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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
Commission File Number 1-13722
WHITMAN EDUCATION GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida 22-2246554
- -------------------------------- --------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
4400 Biscayne Boulevard, Miami, Florida 33137
----------------------------------------------------
(Address of Principal Executive Offices)
(305) 575-6510
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _________
Indicate the number of shares outstanding of each of issuer's classes of
common stock, as of the latest practicable date.
As of August 5, 2002, there were 13,961,149 shares of common stock
outstanding.
WHITMAN EDUCATION GROUP, INC.
Form 10-Q
June 30, 2002
TABLE OF CONTENTS
Page
PART I - Financial Information
Item 1. Financial Statements......................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 10
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K............................. 16
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Whitman Education Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, March 31,
2002 2002
------------- -------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents................... $ 15,247,397 $ 14,010,878
Accounts receivable, net.................... 23,543,893 23,425,589
Inventories................................. 1,453,676 1,633,917
Deferred tax assets, net.................... 3,272,192 3,376,197
Other current assets........................ 2,210,225 2,273,607
------------- -------------
Total current assets...................... 45,727,383 44,720,188
Property and equipment, net................... 10,479,402 10,804,417
Deposits and other assets..................... 2,041,518 2,296,002
Goodwill, net................................. 9,288,622 9,288,622
------------- -------------
Total assets.............................. $ 67,536,925 $ 67,109,229
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................ $ 1,372,868 $ 1,716,674
Accrued expenses............................ 6,383,529 6,749,811
Income taxes payable........................ 510,162 -
Current portion of capitalized lease
obligations............................... 1,715,166 1,781,501
Current portion of capital expenditure note
payable................................... 1,300,000 1,300,000
Deferred tuition revenue.................... 22,722,425 23,269,177
------------- -------------
Total current liabilities................. 34,004,150 34,817,163
Capitalized lease obligations................. 2,457,656 2,815,136
Capital expenditure note payable.............. 4,333,333 4,658,333
Deferred tax liability........................ 1,153,049 1,091,960
Stockholders' equity:
Common stock, no par value; authorized
100,000,000 shares; issued 14,369,414
shares at June 30, 2002 and 14,262,648
shares at March 31, 2002; outstanding
13,934,620 shares at June 30, 2002 and
13,827,854 shares at March 31, 2002....... 23,638,436 23,198,153
Additional paid-in capital................. 805,309 805,309
Retained earnings (accumulated deficit).... 1,144,992 (276,825)
------------- -------------
Total stockholders' equity................ 25,588,737 23,726,637
------------- -------------
Total liabilities and stockholders'
equity................................... $ 67,536,925 $ 67,109,229
============= =============
See accompanying notes to financial statements.
3
Whitman Education Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
June 30,
------------------------------
2002 2001
------------- -------------
Net revenues.................................. $ 25,424,115 $ 20,518,116
Costs and expenses:
Instructional and educational support....... 15,058,863 13,742,210
Selling and promotional..................... 3,886,540 3,362,968
General and administrative.................. 4,018,101 3,091,962
------------- -------------
Total costs and expenses...................... 22,963,504 20,197,140
------------- -------------
Income from operations........................ 2,460,611 320,976
Other (income) and expenses:
Interest expense............................ 175,069 268,714
Interest income............................. (104,067) (109,449)
------------- -------------
Income before income tax provision............ 2,389,609 161,711
Income tax provision.......................... 967,792 64,684
------------- -------------
Net income.................................... $ 1,421,817 $ 97,027
============= =============
Net income per share:
Basic....................................... $ 0.10 $ 0.01
============= =============
Diluted..................................... $ 0.09 $ 0.01
============= =============
Weighted average common shares outstanding:
Basic ...................................... 13,919,993 13,648,779
============= =============
Diluted..................................... 15,410,777 13,879,583
============= =============
See accompanying notes to financial statements.
