitions completed in 1996, (2) a $4,636,000 increase related to New Schools opened in 1995, (3) an increase of revenues of $643,000 in schools other than Merryhill and South Carolina, offset by (4) a decrease in Merryhill enrollment resulting in a $1,003,000 decrease in revenues and (5) a decrease of $859,000 related to the revenues of six schools closed in South Carolina in 1996. Operating profit of
10-K40523rd Page of 52TOC1stPreviousNextBottomJust 23rd
the Baseline Schools increased $864,000 or 9.3% as a result of (1) a $1,383,000 increase in operating profit related to the schools acquired in 1996, (2) a $850,000 increase related to the operating profit of the 1995 New Schools offset by (3) a $949,000 decrease related to the decrease in the Merryhill schools and by (4) a $420,000 decrease in the remaining schools. The Company experienced both a decline in enrollment and operating profit of the Merryhill Schools located in California. The Company believes that the decrease was primarily due to the effect of the California public school initiative to decrease student/teacher class size ratios in Kindergarten to third grade classes and a weak summer program. The public school initiative affected Merryhill in several ways: (1) teacher turnover increased, (2) enrollment decreased and (3) with efforts to attract replacement teachers and retain existing teachers, average teacher salary increased. In addition to the effect of the initiative, rent expense in some of the Merryhill Schools increased because of recently built replacement schools, which expanded capacity. The Company took several steps to improve the situation. In the fourth quarter of 1997, the Company hired a Vice President of Western Operations and a Summer Camp Manager. The Company restructured operations management by adding experienced Executive Directors and other management personnel and reducing responsibility of each Executive Director to a maximum of ten schools. In 1997, the Company acquired seventeen schools with total revenues and school operating profits of $14,232,000 and $2,345,000, respectively. This is an increase in acquisition activity totaling $10,795,000 in revenues and $1,570,000 in operating profit compared to schools acquired in 1999. In 1996, the Company acquired seven schools with revenue of $3,437,000 and operating profit of $775,000. The operating profit margins of schools acquired decreased 6.1% from 22.6% in 1996 to 16.5% in 1997. The decrease in the margins of the schools acquired is related primarily to the lack of summer programs at some of these elementary schools. The elementary schools acquired in 1997 did not typically have strong summer programs. The Company initiated summer programs, but it takes time for enrollment to build. Revenues related to the New Schools built in 1996 and 1997 totaled $7,181,000 in 1997 or an increase of $1,686,000 or 30.7% compared to 1995 and 1996. In 1997, the Company built 12 schools and in 1996 the Company built seven schools. Operating loss totaled $410,000 in 1997 compared to operating income of $586,000 in 1996. The increase in the loss is a result of the mix in the type of schools opened and the timing of the openings. Elementary and middle schools take longer to become profitable compared to preschools. In 1997, the Company opened four elementary/middle schools as compared to three in 1996. Elementary schools typically take 24 to 36 months to become profitable compared to 18 to 24 months in a preschool. Overall, in 1997 the Company's total revenues increased $22,071,000 or 37.5% and school operating profits increased $1,084,000 compared to 1996. Meanwhile, school operating profit margins (after goodwill) decreased from 17.0% in 1996 to 13.7% in 1997 as explained above. New School development costs nearly doubled, increasing $193,000 or 93% to $401,000 in 1997, primarily because of the increase in the number of schools opened. The Company opened eight preschools and four elementary/middle schools for a total of twelve schools as compared to four preschools and three elementary/middle schools for a total of seven in 1996. Additionally, elementary/middle schools typically have higher start-up costs than preschools. Start-up costs average $225,000 for an elementary school and $125,000 for a preschool. Start-up and development costs include personnel, marketing and supplies. General and administrative expenses increased $1,783,000 or 42.6% to $5,973,000 in 1997. The increase is attributable to the increase in the Company's infrastructure to support its revenue growth. In 1997, the Company added a Chief Financial Officer, a Vice President of Marketing, a Human Resources Manager, a Vice President of Eastern Operations, a Vice President of Western Operations, a Summer Camp Manager, a Training Manager, several Executive Directors and other support staff. In addition, the Company selected and launched an Education Advisory board to oversee and assist in curriculum development. As a percentage of revenue, general and administrative expenses increased only slightly from 7.1% of revenues in 1996 to 7.4% of revenues in 1997. In 1997, the Company recorded a restructuring charge totaling $2,960,000 related to a combination of factors. Of the $2,960,000, $2,000,000 was related to the write-off of the goodwill recorded in connection with the acquisition of the nine schools located in Indianapolis, $789,000 was related to the write down of the book value and an accrual for lease obligations of several non-performing schools held for sale or that were scheduled to close when their leases expired, and $171,000 is related to the restructuring of management that took place in 1997 and early 1998. As a result of the factors mentioned above, operating income decreased $3,852,000 or 68% to $1,789,000 in 1997 compared to the same period in 1996. Adjusted operating income, defined as operating income before the restructuring charge, totaled $4,749,000 in 1997, which represents a decrease of $892,000 or 15.8% compared to the prior year. In 1997 EBITDA (defined as earnings before interest, income taxes, depreciation and amortization) totaled $4,803,000 which was $3,510,000 or 42.2% below the prior year. As a percentage of revenue, EBITDA for 1997 equaled 5.9% versus 14.1% for 1996. Adjusted EBITDA (defined as EBITDA before the restructuring charge) equaled $8,212,000 which was $101,000 or 1% below $8,313,000 for 1996. As a percentage of revenues, adjusted EBITDA equaled 10.1% for 1997 as compared to 14.1% for the prior year. The decrease as a percentage of revenues is a result of lower operating margins and higher general and administrative expense. EBITDA is not a measure of performance under generally accepted accounting principles, however the Company and the investment community consider it an important indicator. Interest expense increased slightly by $42,000 or 2.1% for 1997 compared to 1996. While the principal amount of indebtedness outstanding under the Company's senior loan facilities increased in the fourth quarter, this increase was offset by a decrease in the interest rate, as a result of amendments to the loan documents governing the Company's principal debt facilities. Debt increased as a result of the acquisition of the Las Vegas schools and new school development which occurred during 1997. Cash raised through the private placement of common stock was used in the first half of 1997 to complete the acquisitions of Another Generation and Rainbow Bridge schools. Other income decreased $324,000 and 67% for 1997 totaling $158,000 compared to 1996 of $483,000. The decrease is primarily related to the decrease in interest income. During 1996, the Company raised $11,600,000 of net proceeds through a private issuance of common stock. The Company earned interest on these funds during the second half of 1996. The cash was used for acquisitions and the building of new schools during the later part of 1996 and early 1997.
10-K40524th Page of 52TOC1stPreviousNextBottomJust 24th
The provision for income taxes totaled $250,000 for 1997. The Company was in a pretax loss position. However, the Company recorded income taxes, primarily relating to non-deductible goodwill amortization and state and local taxes. (In the acquisition of the stock of a company, purchase accounting applies for accounting purposes; but, for tax purposes, the Company inherits the historic basis of the purchased company in its assets, without any good will.) The adjusted income tax provision (income tax before the restructuring charge) equaled $1,165,000 which represents a 42% tax rate. This represented a decrease of $397,000 or 25% compared to $1,562,000 for 1996. The tax rate in 1996 was 39%. In 1997, the Company recorded a $449,000 extraordinary expense. In December 1997, the Company refinanced its principal debt facility which combined the Term Loans with scheduled principal payments and the existing Revolving Line of Credit into Revolving Credit and Term Facilities which extends principal payment to begin in the year 2001. The change in the terms enables the Company to use cash from operations and the unused portion of the line for growth through acquisitions and New School development. Because the new loan facility terms vary significantly from the existing credit facility, the Company was required to write off the deferred financing costs which were being amortized over the term of the original loan. LIQUIDITY AND CAPITAL RESOURCES Management is pursuing a four-pronged growth strategy for the Company, which includes (1) internal growth of existing schools through the expansion of certain facilities, (2) new school development in both existing and new markets, (3) strategic acquisitions, and (4) development of new education businesses. The Company's principal sources of liquidity are (1) cash flow generated from operations, (2) future borrowings under the Company's $35.0 million Amended and Restated Loan and Security Agreement, (3) the use of site developers to build schools and lease them to the Company, and (4) issuance of subordinated indebtedness or shares of common stock to sellers in acquisition transactions. The Company anticipates that its existing available principal credit facilities, cash generated from operations, and continued support of site developers to build and lease schools will be sufficient to satisfy working capital needs, capital expenditures, and renovations and the building of new schools in the near term future. The Company continues to look for quality acquisition candidates. The Company identifies growth markets through both extensive demographic studies and an analysis of the existing educational systems in the area. The Company seeks to grow through a cluster approach whereby several preschools feed into an elementary school. In order for the Company to continue its acquisition strategy, the Company will continue to seek additional funds through debt or equity financing. In March 1999, the Company entered into an Amended and Restated Loan and Security Agreement which increased the Company's borrowing capacity to $35,000,000. Four separate facilities were established under the Amended and Restated Loan and Security Agreement: (1)$7,000,000 Working Capital Credit Facility A, (2) $3,000,000 Working Capital Credit Facility B, (3)$15,000,000 Acquisition Credit Facility and (4) $10,000,000 Term Loan. Working Capital Credit Facility A and B funds are available until March 2002. Under the Acquisition Credit Facility, no principal payments are required until March 2001. At that time the outstanding principal under the Acquisition Credit Facility will be converted into a term loan which will require principal payments in 16 quarterly installments. Under the Term Loan Facility, no principal payments are required until April 2000. Quarterly installments of $250,000 are required the first four quarters (through January 2001); thereafter quarterly installments of $562,500 are required until January 2005. At June 30, 1999, $2,072,000 was outstanding under Working Capital Credit Facility A and Working Capital Credit Facility B, $2,695,000 was outstanding under the Acquisition Credit Facility and $10,000,000 was outstanding under the Term Loan. In July 1998, the Company issued a $10.0 million senior subordinated note to Allied Capital Corporation ("Note"). The net proceeds were used to reduce the Company's outstanding balance of the Company's senior bank debt. The Note bears interest at 10% and matures in two installments of principal, $5.0 million in 2004 and $5.0 million in 2005. Payments on the note are subordinated to the Company's senior bank debt. In connection with the financing transaction, the Company also issued to Allied Capital Corporation warrants to acquire 531,255 shares of the Company's common stock at $8.5625 per share. The Company recorded a debt discount and allocated $900,000 of the proceeds of the transaction to the value of the warrants. This debt discount is being amortized to interest expense over the term of the Note. In December 1998, the Board of Directors authorized the repurchase of $1,000,000 of the Company's common stock. During 1999, 193,700 shares were repurchased for $1,000,000. Total cash and cash equivalents decreased $165,000 from $1,805,000 at June 30, 1998 to $1,640,000 at June 30, 1999. The net decrease was due primarily to (1) cash used for acquisitions totaling approximately $3,743,000, (2) approximately $7,330,000 used for the building of New Schools and acquisition of land parcels and (3) net repayment of long term debt and subordinated debt of $7,360,000. These decreases were offset by (1) cash flow from operations of $7,034,000, (2) proceeds from the sale of property totaling $4,133,000, and the proceeds from the issuance of a subordinated note of $10,000,000. The working capital deficit increased $1,866,000 from $10,221,000 at June 30, 1998 to $12,087,000 at June 30, 1999. The increase is primarily the result of the decrease in prepaid rent and insurance and an increase in unearned income. CAPITAL EXPENDITURES The Company is continuously maintaining and upgrading the property and equipment of each school. During 1999, the Company spent approximately $9,669,000 on capital expenditures, which included $7,330,000 for new school development and $2,339,000 on upgrading existing facilities. During the six months ended June 30, 1998, the Company spent $4,952,000 on capital expenditures, which included $3,498,000 for new school development and $1,454,000 on upgrading existing facilities. During 1997, the Company spent approximately $15,221,000 on capital expenditures, which included $11,137,000 on new school development and $4,184,000 on upgrading existing facilities. During 1999, the Company received $3,485,000 from sale and leaseback transactions of new schools and $648,000 from the sale of closed schools. In addition, the Company expects to receive an additional $2,600,000 in fiscal year 2000 from sale and leaseback transactions. During the six months ended June 30, 1998 and the twelve months ended December 31, 1997, the Company
10-K40525th Page of 52TOC1stPreviousNextBottomJust 25th
received $6,948,000 and $7,451,000, respectively, from the sale and leaseback transactions of new schools. The Company's Amended and Restated Security Agreement for Fiscal 2000 limits the Company's spending for capital expenditure to $8.0 million. INFLATION The Company has not been significantly affected by inflation. INSURANCE Companies involved in the education and care of children may not be able to obtain insurance for the total risks inherent in their operations. In particular, general liability coverage can have sublimits per claim for child abuse. The Company believes it has adequate insurance coverage at this time. There can be no assurance that in future years the Company will not again become subject to lower limits. YEAR 2000 COMPLIANCE Management has implemented measures to ensure that the Company's information systems and applications will recognize and process information pertaining to the Year 2000. The measures being conducted utilize both internal and external resources and are directed at risk assessments, remediation, acquisition of new systems and applications, and testing of the systems and applications for Year 2000 compliance. The Company believes that the only computer systems that are critical to its operations are certain accounting and payroll software. The Company licenses such software from two outside vendors. Both of these vendors have publicized reports giving assurances that the software used by the Company is Year 2000 compliant. The Company has completed an inventory of all hardware, primarily personal computers and corporate network equipment. All non-compliant hardware has been replaced. Concurrent with the Company's year 2000 compliance efforts, the Company is upgrading its management information system to link the schools to the corporate office as well as to other schools. This process includes purchasing new and replacing old equipment and software to improve management efficiencies as well as assure Year 2000 compliance. Management anticipates that the process will be complete by December 1999 and projects spending between $ 500,000 and $1,000,000 on this project. Although the Company could be affected by the systems of other companies with which it does business, management does not believe that the Company's business will be materially adversely affected by the failure of third parties to be Year 2000 compliant. Because of the geographical distribution of the Company's schools, the Company is not dependent on any one or a small group of vendors for goods and services and the needs of our customers for our services should not be adversely affected by Year 2000 issues. Management expects that the Company will be Year 2000 compliant by the end of 1999. A failure to meet this deadline should not disrupt the Company's delivery of its services to customers. However, a failure of the Company's system could indirectly significantly impact operations, as for example, by an inability to pay employees and vendors in a timely manner. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information". This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company manages its business based on geographical regions within the United States. The Company has aggregated these regions based on management's belief that these regions have met the aggregation criteria set forth in the standard.
10-K40526th Page of 52TOC1stPreviousNextBottomJust 26th
Item 8. Financial Statements and Supplementary Data. Financial statements and supplementary financial information specified by this Item, together with the Reports of the Company's independent accountants thereon, are included in this Annual Report on Form 10-K on pages F-1 through F- 14 below. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 24
10-K40527th Page of 52TOC1stPreviousNextBottomJust 27th
PART III Item 10. Directors and Executive Officers of the Registrant. The information required by this Item with respect to the directors of the Company is incorporated herein by reference to the information set forth in the Proxy Statement. The information required by this Item with respect to executive officers of the Company is furnished in a separate item captioned "Executive Officers of the Company" and included in Part I of this Annual Report on Form 10-K. Item 11. Executive Compensation. The information required by this Item is incorporated herein by reference to the information set forth in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item is incorporated herein by reference to the information set forth in the Proxy Statement. Item 13. Certain Relationships and Related Transactions. The information required by this Item is incorporated herein by reference to the information set forth in the Proxy Statement. 25
10-K40528th Page of 52TOC1stPreviousNextBottomJust 28th
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as a part of this Report: Page ---- (1) Financial Statements. Report of Independent Accountants........................... F-1 Consolidated Balance Sheets................................. F-2 Consolidated Statements of Income........................... F-3 Consolidated Statements of Stockholders' Equity............. F-4 Consolidated Statements of Cash Flows....................... F-5 Supplemental Schedules for Consolidated Statements of Cash Flow........................................................ F-6 Notes to Consolidated Financial Statements.................. F-7 (2) Financial Statement Schedules. Financial Statement Schedules have been omitted as not applicable or not required under the instructions contained in Regulation S-X or the information is included elsewhere in the financial statements or notes thereto. (b) Reports on Form 8-K. None. (c) Exhibits required to be filed by Item 601 of Regulation S-K. Exhibit Number Description of Exhibit 3.1 Registrant's Certificate of Incorporation, as amended and restated. (Filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, and incorporated herein by reference.) 3.2 Registrant's Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock. (Filed as Exhibit 7(c) to the Registrant's Current Report on Form 8-K filed on June 14, 1993 and incorporated herein by reference.) 3.3 Registrant's Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock. (Filed as Exhibit 4(ae) to the Registrant's Quarterly Report on Form 10-Q with respect to the quarter ended June 30, 1994 and incorporated herein by reference.) 3.4 Registrant's Certificate of Designation, Preferences and Rights of Series D Convertible Preferred Stock. (Filed as Exhibit 4E to the Registrant's Current Report on Form 8-K filed on September 11, 1995, date of earliest event reported August 25, 1995, and incorporated herein by reference.) 26
10-K40529th Page of 52TOC1stPreviousNextBottomJust 29th
3.5 Registrant's Amended and Restated By-laws. (Filed as Exhibit 3.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference.) 4.1 Amended and Restated Loan and Security Agreement dated March 9, 1999 between the Registrant and its subsidiaries, as borrowers, and Summit Bank, in its capacity as Agent and the financial institutions listed on Schedule A attached thereto (as such schedule may be amended, modified or replaced from time to time), in their capacity as Lenders. (Certain schedules (and similar attachments) to Exhibits 4.1 have not been filed. The Registrant will furnish supplementally a copy of any omitted schedules or attachments to the Commission upon request.) (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10- Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 4.2 Working Capital Facility Note A dated as of March 9, 1999 in the principal sum of $7,000,000 payable to the order of Summit Bank. (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10- Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 4.3 Working Capital Facility Note B dated as of March 9, 1999 in the principal sum of $3,000,000 payable to the order of Summit Bank. (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10- Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 4.4 Acquisition Credit Facility Note dated as of March 9, 1999 in the principal sum of $15,000,000 payable to the order of Summit Bank. (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10- Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 4.5 Term Note A dated as of March 9, 1999 in the principal sum of $10,000,000 payable to the order of Summit Bank. (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 4.6 Investment Agreement dated as of June 30, 1998 between Registrant and its subsidiaries and Allied Capital Corporation 4.11. (Filed as Exhibit 4.11 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 4.7 Senior Subordinated Note dated as of June 30, 1998 in the principal amount of $10,000,000 payable to the order of Allied Capital Corporation 4.12. (Filed as Exhibit 4.12 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) The Registrant has omitted certain instruments defining the rights of holders of long-term debt in cases where the indebtedness evidenced by such instruments does not exceed 10% of the Registrant's total assets. The Registrant agrees to furnish a copy of each of such instruments to the Securities and Exchange Commission upon request. 10.1 1986 Stock Option and Stock Grant Plan of the Registrant, as amended. (Filed as Exhibit 10(1) to the Registrant's Registration Statement on Form S-1 (Registration Statement No. 33-1644) filed on August 12, 1987 (the "Form S-1") and incorporated herein by reference.) 10.2 1988 Stock Option and Stock Grant Plan of the Registrant. (Filed as Exhibit 19 to the Registrant's Quarterly Report on Form 10-Q dated March 31, 1988 and incorporated herein by reference.) 10.3 1995 Stock Incentive Plan of the Registrant, as amended. (Filed as Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 27
10-K40530th Page of 52TOC1stPreviousNextBottomJust 30th