4
Whitman Education Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
June 30,
------------------------------
2002 2001
------------- -------------
Cash flows from operating activities:
Net income..................................... $ 1,421,817 $ 97,027
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation and amortization............... 894,336 984,210
Bad debt expense............................ 1,358,756 1,121,434
Deferred tax provision...................... 165,094 -
Changes in operating assets and liabilities:
Accounts receivable....................... (1,477,060) (1,171,910)
Inventories............................... 180,241 60,183
Other current assets...................... 63,382 (33,827)
Deposits and other assets................. 254,484 (217,653)
Accounts payable.......................... (343,806) (964,350)
Accrued expenses.......................... (61,012) 297,349
Income taxes payable...................... 510,162 55,063
Deferred tuition revenue.................. (546,752) (326,689)
------------- -------------
Net cash provided by (used in) operating
activities................................... 2,419,642 (99,163)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment............. (523,699) (416,076)
------------- -------------
Net cash used in investing activities.......... (523,699) (416,076)
------------- -------------
Cash flows from financing activities:
Proceeds from line of credit and long-term
debt......................................... - 5,746,081
Principal payments on line of credit, long-term
debt and capital lease obligations........... (794,437) (8,135,370)
Proceeds from purchases in stock purchase plan
and exercise of options...................... 135,013 29,501
------------- -------------
Net cash used in financing activities.......... (659,424) (2,359,788)
------------- -------------
Increase (decrease) in cash and cash
equivalents.................................. 1,236,519 (2,875,027)
Cash and cash equivalents at beginning of year. 14,010,878 5,892,779
------------- -------------
Cash and cash equivalents at end of period..... $ 15,247,397 $ 3,017,752
============= =============
Supplemental disclosures of noncash financing
and investing activities:
Equipment acquired under capital leases........ $ 45,622 $ 220,612
============= =============
Value of stock issued for 401(k) employee
match........................................ $ 305,270 $ -
============= =============
Supplemental disclosures of cash flow
information:
Interest paid.................................. $ 175,069 $ 268,714
============= =============
Income taxes paid.............................. $ 107,998 $ -
============= =============
See accompanying notes to financial statements.
5
Whitman Education Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. General
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and, in the
opinion of management, include all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of financial position and the results
of operations and cash flows for the periods presented. However, the financial
statements do not include all information and footnotes required for a
presentation in accordance with accounting principles generally accepted in the
United States of America. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included or incorporated by reference in our Form 10-K for the
fiscal year ended March 31, 2002. The results of operations for the interim
periods are not necessarily indicative of the results of operations to be
expected for the full year.
The accompanying financial statements include the accounts of Whitman
Education Group, Inc., and its wholly-owned subsidiaries, Ultrasound Technical
Services, Inc. ("Ultrasound Diagnostic Schools"), Sanford Brown College, Inc.
("Sanford-Brown College") and CTU Corporation ("Colorado Technical University").
All intercompany accounts and transactions have been eliminated. Hereafter,
references to "Whitman" shall include collectively Whitman Education Group, Inc.
and its operating subsidiaries, Ultrasound Diagnostic Schools, Sanford-Brown
College and Colorado Technical University.
Whitman experiences seasonality in its quarterly results of operations as a
result of changes in the level of student enrollment. New enrollment in
Whitman's schools tends to be lower in the first and second fiscal quarters
covering the summer months which are traditionally associated with recess from
school. Costs are generally not significantly affected by seasonal factors on a
quarterly basis. Accordingly, quarterly variations in net revenues will result
in fluctuations in income from operations on a quarterly basis.
6
Whitman Education Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)-(Continued)
2. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
For the Three Months
Ended June 30,
----------------------------
2002 2001
------------- -------------
Numerator:
Net income................................... $ 1,421,817 $ 97,027
============= =============
Denominator:
Denominator for basic earnings per share -
weighted average shares..................... 13,919,993 13,648,779
Effect of dilutive securities:
Employee stock options....................... 1,490,784 230,804
------------- -------------
Dilutive potential common shares............. 1,490,784 230,804
Denominator for diluted
earnings per share -
adjusted weighted -
average shares and assumed conversions... 15,410,777 13,879,583
============= =============
Basic net income per share..................... $ 0.10 $ 0.01
============= =============
Diluted net income per share................... $ 0.09 $ 0.01
============= =============
3. New Accounting Pronouncement
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 requires that one
accounting model be used for long-lived assets to be disposed of by sale and
broadens the presentation of discontinued operations to include more disposal
transactions. SFAS 144 supercedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions" for
the disposal of a segment of a business. The adoption of SFAS 144, which was
effective April 1, 2002, did not have an impact on Whitman's financial position
or results of operations.