10.4 Form of Stock Option Agreement, for stock option grants under 1995 Stock Incentive Plan. (Filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 10.5 Stock and Warrant Purchase Agreement between the Registrant and various investors, dated April 14, 1992. (Filed as Exhibit 10(r) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference.) 10.6 Registration Rights Agreement dated May 28, 1992 among the Registrant, JBS Investment Banking, Ltd., and Pennsylvania Merchant Group, Ltd. (Filed as Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated June 11, 1992, date of earliest event reported May 28, 1992, and incorporated herein by reference.) 10.7 Stock Purchase Agreement dated May 28, 1992 between Registrant and a limited number of accredited investors at $0.50 per share totaling 3,200,000 shares of common stock. (Filed as Exhibit 4(d) to the Registrant's Current Report on Form 8-K dated June 11, 1992, date of earliest event reported May 28, 1992, and incorporated herein by reference.) 10.8 Series 1 Warrants for shares of Common Stock issued to Edison Venture Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit 4(ad) to the Registrant's Quarterly Report on Form 10-Q with respect to the quarter ended June 30, 1994 and incorporated herein by reference.) 10.9 Registration Rights Agreement between Registrant and Edison Venture Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit 4(af) to the Registrant's Quarterly Report on Form 10-Q with respect to the quarter ended June 30, 1994 and incorporated herein by reference.) 10.10 Amendment dated February 23, 1996 to Registration Rights Agreement between Registrant and Edison Venture Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.) 10.11 Investment Agreement dated as of August 30, 1995 by and among the Registrant, certain subsidiaries of the Registrant and Allied Capital Corporation and its affiliated funds. (Filed as Exhibit 4A to the Registrant's Current Report on Form 8-K dated September 11, 1995, date of earliest event reported August 25, 1995, and incorporated herein by reference.) 10.12 Common Stock Purchase Warrant dated August 30, 1995 entitling Allied Capital Corporation to purchase up to 92,172.25 shares (subject to adjustment) of the Common Stock of the Registrant. (Filed as Exhibit 4C to the Registrant's Current Report on Form 8-K dated September 11, 1995, date of earliest event reported August 25, 1995, and incorporated herein by reference.) Exhibit 10.12 is one in a series of four Common Stock Purchase Warrants issued pursuant to the Investment Agreement dated as of August 30, 1995 that are identical except for the Warrant No., the original holder thereof and the number of shares of Common Stock of the Registrant for which the Warrant may be exercised, which are as follows: 28
10-K40531st Page of 52TOC1stPreviousNextBottomJust 31st
[Download Table] Number of Shares of Common Stock Warrant No. Holder (subject to adjustment) ----------- ------ ----------------------- 2 Allied Capital Corporation II 142,932.25 3 Allied Investment Corporation 92,713 4 Allied Investment Corporation II 50,219.5 10.13 Common Stock Purchase Warrant dated as of June 30, 1998 entitling Allied Capital Corporation to purchase up to 531,255 shares (subject to adjustment) of the Common Stock of the Registrant. (Filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 10.14 First Amended and Restated Registration Rights Agreement dated as of June 30, 1998 by and between the Registrant and Allied Capital Corporation. (Filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 10.15 Nobel Education Dynamics, Inc. Executive Severance Pay Plan Statement and Summary Plan Description, Issued February, 1997, as amended on June 11, 1998. (Filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 10.16 Employment Agreement dated January 25, 1999 between the Registrant and Daryl Dixon. (Filed as Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 10.17 Noncompete Agreement dated as of March 11, 1997 between John R. Frock and the Registrant. (Filed as Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.) 10.18 Contingent Severance Agreement dated as of March 11, 1997 between John R. Frock and the Registrant. (Filed as Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.) 21 List of subsidiaries of the Registrant. 23 Consent of PricewaterhouseCoopers & Lybrand L.L.P. 27 Financial Data Schedule Certain schedules (and similar attachments) to Exhibits 4.1 through 4.6 and Exhibit 10.11 have not been filed. The Registrant will furnish supplementally a copy of any omitted schedules or attachments to the Commission upon request. (d) Financial Statement Schedules. None. 29
10-K40532nd Page of 52TOC1stPreviousNextBottomJust 32nd
QUALIFICATION BY REFERENCE Information contained in this Annual Report on Form 10-K as to a contract or other document referred to or evidencing a transaction referred to is necessarily not complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to this Annual Report or incorporated herein by reference, all such information being qualified in its entirety by such reference. 30
10-K40533rd Page of 52TOC1stPreviousNextBottomJust 33rd
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: September 27, 1999 NOBEL LEARNING COMMUNITIES, INC. By: /s/ A. J. Clegg ------------------ A. J. Clegg Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Position Date /s/ A. J. Clegg Chairman of the Board, September 27, 1999 ---------------------- A. J. Clegg President and Chief Executive Officer and Director /s/ William Bailey Vice President, September 27, 1999 ---------------------- William Bailey Chief Financial Officer (Principal Financial Officer) /s/ Yvonne DeAngelo Vice President - Finance September 27, 1999 ---------------------- Yvonne DeAngelo and Administration (Principal Accounting Officer) /s/ Edward Chambers Director September 27, 1999 ---------------------- Edward H. Chambers /s/ John R. Frock Executive Vice President September 27, 1999 ---------------------- John R. Frock and Director 31
10-K40534th Page of 52TOC1stPreviousNextBottomJust 34th
/s/ Peter H. Havens ---------------------- Director September 27, 1999 Peter H. Havens ______________________ Director September 27, 1999 Pamela S. Lewis ______________________ Director September 27, 1999 Eugene G. Monaco ______________________ Director September 27, 1999 William L. Walton /s/ Robert Zobel Director September 27, 1999 ---------------------- Robert Zobel 32
10-K40535th Page of 52TOC1stPreviousNextBottomJust 35th
------------------------------------------------- Nobel Learning Communities, Inc. and Subsidiaries ------------------------------------------------- Report of Independent Accountants To the Stockholders and the Board of Directors of Nobel Learning Communities, Inc.: In our opinion, the financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of Nobel Learning Communities, Inc. and its subsidiaries at June 30, 1999 and 1998, and the results of their operations and their cash flows for the year ended June 30, 1999 and for the six months ended June 30, 1998 and each of the two years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania August 2, 1999 F-1
10-K40536th Page of 52TOC1stPreviousNextBottomJust 36th
------------------------------------------------- Nobel Learning Communities, Inc. and Subsidiaries ------------------------------------------------- Consolidated Balance Sheets (Dollars in thousands) [Enlarge/Download Table] June 30, 1999 June 30, 1998 ------------------------------------------------------------------------------------ ASSETS ------------------------------------------------------------------------------------ Cash and cash equivalents $ 1,640 $ 1,805 Accounts receivable, less allowance for doubtful accounts of $177 in 1999 and $133 in 1998 1,689 1,130 Prepaid rent 859 1,276 Prepaid insurance and other 844 738 ------------------------------------------------------------------------------------ Total Current Assets 5,032 4,949 ------------------------------------------------------------------------------------ Property and equipment, at cost 37,024 31,601 Accumulated depreciation (12,324) (9,226) ------------------------------------------------------------------------------------ 24,700 22,375 Property and equipment held for sale 1,202 1,371 Cost in excess of net assets acquired 45,725 41,753 Deposits and other assets 3,347 3,541 Deferred taxes 1,019 1,031 ------------------------------------------------------------------------------------ Total Assets $ 81,025 $ 75,020 ==================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------------------------------------------------------ Current portion of long-term obligations $ 2,209 $ 2,031 Cash overdraft liability 1,792 1,397 Accounts payable and other current liabilities 8,236 8,147 Unearned income 4,882 3,595 ------------------------------------------------------------------------------------ Total Current Liabilities 17,119 15,170 ------------------------------------------------------------------------------------ Long-term obligations 15,316 20,311 Long-term subordinated debt 13,831 6,166 Capital lease obligations 73 162 Deferred gain on sale/leaseback 27 35 Minority interest in consolidated subsidiary 514 440 ------------------------------------------------------------------------------------ Total Liabilities $ 46,880 $ 42,284 ------------------------------------------------------------------------------------ Commitments and Contingencies (Notes 9 and 15) Stockholders' Equity: Preferred stock, $0.01 par value; 10,000,000 shares authorized; issued and outstanding 4,593,542 in 1999 and 1998. $5,530 aggregate liquidation preference at June 30, 1999 and at June 30, 1998 5 5 Common stock, $0.01 par value; 20,000,000 shares authorized; issued and outstanding 6,121,365 in 1999 and 1998 6 6 Treasury stock, cost; 236,810 shares in 1999 and 36,810 in 1998 (1,375) (375) Additional paid-in capital 39,239 38,340 Accumulated deficit (3,730) (5,240) ------------------------------------------------------------------------------------ Total Stockholders' Equity 34,145 32,736 ------------------------------------------------------------------------------------ Total Liabilities and Stockholders' Equity $ 81,025 $ 75,020 ==================================================================================== The accompanying notes are an integral part of these consolidated financial statements. F-2
10-K40537th Page of 52TOC1stPreviousNextBottomJust 37th
------------------------------------------------- Nobel Learning Communities, Inc. and Subsidiaries ------------------------------------------------- Consolidated Statements of Income (Dollars in thousands except per share data) [Enlarge/Download Table] For the year For the six months For the year ended For the year ended ended June 30, 1999 ended June 30, 1998 December 31, 1997 December 31, 1996 ------------------------------------------------------------------------------------------------------------------------------------ Revenues $ 109,762 $ 48,995 $ 80,980 $ 58,909 ------------------------------------------------------------------------------------------------------------------------------------ Operating expenses: Personnel costs 53,203 23,368 38,557 26,777 School operating costs 16,266 7,023 11,932 8,755 Insurance, taxes, rent and other 21,479 9,661 16,131 11,128 Depreciation and amortization 5,009 2,090 3,238 2,211 ------------------------------------------------------------------------------------------------------------------------------------ 95,957 42,142 69,858 48,871 ------------------------------------------------------------------------------------------------------------------------------------ School operating profit 13,805 6,853 11,122 10,038 ------------------------------------------------------------------------------------------------------------------------------------ New school development 518 501 400 207 General and administrative expenses 7,717 3,391 5,973 4,190 Restructuring expense - - 2,960 - ------------------------------------------------------------------------------------------------------------------------------------ Operating income 5,570 2,961 1,789 5,641 ------------------------------------------------------------------------------------------------------------------------------------ Interest expense 2,998 1,044 2,047 2,004 Other (income) expense (248) (102) (158) (482) Minority interest in income of consolidated subsidiary 74 35 86 94 ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) before income taxes 2,746 1,984 (186) 4,025 Income tax expense 1,153 833 250 1,562 ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) before extraordinary item $ 1,593 $ 1,151 $ (436) $ 2,463 ------------------------------------------------------------------------------------------------------------------------------------ Extraordinary loss on early extinguishment of debt, (net of income tax benefit of $330) - - 449 - ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) 1,593 1,151 (885) 2,463 Preferred stock dividends 83 51 102 109 ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) available to common stockholders $ 1,510 $ 1,100 $ (987) $ 2,354 ==================================================================================================================================== Basic earnings (loss) per share: Net income (loss) before extraordinary item $ 0.25 $ 0.18 $ (0.09) $ 0.42 Extraordinary item - - (0.07) - ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 0.25 $ 0.18 $ (0.16) $ 0.42 ==================================================================================================================================== Dilutive earnings (loss) per share: Net income (loss) before extraordinary item $ 0.22 $ 0.15 $ (0.09) $ 0.34 Extraordinary item - - (0.07) - ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 0.22 $ 0.15 $ (0.16) $ 0.34 ==================================================================================================================================== The accompanying notes are an integral part of these consolidated financial statements. F-3
10-K40538th Page of 52TOC1stPreviousNextBottomJust 38th
--------------------------------------------------- Nobel Learning Communities, Inc. and Subsidiaries --------------------------------------------------- Consolidated Statements of Stockholders' Equity For the Year Ended June 30, 1999, the Six Months Ended June 30, 1998, and for the Years Ended December 31, 1997 and 1996 (Dollars in thousands except share data) [Enlarge/Download Table] Treasury and Additional Common Preferred Stock Common Stock Paid-In Stock Accumulated Shares Amount Shares Amount Capital Issuable Deficit Total ---------------------------------------------------------------------------------------------------------------------------- Balances as of January 1, 1996 5,505,150 $ 6 4,095,094 $ 4 $ 21,818 $ 2,000 $ (7,707) $ 16,121 ============================================================================================================================ Stock options and warrants exercised and related tax benefit - - 63,750 - 500 - - $ 500 Common shares issuable - - 312,500 1 1,999 (2,000) - - Common shares issued - - 122,270 - 1,740 - - 1,740 Private placement of common stock, net of transaction costs - - 1,000,000 1 11,607 - - 11,608 Conversion of preferred stock (807,608) (1) 237,441 - 1 - - - Preferred dividends - - - - - - (109) (109) Net income - - - - - - 2,463 2,463 ---------------------------------------------------------------------------------------------------------------------------- December 31, 1996 4,697,542 $ 5 5,831,055 $ 6 $ 37,665 $ - $ (5,353) $ 32,323 ============================================================================================================================ Stock options and warrants exercised and related tax benefit - - 256,750 - 682 - - 682 Conversion of preferred stock (104,000) - 33,560 - - - - - Other - - - - (7) - - (7) Treasury stock - - - - - (375) - (375) Preferred dividends - - - - - - (102) (102) Net loss - - - - - - (885) (885) ---------------------------------------------------------------------------------------------------------------------------- December 31, 1997 4,593,542 $ 5 6,121,365 $ 6 $ 38,340 $ (375) $ (6,340) 31,636 ============================================================================================================================ Preferred dividends - - - - - - (51) (51) Net Income - - - - - - 1,151 1,151 ---------------------------------------------------------------------------------------------------------------------------- June 30, 1998 4,593,542 $ 5 6,121,365 $ 6 $ 38,340 $ (375) $ (5,240) $ 32,736 ============================================================================================================================ Treasury stock - - - - - (1,000) - (1,000) Issuance of warrants for common stock - - - - 899 - - 899 Preferred dividends - - - - - - (83) (83) ---------------------------------------------------------------------------------------------------------------------------- Net income - - - - - - 1,593 1,593 June 30, 1999 4,593,542 $ 5 6,121,365 $ 6 $ 39,239 $(1,375) $ (3,730) $ 34,145 ============================================================================================================================ The accompanying notes are an integral part of these consolidated financial statements F-4
10-K40539th Page of 52TOC1stPreviousNextBottomJust 39th
-------------------------------------------------- Nobel Learning Communities, Inc. and Subsidiaries -------------------------------------------------- Consolidated Statements of Cash Flow (Dollars in thousands) [Enlarge/Download Table] For the year For the six months For the year ended For the year ended ended June 30, 1999 ended June 30, 1998 December 31, 1997 December 31, 1996 ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities: Net income (loss) $ 1,593 $ 1,151 $ (885) $ 2,463 ------------------------------------------------------------------------------------------------------------------------------------ Adjustment to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 5,409 1,964 3,230 2,202 Provision for losses on accounts receivable 190 96 345 87 Provision for restructuring - - 2,960 - Provision for deferred taxes 571 277 (300) 1,207 Minority interest in income 74 35 86 94 Early extinguishment of debt - - 779 - Changes in Assets and Liabilities Net of Acquisitions: Accounts receivable (749) (134) (612) (139) Prepaid assets 323 (17) (641) (74) Other assets and liabilities (723) 1,088 (228) (243) Unearned income 913 (562) 213 (133) Accounts payable and accrued expenses (352) (599) 2,400 (689) ------------------------------------------------------------------------------------------------------------------------------------ Total Adjustments 5,656 2,148 8,232 2,312 ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Provided by Operating Activities 7,249 3,299 7,347 4,775 ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Investing Activities: Capital expenditures (9,669) (4,952) (15,221) (12,776) Proceeds from sale of property and equipment 4,133 6,948 7,451 8,636 Payment for acquisitions net of cash acquired (3,743) (3,457) (10,145) (4,968) Payment of earn out related to acquisition - (1,500) - - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Used in Investing Activities (9,279) (2,961) (17,915) (9,108) ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Financing Activities: Proceeds from term loan and Revolving line of credit 15,510 12,526 18,641 6,000 Proceeds from other debt 10,000 - - 1,500 Proceeds from issuance of common stock - - - 11,608 Cash Overdraft 395 1,397 - - Repayment of long term debt (20,581) (14,474) (9,682) (7,023) Repayment of subordinated debt (2,289) (497) (1,164) (6,334) Repayment of capital lease obligation (87) (39) (71) (50) Dividends paid to preferred stockholders (83) (51) (102) (108) Proceeds from exercise of stock options - - 299 277 Purchase of Treasury Stock (1,000) - - - ------------------------------------------------------------------------------------------------------------------------------------ Net Cash Provided by Financing Activities 1,865 (1,138) 7,921 5,870 Net increase (decrease) in cash and cash equivalents (165) (800) (2,647) 1,537 ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at beginning of year 1,805 2,605 5,252 3,715 ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 1,640 $ 1,805 $ 2,605 $ 5,252 ==================================================================================================================================== The accompanying notes are an integral part of these consolidated financial statements. F-5
10-K40540th Page of 52TOC1stPreviousNextBottomJust 40th
------------------------------------------------- Nobel Learning Communities, Inc. and Subsidiaries ------------------------------------------------- Supplemental Schedules for Consolidated Statements of Cash Flow (Dollars in thousands) [Enlarge/Download Table] For the year For the six months For the year ended For the year ended ended June 30, 1999 ended June 30, 1998 December 31, 1997 December 31, 1996 ---------------------------------------------------------------------------------------------------------------------------------- Supplemental Disclosures of Cash Flow Information Cash paid during year for: Interest $ 2,890 $ 992 $ 2,005 $ 1,973 Income taxes 1,629 157 728 434 Noncash financing and investing activities Tax benefit related to exercise of stock options and warrants - - - 224 Acquisitions Fair value of tangible assets acquired 63 1,432 2,404 841 Cost in excess of net assets acquired 5,225 4,876 14,844 8,979 Cash acquired - - - (573) Liabilities assumed (437) (1,291) (1,352) (685) Notes issued (1,108) (1,560) (5,751) (1,854) Common shares issued - - - (1,740) ---------------------------------------------------------------------------------------------------------------------------------- Total cash paid for acquisitions $ 3,743 $ 3,457 $ 10,145 $ 4,968 ----------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. F-6
10-K40541st Page of 52TOC1stPreviousNextBottomJust 41st
------------------------------------------------- Nobel Learning Communities, Inc. and Subsidiaries ------------------------------------------------- Notes to Consolidated Financial Statements 1 Summary of Significant Accounting Policies and Company Background: Nobel Learning Communities, Inc. (the "Company"), formerly Nobel Education Dynamics, Inc., was founded in 1982 and commenced operations in 1984. The Company operates private pre-schools, elementary schools and middle schools located in California, the Mid-Atlantic states, North Carolina, South Carolina, Virginia, Illinois, Indiana, Washington, Florida, Oregon and Nevada. Principles of Consolidation and Basis of Presentation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and majority-owned subsidiary. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recognition of Revenues: Revenue is recognized as the services are performed. Cash and Cash Equivalents: The Company considers cash on hand, cash in banks, and cash investments with maturities of three months or less when purchased as cash and cash equivalents. The Company maintains funds in accounts in excess of FDIC insurance limits; however, the Company minimizes the risk by maintaining deposits in high quality financial institutions. Property and Equipment: Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets as follows: Buildings 40 years Leasehold improvements The shorter of the leasehold period or useful life Furniture and equipment 3 to 10 years Maintenance, repairs and minor renewals are expensed as incurred. Upon retirement or other disposition of buildings and furniture and equipment, the cost of the items, and the related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Cost in Excess of Net Assets Acquired: The Company's policy is to amortize cost in excess of net assets acquired related to acquisitions over 30 years for preschools and 40 years for elementary schools. Management has evaluated the life cycles of similar schools and determined that these lives are consistent with a historical range for private elementary education. In evaluating potential acquisitions of child care centers, management considers not only the current child care operations but also the outlook for these centers as elementary schools. The excess of purchase price over net assets acquired is amortized on a straight-line basis. Amortization expense amounted to $1,385,000, $591,000, $1,005,000, and $651,000 for the year ended June 30, 1999, the six months ended June 30, 1998, and the years ended December 31, 1997 and 1996, respectively. Accumulated amortization at June 30, 1999 and 1998, was $5,130,274 and $3,745,691, respectively. The Company reviews its long-lived assets for impairment on an exception basis whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through future cash flows in accordance with FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". If it is determined that an impairment loss has occurred based on expected future cash flows, then the loss is recognized in the income statement and certain disclosures regarding the impairment are made in the financial statements. Income Taxes: The Company accounts for income taxes using the asset and liability method, in accordance with FAS 109, "Accounting for Income Taxes". Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rate is recognized in income in the period of enactment. A valuation allowance is recorded based on the uncertainty regarding the ultimate realizability of deferred tax assets. Segment Information The Company manages its business based on geographical regions within the United States. Under SFAS 131, "Segment Reporting", the Company has aggregated these regions based on management's belief that these regions have met the aggregation criteria set forth in the standard. Earnings Per Share: In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share", which established new standards for computations for earnings per share. The Company adopted the new standard effective December 31, 1997 and restated the prior years calculation accordingly. The restatement did not result in a material change from amounts previously reported. F-7
10-K40542nd Page of 52TOC1stPreviousNextBottomJust 42nd
Earnings per share are based on the weighted average number of shares outstanding and common stock equivalents during the period. In the calculation of dilutive earnings per share, shares outstanding are adjusted to assume conversion of the Company's non-dividend bearing convertible preferred stock if they are dilutive. In the calculation of basic earnings per share, weighted average number of shares outstanding are used as the denominator. For the year ended December 31, 1997, 1,356,108 common stock equivalents were excluded from the computation of dilutive earnings per share as the effect would have been antidilutive. Earnings per share are computed as follows (dollars in thousands except per share data): [Enlarge/Download Table] Six months Year ended ended Year ended Year ended June 30 June 30 December 31 December 31 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------- Basic (loss) earnings per share: Net (loss) income $ 1,593 $ 1,151 $ (885) $ 2,463 Less preferred stock dividends 83 51 102 109 ------------------------------------------------------------------------------------------------- Net income available for common stock 1,510 1,100 (987) 2,354 Average common stock outstanding 6,038,136 6,121,365 6,052,625 5,545,605 ------------------------------------------------------------------------------------------------- Basic earnings (loss) per share $ 0.25 $ 0.18 $ (0.16) $ 0.42 Diluted earnings (loss) per share: Net (loss) income available for common stock and dilutive securities $ 1,593 $ 1,151 $ (987) $ 2,463 Average common stock outstanding 6,038,136 6,121,365 6,052,625 5,545,605 Additional common shares resulting from dilutive securities: Options, warrants and convertible preferred stock 1,316,200 1,395,686 N/A 1,717,178 ------------------------------------------------------------------------------------------------ Average common stock and dilutive securities outstanding 7,354,336 7,517,051 6,052,625 7,262,783 Diluted earnings (loss) per share $ 0.22 $ 0.15 $ (0.16) $ 0.34 CONCENTRATIONS OF CREDIT RISK The Company provides its services to the parents and guardians of the children attending the schools. The Company does not extend credit for an extended period of time, nor does it require collateral. Exposure to losses on receivables is principally dependent on each person's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. RECLASSIFICATIONS Certain prior year amounts have been reclassified in the current year for comparative purposes. 2 CHANGE IN FISCAL YEAR In the last quarter of 1997, the Company changed its fiscal year end to the end of June. Accordingly, the Company's transition period, which ended June 30, 1998 includes the six months from January 1 to June 30, 1998. There were 52 weeks in each of fiscal 1999, 1997, and fiscal 1996 and 26 weeks in fiscal 1998. The following unaudited results of operations for the six months ending June 30, 1997 and the twelve months ended June 30, 1998 are presented for comparative purposes and include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for that period (dollars in thousands, except per share data). [Download Table] Twelve months Six months ended ended June 30, 1998 June 30, 1997 (unaudited) (unaudited) ------------------------------------------------------------------------ Revenues $ 90,310 $ 39,664 Operating expenses 79,120 32,879 ------------------------------------------------------------------------ School operating profit 11,190 6,785 New school development 804 98 General and administrative expenses 6,547 2,816 Restructuring expense 2,960 - ------------------------------------------------------------------------ Operating income 879 3,871 Interest expense 2,131 854 Other income (150) (5) Minority interest in earnings of consolidated subsidiary 72 49 ------------------------------------------------------------------------ Income before income taxes (1,174) 2,973 Income tax expense (benefit) (165) 1,249 ------------------------------------------------------------------------ Net income (loss) before extraordinary item (1,009) 1,724 Extraordinary loss 449 - ------------------------------------------------------------------------ Net income (loss) (1,458) 1,724 Preferred stock dividends 102 51 ------------------------------------------------------------------------ Net income available to common stockholders $ (1,560) $ 1,673 ------------------------------------------------------------------------ Basic earnings per share $ (0.25) $ 0.28 Dilutive earnings per share $ (0.25) $ 0.23 3 ACQUISITIONS: During the year ended June 30, 1999, the six months ended June 30, 1998 and the years ended December 31, 1997 and 1996, the Company completed various acquisitions, all of which are accounted for using the purchase method, which are described below. The results of operations for all acquisitions are included in the Consolidated Statement of Income from the date of acquisition. 1999 ACQUISITIONS In June 1999, the Company acquired the assets of Flint Ridge Preschool in Leesburg, Virginia, which has a capacity of 190 students. The purchase price equaled $478,355 in cash and $207,543 in a subordinated note payable over five years. In August 1998, the Company entered into a transaction with Developmental Resource Center, Inc. (DRC) to form Paladin Academy, LLC, which is owned 80% by the Company and 20% by DRC. DRC is owned by Dr. Deborah Levy, a recognized leader in the field of special education programs. The three schools formerly owned by DRC, located in Florida, specialize in full day programs, summer camps, testing services and clinics for K-12th grade students who have learning challenges such as dyslexia, attention deficit disorder (ADD and ADHD) and other learning disabilities. 1998 ACQUISITIONS In March and May 1998, the Company completed the acquisition of four elementary schools and one preschool. The Company acquired the assets of Touchstone Elementary School in Lake Oswego, Oregon, which has a capacity for 150 students. The Company acquired the stock of Lake Forest Park F-8
10-K40543rd Page of 52TOC1stPreviousNextBottomJust 43rd
Montessori School, Inc., owner of Lake Forest Park Montessori School, in Seattle, Washington, which has a capacity of 250 students. The Company acquired the assets of the Western School, located in North Lauderdale, Florida, which has a capacity for 350 children. Lastly, the Company acquired the Brighton Schools in Seattle, Washington. The Brighton Schools consist of an elementary school and a preschool with a combined capacity of 319 students. The aggregate purchase price for the four acquisitions equaled $3,457,000 in cash, $1,560,000 in subordinated notes payable over five years and approximately $1,291,000 in assumed liabilities. 1997 ACQUISITIONS Acquisition of Another Generation Enterprises Inc. In January 1997, the Company purchased Another Generation Enterprises Inc. and certain related corporations, which owned six preschools located in Broward County and Palm Beach County, Florida with a capacity of 1,200 children. The aggregate purchase price for the stock totaled $4,543,000, with $3,643,000 in cash, $750,000 in notes and approximately $150,000 in assumed liabilities. Also in January 1997, the Company purchased a 19.99% interest in the Sagemont School located in Weston, Florida from the principal owners of Another Generation Enterprises Inc. The Sagemont School is an elementary school with a capacity of 340 students which opened in the Fall of 1996. The Company also formed a joint venture with such persons to develop five additional elementary schools in Florida, each of which the Company will own 80%. Acquisition of Rainbow Bridge Schools In April 1997, the Company acquired the Rainbow Bridge schools located in San Jose, California. Rainbow Bridge schools include two private elementary and middle schools and three preschools, with combined licensed capacity of 950. The purchase price of the acquisitions totaled $7,508,000, $5,140,000 paid in cash and $2,368,000 paid in notes, (including amount paid on an "earn out" based on achievement of certain earnings targets). Acquisition of Las Vegas Schools In September 1997, the Company purchased three schools located in Las Vegas, Nevada, formerly operating as Hillpointe Elementary School and Warren Walker Preschools, with current combined licensed capacity of 670. The Hillpointe Elementary School is a new school which opened in September 1997. The purchase price of the acquisition totaled approximately $3,800,000, $2,300,000 paid in cash, $700,000 paid in notes and $800,000 in assumed liabilities. UNAUDITED PRO FORMA INFORMATION: The operating results of all acquisitions are included in the Company's consolidated results of operations from the date of acquisition. The following pro forma financial information assumes the acquisitions which closed during 1999, 1998, and 1997 all occurred at the beginning of 1997. These results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made at the beginning of 1997, or of the results which may occur in the future. Further, the information gathered from some acquired companies are estimates since some acquirees did not maintain information on a period comparable with the Company's fiscal year-end (dollars in thousands). [Download Table] Year ended Six months ended Year ended June 30, 1999 June 30, 1998 December 31, 1997 (unaudited) (unaudited) (unaudited) ---------------------------------------------------------------------------- Revenues $ 110,484 $ 51,981 $ 92,781 Net income before extraordinary item $ 1,629 $ 1,337 $ 470 Earnings per share Basic $ 0.26 $ 0.21 $ 0.06 Diluted $ 0.22 $ 0.18 $ 0.06 4 CASH EQUIVALENTS: The Company has an agreement with its primary bank that allows the bank to act as the Company's principal in making daily investments with available funds in excess of a selected minimum account balance. This investment amounted to $859,347 and $2,364,000 at June 30, 1999 and 1998, respectively. The Company's funds were invested in money market accounts which exceed federally insured limits. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents as such deposits are maintained in high quality financial institutions. 5 PROPERTY AND EQUIPMENT: The balances of major property and equipment classes, excluding property and equipment held for sale, were as follows (dollars in thousands): [Download Table] June 30, 1999 June 30, 1998 ---------------------------------------------------------------------- Land $ 3,352 $ 3,147 Buildings 6,027 6,154 Assets under capital lease obligations 913 913 Leasehold improvements 7,536 5,947 Furniture and equipment 15,460 12,573 Construction in progress 3,736 2,867 ---------------------------------------------------------------------- $ 37,024 $ 31,601 Accumulated depreciation (12,324) (9,226) ---------------------------------------------------------------------- $ 24,700 $ 22,375 ---------------------------------------------------------------------- Depreciation expense was $3,175,000, $1,325,00, $2,096,000, and $1,560,000 for the year ended June 30, 1999, the six months ended June 30, 1998 and for the years ended December 31, 1997 and 1996, respectively. Amortization of capital leases included in depreciation expense amounted to $14,640 for the year ended June 30, 1999, $7,320 in the six months ended June 30, 1998, and $14,640 in each of the years 1997, and 1996. Accumulated amortization of capital leases amounted to $483,000, and $468,000 at June 30, 1999 and June 30, 1998, respectively. F-9
10-K40544th Page of 52TOC1stPreviousNextBottomJust 44th
6 RESTRUCTURING AND PROPERTY AND EQUIPMENT HELD FOR SALE In the fourth quarter of 1997, the Company approved a restructuring plan which included (1) reorganization of the geographic school districts, (2) reorganization of the structure of operations management, (3) the decision to close several schools and to write down the book value of the assets of schools which are non-performing, (4) placing non-performing schools for sale and (5) hiring of a Chief Operating Officer (President). In an effort to improve Company performance, the Company restructured its existing operations management. The Executive Director position replaced both the Regional Manager and the District Manager positions. The number of schools for which each manager is responsible has been reduced so that each can spend more time in the schools. In conjunction with the restructuring, the Company recorded a $2,960,000 charge in December 1997. The restructuring charge included (1) a $2,000,000 write down of the cost in excess of net assets acquired related to schools located in Indianapolis, (2) $789,000 related to the closing of non-performing schools, and (3) $171,000 related to the costs associated with the restructuring of the management team. The write down of fixed assets and cost in excess of net assets acquired was determined based on the estimated selling prices of these assets based on prior experience from comparable situations and information provided by outside brokers. Non-cash charges included in the $2,960,000 charge were $2,269,019. During the twelve months ended June 30, 1999, cash payments related to the closing of non- performing schools were $165,636. During the six months ended June 30, 1998 and 1997, cash payments related to the closing of non-performing schools and cost associated with the restructuring of the management team were $144,897 and $129,837, respectively. The amounts reflected in the table below include certain properties located in the Southeast related to a prior restructuring. The balances of major property and equipment held for sale were as follows (dollars in thousands): [Download Table] June 30, 1999 June 30, 1998 ------------------------------------------------------------------------------ Land $ 219 $ 219 Buildings 745 741 Leasehold improvements 653 936 Furniture and equipment 939 629 Accumulated depreciation (1,354) (1,154) ------------------------------------------------------------------------------ $ 1,202 $ 1,371 ============================================================================== 7 DEBT: Debt consisted of the following (dollars in thousands): [Enlarge/Download Table] June 30, 1999 June 30, 1998 ----------------------------------------------------------------------------------------- LONG TERM OBLIGATIONS: Revolving and term credit facility $ 14,767 $ 19,427 First mortgages, due in varying installation over three to 20 years with fixed interest rates ranging from 11% or 12% 239 281 Notes payable to sellers from various acquisitions, due in varying installments over three to 15 years with fixed interest rates varying from 8% to 12% 191 257 Other 454 758 ----------------------------------------------------------------------------------------- Total long term obligations $ 15,651 $ 20,723 Less current portion (335) (412) ----------------------------------------------------------------------------------------- $ 15,316 $ 20,311 ========================================================================================= LONG TERM OBLIGATIONS: Senior subordinated note due 2005 interest at 10%, payable quarterly. Net of original issue discount of $771 at June 30, 1999 $ 9,229 $ - Subordinated debt agreements, due in varying installments over five to 10 years with fixed interest rates varying from 7% to 8% $ 6,388 $ 7,697 ----------------------------------------------------------------------------------------- Total subordinated debt 15,617 7,697 Less current portion (1,786) (1,531) ----------------------------------------------------------------------------------------- $ 13,831 $ 6,166 ========================================================================================= In March 1999, the Company entered into an Amended and Restated Loan and Security Agreement which increased the Company's borrowing capacity to $35,000,000. Four separate facilities were established under the Amended and Restated Loan and Security Agreement: (1) $7,000,000 Working Capital Credit Facility A, (2) $3,000,000 Working Capital Credit Facility B, (3) $15,000,000 Acquisition Credit Facility and (4) $10,000,000 Term Loan. Interest on the unpaid principal balance of the Working Capital Facility A and the Acquisition Credit Facility accrues at a variable interest rate ("Floating Rate") equal to the base rate of Summit Bank plus 25 basis points (subject to increase or decrease based on performance) or a LIBOR-based rate (at the Company's option, chosen at the beginning of any interest period). Interest on the unpaid principal balance of Working Capital Credit Facility B accrues at the Floating Rate. Interest on the unpaid principal balance of the Term Loan accrues at 7.5%. Working Capital Credit Facility A and B funds are available until March 2002 at which time, it may be extended, refinanced or repaid. Under the Acquisition Credit Facility, no principal payments are required until March 2001. At that time, the outstanding principal under the Acquisition Credit Facility will be converted into a term loan which will require principal payments in 16 quarterly installments. Under the Term Loan Facility, no principal payments are required until April 2000. Quarterly installments of $250,000 are required each of the first four quarters (through January 2001); thereafter quarterly installments of $562,500 are required until January 2005. F-10
10-K40545th Page of 52TOC1stPreviousNextBottomJust 45th
At June 30, 1999, $2,072,138 was outstanding under Working Capital Credit Facility A and Working Capital Credit Facility B, $2,694,855 was outstanding under the Acquisition Credit Facility and $10,000,000 was outstanding under the Term Loan. In July 1998, the Company issued a $10,000,000 senior subordinated note to Allied Capital Corporation. The senior subordinated note bears interest at 10.0% and matures in two installments of principal, $5,000,000 in 2004 and $5,000,000 in 2005. Payments on the note are subordinate to the Company's senior bank debt. In connection with the financing transaction, the Company also issued to Allied Capital Corporation warrants to acquire 531,255 shares of the Company's common stock at $8.5625 per share. The exercise price of $8.5625 may be reduced, if at May 31, 2000 the trailing 30 day average high and low stock price is lower than $8.5625. The Company recorded a debt discount and allocated $899,000 of the proceeds of the transaction to the value of the warrants. This debt discounting is being amortized to interest expense over the term of the note. In 1997, the Company amended its credit agreement three times, the most significant of which occurred in December with the execution of the Seventh Amendment and Modification to the Credit Agreement. These amendments: (1) increased the Company's borrowing capacity to $25,000,000, (2) changed the prior fixed interest rates (applicable to term loans) to variable rates and (3) increased the number of permitted new school construction projects. Because of the significant change in the repayment terms of the senior loan in 1997, in accordance with Emerging Issue Task Force Issue 96-19 "Debtors Accounting for Modification of Debt Instrument", the Company wrote off the financing fees related to the 1995 financing totaling $779,000 on a pretax basis. The charge was recorded as an extraordinary item and accordingly shown tax effected. At June 30, 1998, the principal amounts outstanding under the senior loan were $19,427,000 all of which was under a revolving credit facility. Maturities of long-term obligations are as follows: $2,245,000 in 2000, $3,451,000 in 2001, $6,768,000 in 2002, $3,782,000 in 2003, and $15,024,000 in 2004 and thereafter. 8 ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES: Accounts payable and other current liabilities were as follows (dollars in thousands): [Download Table] June 30, 1999 June 30, 1998 --------------------------------------------------------------------------- Accounts payable $ 2,163 $ 1,029 Reserve for closed centers 414 644 Accrued payroll and related items 2,232 1,791 Accrued rent 614 600 Accrued property taxes 1,126 1,514 Other accrued expense 1,687 2,569 --------------------------------------------------------------------------- $ 8,236 $ 8,147 =========================================================================== 9 LEASE OBLIGATIONS: Future minimum rentals, for the real properties utilized by the Company and its subsidiaries, by year and in the aggregate, under the Company's capital leases and noncancellable operating leases, excluding leases assigned, consisted of the following at June 30, 1999 (dollars in thousands): Operating Leases [Enlarge/Download Table] Closed Schools to Continuing Schools be Divested Schools Total ------------------------------------------------------------------------------------- 2000 $ 294 $ 49 $ 16,619 $ 16,962 2001 241 - 16,032 16,273 2002 234 - 15,188 15,422 2003 193 - 14,219 14,412 2004 173 - 13,590 13,763 2005 and thereafter 409 - 89,790 90,199 ----------------------------------------------------------------------------------- Total minimum lease obligations $1,544 $ 49 $ 165,438 $167,031 ----------------------------------------------------------------------------------- [Download Table] Capital Leases ---------------------------------------------------------- 2000 $ 56 2001 102 2002 26 ------------------------------------------------------- Total minimum lease obligations $ 184 ------------------------------------------------------- Less amount representing interest 22 ------------------------------------------------------- Present value of capital lease obligations 162 ------------------------------------------------------- Less current portion 89 ------------------------------------------------------- $ 73 ======================================================= Most of the above leases contain annual rental increases based on changes in consumer price indexes, which are not reflected in the above schedule. Rental expense for all operating leases was $16,595,000, $7,103,000, $11,157,000, and $8,113,000, for the year ended June 30, 1999, for the six months ended June 30, 1998 and the years ended December 31, 1997 and 1996, respectively. These leases are typically triple-net leases requiring the Company to pay all applicable real estate taxes, utility expenses and insurance costs. The Company's tenancy under 15 leases have been assigned or sublet to third parties. If such parties default, the Company is contingently liable. Contingent future rental payments under the assigned leases are as follows (dollars in thousands): 2000 $ 1,247 2001 $ 1,168 2002 $ 1,075 2003 $ 1,084 2004 and thereafter $ 4,427 10 STOCKHOLDERS' EQUITY: PREFERRED STOCK: In connection with a debt refinancing, on August 31, 1995, the Company issued 1,063,830 shares of the Company's Series D Convertible Preferred Stock for a purchase price of $2,000,000. The Series D Preferred Stock is convertible to Common Stock at a conversion rate, subject to adjustment, of 1/4 share of Common Stock for each share of Series D Convertible Preferred Stock. Holders of Series D are not entitled to dividends, unless dividends are declared on the F-11
10-K40546th Page of 52TOC1stPreviousNextBottomJust 46th
Company's Common Stock. Upon liquidation, the holders of shares of Series D Convertible Preferred Stock are entitled to receive, before any distribution or payment is made upon any Common Stock, $1.88 per share plus any unpaid dividends. At June 30, 1999 and 1998, 1,063,830 shares were outstanding. On August 22, 1994, the Company completed a private placement of an aggregate of 2,500,000 shares of Series C Convertible Preferred Stock and the Series 1 Warrants and Series 2 Warrants discussed below under "Common Stock Warrants" for an aggregate purchase price of $2,500,000. The Series C Preferred Stock is convertible into Common Stock at a conversion rate, subject to adjustment, of 1/4 share of Common Stock for each share of Series C Convertible Preferred Stock. Holders of shares of Series C Convertible Preferred Stock are not entitled to dividends unless dividends are declared on the Company's Common Stock. Upon liquidation, the holders of shares of Series C Convertible Preferred Stock are entitled to receive, before any distribution or payment is made upon Common Stock, $1.00 per share plus any unpaid dividends. At June 30, 1999 and 1998, 2,500,000 shares were outstanding. On July 20, 1993, the Company completed a private placement of 2,484,320 shares of its Series A Convertible Preferred Stock at a purchase price of $1.00 per share. The Series A Preferred Stock is convertible into Common Stock at a conversion rate, subject to adjustment, of .2940 shares of Common Stock for each share of Series A Preferred Stock. The Series A Preferred Stock is redeemable by the Company at any time after the fifth anniversary of its issuance at a redemption price of $1.00 per share plus cumulative unpaid dividends. The Preferred Stock is not redeemable at the option of the holders. Upon liquidation, the holders of shares of Series A Preferred Stock are entitled to receive, before any distribution or payment is made upon any Common Stock, $1.00 per share plus all accrued and unpaid dividends. At both June 30, 1999 and June 30, 1998, 1,029,712 shares were outstanding. Each share of Series A Preferred Stock entitles the holder to an $.08 per share annual dividend. Each share of Series A Preferred Stock, Series C Preferred Stock and Series D Preferred Stock entitles the holder to a number of votes equal to the number of full shares of Common Stock into which such share is convertible. Except as otherwise required by law, holders of Preferred Stock vote together with the Common Stock, and not as a separate class, in the election of directors and on each other matter submitted to a vote of the stockholders. COMMON STOCK WARRANTS: In connection with a $10,000,000 senior subordinated note issued to Allied Capital Corporation in July 1998, the Company issued warrants to acquire an aggregate of 531,255 shares of the Company's common stock at $8.5625 per share. The exercise price of $8.5625 may be reduced, if at May 31, 2000, the trailing 30 day average high and low stock price is lower than $8.5625. In connection with a debt refinancing in August, 1995, the Company issued to Allied Capital Corporation warrants to acquire an aggregate of 309,042 shares of the Company's Common Stock. On May 28, 1997, Mr. Clegg exercised a warrant to purchase 187,500 shares at a purchase price of $2.00 per share. Mr. Clegg paid the exercise price of the warrant by delivery of 36,810 shares of Common Stock valued at $10.19 per share, which was the fair market value of the Common Stock on the date of the exercise. Accordingly, the Company recorded the shares acquired from Mr. Clegg as treasury stock on the balance sheet. 1995 STOCK INCENTIVE PLAN: On September 22, 1995, the stockholders approved the 1995 Stock Incentive Plan. On September 19, 1997, the stockholders approved amendments to the 1995 Stock Incentive Plan, including an increase in the number of shares of common stock available for issuance under the Plan to 750,000. Under the Plan, common stock may be issued in connection with stock grants, incentive stock options and non- qualified stock options. The purpose of the Plan is to attract and retain quality employees. All grants to date under the Plan (other than a certain stock grant which was terminated) have been non-qualified stock options which vest over three years (except that options issued to directors vest in full six months following the date of grant). 1988 STOCK OPTION AND STOCK GRANT PLAN: During 1988, the Company established the 1988 stock option and stock grant plan. This plan reserved up to an aggregate of 125,000 shares of common stock of the Company for issuance in connection with stock grants, incentive stock options and non-qualified stock options. 1986 STOCK OPTION AND STOCK GRANT PLAN: During 1986, the Company established a stock option and stock grant plan, which was amended in 1987. The 1986 Plan, as amended, reserved up to an aggregate of 216,750 shares of common stock of the Company for issuance in connection with stock grants, incentive stock options and non-qualified stock options. The number of options granted under the 1995 Stock Incentive Plan is determined from time to time by the Compensation Committee of the Board of Directors, except for options granted to non-employee directors, which is determined by a formula set forth in the Plan. Incentive stock options are granted at market value or above, and non-qualified stock options are granted at a price fixed by the Compensation Committee at the date of grant. Options are exercisable for up to ten years from date of grant. Option activity with respect to the Company's stock incentive plans and other employee options was as follows: OUTSTANDING OPTIONS [Download Table] Weighted average exercise Number Range price ------------------------------------------------------------------------------- Balance, December 31, 1995 145,225 $ 3.00 to $ 13.00 $ 9.78 ------------------------------------------------------------------------------- Granted 60,500 $ 10.50 to $ 15.81 $ 11.52 Canceled (28,175) 11.625 11.62 Exercised (28,750) 4.00 to 6.00 3.75 ------------------------------------------------------------------------------- Balance, December 31, 1996 148,800 $ 3.00 to $ 15.81 $ 12.67 ------------------------------------------------------------------------------- Granted 183,200 $ 7.88 to $ 10.50 $ 9.48 Canceled (54,575) 3.00 to 13.00 11.50 Exercised (6,250) 3.50 to 13.50 11.50 ------------------------------------------------------------------------------- Balance, December 31, 1997 271,175 $ 3.00 to $ 16.50 $ 10.75 ------------------------------------------------------------------------------- Granted 156,507 $ 5.06 to $ 9.25 $ 5.90 Canceled (13,250) 7.87 to 11.62 10.02 ------------------------------------------------------------------------------- Balance, June 30, 1998 414,432 $ 3.00 to $ 16.50 $ 8.15 ------------------------------------------------------------------------------- Granted 523,725 $ 4.50 to $ 9.25 $ 4.82 Canceled (4,825) 7.87 to 11.62 7.52 ------------------------------------------------------------------------------- Balance, June 30, 1999 933,332 $ 3.00 to $ 16.50 $ 6.39 -------------------------------------------------------------------------------
10-K40547th Page of 52TOC1stPreviousNextBottomJust 47th
Of the 523,725 options granted during the year ended June 30, 1999. 110,000 options were granted outside of the Company's stock incentive plans. At June 30, 1999 and June 30, 1998, 12,343 and 417,943 shares, respectively, remained available for options of stock grants under the 1995 Stock Incentive Plan and 77,191 options were exercisable under such Plan and earlier stock option plans. The Company has adopted the disclosure only provisions of SFAS No. 123 "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the Company's stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, the Company's net income and net income per share would have been decreased to the pro forma amounts indicated below (dollars in thousands except per share data): [Enlarge/Download Table] Year ended Six months Year ended Year ended June 30, ended June 30, December 31, December 31, 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------- Net (loss) income - as reported $ 1,593 $ 1,151 $ (885) $ 2,463 Net (loss) income - pro forma $ 1,037 $ 863 $ (1,222) $ 2,365 Net (loss) income per share - as reported $ 0.25 $ 0.18 $ (0.16) $ 0.42 Net (loss) income per share - pro forma $ 0.19 $ 0.14 $ (0.20) $ 0.41 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants: [Download Table] 1999 1998 -------------------------------------------------------------------------- Expected dividend yield 0% 0% Expected stock price volatility 44.145 39.23% Risk-free interest rate 5.03% 6.0% Expected life of options 3 years 3 years Activity with respect to warrants outstanding at June 30, 1999 is as follows: [Enlarge/Download Table] Number Range --------------------------------------------------------------------------------------------- Balance, December 31, 1995 714,042 $ 2.00 to $ 7.52 --------------------------------------------------------------------------------------------- Granted - - - Canceled - - - Exercised (25,000) $ 4.13 --------------------------------------------------------------------------------------------- Balance, December 31, 1996 689,042 $ 2.00 to $ 7.52 Granted - - - Canceled (5,000 $ 2.00 to $ 7.52 Exercised (250,000) $ 2.00 --------------------------------------------------------------------------------------------- Balance, December 31, 1997 434,042 $ 4.00 to $ 7.52 --------------------------------------------------------------------------------------------- Granted - Canceled - Exercised - --------------------------------------------------------------------------------------------- Balance, June 30, 1998 434,042 $ 4.00 to $ 7.52 --------------------------------------------------------------------------------------------- Granted 531,225 $ 8.58 Canceled - - - Exercised - $ - $ - --------------------------------------------------------------------------------------------- Balance, June 30, 1999 965,267 $ 4.00 to $ 8.58 --------------------------------------------------------------------------------------------- 11. OTHER (INCOME) EXPENSES: Other (income) expense consists of the following (dollars in thousands): [Enlarge/Download Table] Year ended Six months Year ended Year ended June 30, ended June 30, December 31, December 31, 1999 1998 1997 1996 ----------------------------------------------------------------------------------------------- Interest income $ (188) $ (95) $ (179) $ (470) Rental income (49) (17) (77) (143) Depreciation related to rental properties 18 9 33 73 Other projects (31) - (2) - Costs related to centers held for sale 2 1 67 58 ----------------------------------------------------------------------------------------------- $ (248) $ (102) $ (158) $ (482) ----------------------------------------------------------------------------------------------- 12 INCOME TAXES: Current tax provision (dollars in thousands): [Enlarge/Download Table] Six months Year ended ended Year ended Year ended June 30, June 30, December 31, December 31, 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------- Federal $ 587 $ 467 $ 26 $ 62 State (5) 89 194 293 ------------------------------------------------------------------------------------------------- $ 582 $ 556 $ 220 $ 355 Deferred tax provision 571 277 30 1,207 ------------------------------------------------------------------------------------------------- $ 1,153 $ 833 $ 250 $ 1,562 ================================================================================================= The difference between the actual income tax rate and the statutory U.S. federal income tax rate is attributable to the following (dollars in thousands): [Enlarge/Download Table] Six months Year ended ended Year ended Year ended June 30, June 30, December 31, December 31, 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------- U.S. federal statutory rate $ 934 $ 674 $ (63) $ 1,364 State taxes, net of federal tax benefit 82 54 137 119 Goodwill and other 137 105 176 79 ------------------------------------------------------------------------------------------------- $ 1,153 $ 833 $ 250 $ 1,562 ================================================================================================= Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. Temporary differences and carry forwards which give rise to a significant portion of deferred tax assets and liabilities are as follows (dollars in thousands): [Enlarge/Download Table] Six months Year ended ended Year ended Year ended June 30 June 30 December 31 December 31 1999 1998 1997 1996 tax assets tax assets tax assets tax assets (liabilities) (liabilities) (liabilities) (liabilities) ------------------------------------------------------------------------------------------------------------ Depreciation $ (681) $ (725) $ (576) $ (383) Provision for center closings and other restructuring 906 1,534 1,635 379 Net operating losses - - - 801 AMT credit carryforward 591 95 94 90 Other 203 127 155 121 ------------------------------------------------------------------------------------------------------------ Net deferred tax asset $ 1,019 $ 1,031 $ 1,308 $ 1,008 ============================================================================================================
10-K40548th Page of 52TOC1stPreviousNextBottomJust 48th
13 EMPLOYEE BENEFIT PLANS: The Company has a 401(k) Plan whereby eligible employees may elect to enroll after one year of service. The Company matches 25% of an employee's contribution to the Plan of up to 6% of the employee's salary. Nobel's matching contributions under the Plan were $161,000, $60,000, $90,000, and $74,000 for the year ended June 30, 1999, the six months ended June 30, 1998 and the years ended December 31, 1997 and 1996, respectively. 14 FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of financial instruments approximates carrying value. The following methods and assumptions were considered by the Company in determining its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet approximates fair value. Debt: The estimated fair value of the Company's debt as a whole was based on the discounted cash flows of all debt instruments. 15 COMMITMENTS AND CONTINGENCIES: The Company is engaged in other legal actions arising in the ordinary course of its business. The Company believes that the ultimate outcome of all such matters above will not have a material adverse effect on the Company's consolidated financial position. The significance of these matters on the Company's future operating results and cash flows depends on the level of future results of operations and cash flows as well as on the timing and amounts, if any, of the ultimate outcome. The Company carries fire and other casualty insurance on its centers and liability insurance in amounts which management believes is adequate for its operations. As is the case with other entities in the education and preschool industry, the Company cannot effectively insure itself against certain risks inherent in its operations. Some forms of child abuse have sublimits per claim in the general liability coverage. 16 SUBSEQUENT EVENTS On July 30, 1999, the Company sold the business operations of the nine schools located in the vicinity of Indianapolis, Indiana to Children's Discovery Centers of America, Inc., which is controlled by Knowledge Universe, for a total of $550,000 in cash. Knowledge Universe, through KU Learning, LLC controls a significant percentage of the Company's stock. No gain or loss was recorded for the sale of the operations as the Company had written down the carrying value of the business at December 31, 1997 17 QUARTERLY RESULTS OF OPERATIONS UNAUDITED (Dollars in thousands except per share data) [Enlarge/Download Table] Net Operating Net Earnings per common share Sales Price Revenues Income Income Basic Dilutive High Low --------------------------------------------------------------------------------------------------------------------- 1999 Quarter Ended September 30, 1998 $23,911 $ 339 $ (186) $(0.03) $(0.03) 9 3/4 5 7/8 Quarter Ended December 30, 1998 27,742 1,383 384 $ 0.06 $ 0.05 7 7/8 5 1/32 Quarter ended March 31, 1999 28,975 2,021 740 $ 0.12 $ 0.10 6 1/4 4 1/4 Quarter ended June 30, 1999 29,134 1,827 655 $ 0.11 $ 0.09 6 1/16 4 1/2 1998 Quarter ended September 30, 1997 18,926 (8) (285) $(0.05) $(0.05) 9 3/4 8 1/4 Quarter ended December 30, 1997/(1)/ 22,389 (2,073) (2,323) $(0.39) $(0.39) 9 7/16 4 1/2 Quarter ended March 31, 1998 23,706 1,510 618 $ 0.10 $ 0.08 9 3/8 4 7/8 Quarter ended June 30, 1998 25,289 1,450 532 $ 0.09 $ 0.07 9 3/8 7 7/8 1. In the quarter ended December 31, 1997, the Company recorded a restructuring charge of $2.9 million and an extraordinary item of $449,000. 2. The Company paid no dividends on the common stock in the time period from July 1, 1997 through June 30, 1999. Dividends are paid only on the preferred stock.
10-K40549th Page of 52TOC1stPreviousNextBottomJust 49th
EXHIBIT INDEX Exhibit Number Description of Exhibit 3.1 Registrant's Certificate of Incorporation, as amended and restated. (Filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, and incorporated herein by reference.) 3.2 Registrant's Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock. (Filed as Exhibit 7(c) to the Registrant's Current Report on Form 8-K filed on June 14, 1993 and incorporated herein by reference.) 3.3 Registrant's Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock. (Filed as Exhibit 4(ae) to the Registrant's Quarterly Report on Form 10-Q with respect to the quarter ended June 30, 1994 and incorporated herein by reference.) 3.4 Registrant's Certificate of Designation, Preferences and Rights of Series D Convertible Preferred Stock. (Filed as Exhibit 4E to the Registrant's Current Report on Form 8-K filed on September 11, 1995, date of earliest event reported August 25, 1995, and incorporated herein by reference.) 3.5 Registrant's Amended and Restated By-laws. (Filed as Exhibit 3.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, and incorporated herein by reference.) 4.1 Amended and Restated Loan and Security Agreement dated March 9, 1999 between the Registrant and its subsidiaries, as borrowers, and Summit Bank, in its capacity as Agent and the financial institutions listed on Schedule A attached thereto (as such schedule may be amended, modified or replaced from time to time), in their capacity as Lenders. (Certain schedules (and similar attachments) to Exhibits 4.1 have not been filed. The Registrant will furnish supplementally a copy of any omitted schedules or attachments to the Commission upon request.) (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 4.2 Working Capital Facility Note A dated as of March 9, 1999 in the principal sum of $7,000,000 payable to the order of Summit Bank. (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 4.3 Working Capital Facility Note B dated as of March 9, 1999 in the principal sum of $3,000,000 payable to the order of Summit Bank. (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 4.4 Acquisition Credit Facility Note dated as of March 9, 1999 in the principal sum of $15,000,000 payable to the order of Summit Bank. (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 4.5 Term Note A dated as of March 9, 1999 in the principal sum of $10,000,000 payable to the order of Summit Bank. (Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference.)
10-K40550th Page of 52TOC1stPreviousNextBottomJust 50th
4.6 Investment Agreement dated as of June 30, 1998 between Registrant and its subsidiaries and Allied Capital Corporation. (Filed as Exhibit 4.11 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 4.7 Senior Subordinated Note dated as of June 30, 1998 in the principal amount of $10,000,000 payable to the order of Allied Capital Corporation. (Filed as Exhibit 4.12 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) The Registrant has omitted certain instruments defining the rights of holders of long-term debt in cases where the indebtedness evidenced by such instruments does not exceed 10% of the Registrant's total assets. The Registrant agrees to furnish a copy of each of such instruments to the Securities and Exchange Commission upon request. 10.1 1986 Stock Option and Stock Grant Plan of the Registrant, as amended. (Filed as Exhibit 10(1) to the Registrant's Registration Statement on Form S-1 (Registration Statement No. 33-1644) filed on August 12, 1987 (the "Form S-1") and incorporated herein by reference.) 10.2 1988 Stock Option and Stock Grant Plan of the Registrant. (Filed as Exhibit 19 to the Registrant's Quarterly Report on Form 10-Q dated March 31, 1988 and incorporated herein by reference.) 10.3 1995 Stock Incentive Plan of the Registrant, as amended. (Filed as Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 10.4 Form of Stock Option Agreement, for stock option grants under 1995 Stock Incentive Plan. (Filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 10.5 Stock and Warrant Purchase Agreement between the Registrant and various investors, dated April 14, 1992. (Filed as Exhibit 10(r) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference.) 10.6 Registration Rights Agreement dated May 28, 1992 among the Registrant, JBS Investment Banking, Ltd., and Pennsylvania Merchant Group, Ltd. (Filed as Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated June 11, 1992, date of earliest event reported May 28, 1992, and incorporated herein by reference.) 10.7 Stock Purchase Agreement dated May 28, 1992 between Registrant and a limited number of accredited investors at $0.50 per share totaling 3,200,000 shares of common stock. (Filed as Exhibit 4(d) to the Registrant's Current Report on Form 8-K dated June 11, 1992, date of earliest event reported May 28, 1992, and incorporated herein by reference.) 10.8 Series 1 Warrants for shares of Common Stock issued to Edison Venture Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit 4(ad) to the Registrant's Quarterly Report on Form 10-Q with respect to the quarter ended June 30, 1994 and incorporated herein by reference.) 10.9 Registration Rights Agreement between Registrant and Edison Venture Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit 4(af) to the Registrant's Quarterly Report on Form 10-Q with respect to the quarter ended June 30, 1994 and incorporated herein by reference.)
10-K40551st Page of 52TOC1stPreviousNextBottomJust 51st
10.10 Amendment dated February 23, 1996 to Registration Rights Agreement between Registrant and Edison Venture Fund II, L.P. and Edison Venture Fund II-PA, L.P. (Filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.) 10.11 Investment Agreement dated as of August 30, 1995 by and among the Registrant, certain subsidiaries of the Registrant and Allied Capital Corporation and its affiliated funds. (Filed as Exhibit 4A to the Registrant's Current Report on Form 8-K dated September 11, 1995, date of earliest event reported August 25, 1995, and incorporated herein by reference.) 10.12 Common Stock Purchase Warrant dated August 30, 1995 entitling Allied Capital Corporation to purchase up to 92,172.25 shares (subject to adjustment) of the Common Stock of the Registrant. (Filed as Exhibit 4C to the Registrant's Current Report on Form 8-K dated September 11, 1995, date of earliest event reported August 25, 1995, and incorporated herein by reference.) Exhibit 10.12 is one in a series of four Common Stock Purchase Warrants issued pursuant to the Investment Agreement dated as of August 30, 1995 that are identical except for the Warrant No., the original holder thereof and the number of shares of Common Stock of the Registrant for which the Warrant may be exercised, which are as follows: [Download Table] Number of Shares of Common Stock Warrant No. Holder (subject to adjustment) ----------- ------ ----------------------- 2 Allied Capital Corporation II 142,932.25 3 Allied Investment Corporation 92,713 4 Allied Investment Corporation II 50,219.5 10.13 Common Stock Purchase Warrant dated as of June 30, 1998 entitling Allied Capital Corporation to purchase up to 531,255 shares (subject to adjustment) of the Common Stock of the Registrant. (Filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 10.14 First Amended and Restated Registration Rights Agreement dated as of June 30, 1998 by and between the Registrant and Allied Capital Corporation. (Filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 10.15 Nobel Education Dynamics, Inc. Executive Severance Pay Plan Statement and Summary Plan Description, Issued February, 1997, as amended on June 11, 1998. (Filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the transitional fiscal year ended June 30, 1998 and incorporated herein by reference.) 10.16 Employment Agreement dated January 25, 1999 between the Registrant and Daryl Dixon. (Filed as Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference.) 10.17 Noncompete Agreement dated as of March 11, 1997 between John R. Frock and the Registrant. (Filed as Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.)
10-K405Last Page of 52TOC1stPreviousNextBottomJust 52nd
10.18 Contingent Severance Agreement dated as of March 11, 1997 between John R. Frock and the Registrant. (Filed as Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.) 21 List of subsidiaries of the Registrant. 23 Consent of PricewaterhouseCoopers L.L.P. 27 Financial Data Schedule

Dates Referenced Herein   and   Documents Incorporated by Reference

Referenced-On Page
This ‘10-K405’ Filing    Date First  Last      Other Filings
5/31/004546
11/18/991DEF 14A
Filed on:9/28/99
9/27/993334
9/17/991
9/15/99316
9/11/9917
9/10/9917
8/2/9935
7/30/9948
For Period End:6/30/99148
3/31/99295110-Q
3/9/992949
1/25/993151
12/31/98284910-Q
9/30/984810-Q
7/1/9817
6/30/98175110-K405
6/11/983151
1/1/9817
12/31/97174810-K405
12/30/97488-K
12/19/97208-K
9/19/9746DEF 14A,  PRE 14A
7/1/972048
6/30/97204410-Q
5/28/9746
3/11/973152
1/1/9717
12/31/96195210-K/A,  10-K405
7/1/962022424B3
6/30/96204910-Q
2/23/963051
12/31/95195110-K,  10-K/A
9/22/9546DEF 14A,  PRE 14A
9/11/9528518-K
8/31/9545
8/30/953051
8/25/9528518-K,  DEF 14A
7/1/952122
12/31/941910-K405
8/22/9446
8/1/9414
6/30/942850
7/20/9346
6/14/932849
6/11/923050
5/29/921314
5/28/923050
4/14/923050
 List all Filings 
Top
Filing Submission 0001036050-99-001975   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
AboutPrivacyRedactionsHelp — Tue., Mar. 19, 2:59:32.2am ET