7
Whitman Education Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)-(Continued)
4. Net Income Per Common Share
Basic net income per common share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income per
share is computed using the weighted average number of common and common
equivalent shares outstanding during the period.
5. Comprehensive Income
Whitman complies with the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes rules for the reporting and display of comprehensive income and its
components. SFAS 130 requires unrealized gains or losses on available-for-sale
securities to be included in "other comprehensive income."
For the three months ended June 30, 2002 and June 30, 2001, total
comprehensive income was $1,421,817 and $97,027, respectively.
6. Segment and Related Information
Whitman complies with the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers.
Whitman is organized into two reportable segments, the University Degree
Division and the Associate Degree Division. The University Degree Division
primarily offers bachelor, master and doctorate degrees through Colorado
Technical University. The Associate Degree Division primarily offers associate
degrees and diplomas or certificates through Sanford-Brown College and
Ultrasound Diagnostic Schools.
Whitman's revenues are not materially dependent on a single customer or
small group of customers.
8
Whitman Education Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)-(Continued)
6. Segment and Related Information - (Continued)
Summarized financial information concerning Whitman's reportable segments
is shown in the following table:
For the Three Months Ended
June 30,
----------------------------
2002 2001
------------- -------------
Net revenues:
Associate Degree Division.................... $ 19,971,284 $ 15,288,208
University Degree Division................... 5,452,831 5,229,908
------------- -------------
Total........................................ $ 25,424,115 $ 20,518,116
============= =============
Income before income tax provision:
Associate Degree Division.................... $ 2,684,996 $ 68,855
University Degree Division................... 267,512 704,424
Other........................................ (562,899) (611,568)
------------- -------------
Total........................................ $ 2,389,609 $ 161,711
============= =============
June 30, March 31,
2002 2002
------------- -------------
Total assets:
Associate Degree Division.................... $ 53,154,526 $ 52,696,673
University Degree Division................... 8,570,647 10,773,292
Other........................................ 5,811,752 3,639,264
------------- -------------
Total........................................ $ 67,536,925 $ 67,109,229
============= =============
9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of Whitman, the related notes to the
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in Whitman's Form 10-K
for the year ended March 31, 2002 and the condensed consolidated financial
statements and the related notes to the condensed consolidated financial
statements included in Item 1 of this Quarterly Report on Form 10-Q. Except for
the historical matters contained herein, statements made in this report are
forward-looking and are made pursuant to the safe harbor provisions of the
Securities Litigation Reform Act of 1995. Such statements may include, but are
not limited to, statements regarding Whitman's financing needs and plans for
future resources, working capital and operations. Investors are cautioned that
forward-looking statements involve risks and uncertainties, including, but not
limited to, regulatory, licensing and accreditation risks inherent in operating
proprietary postsecondary educational institutions, (including risks relating to
the continued eligibility of our schools to receive funds under Title IV
Programs), risks relating to the recoverability of our goodwill and the
realization of our deferred tax assets, and risks and uncertainties relating to
the availability of financing which may cause our actual results, performance or
achievements to differ materially from the results expressed in the
forward-looking statements made in this report. Other factors that may affect
our future results include certain economic, competitive, governmental and other
factors discussed in our filings with the Securities and Exchange Commission. We
assume no responsibility to update forward-looking statements made herein or
otherwise.
10
Results of Operations
The following table sets forth the percentage relationship of certain
statement of operations data to net revenues for the periods indicated:
For the Three Months Ended
June 30,
----------------------------------
2002 2001
--------------- ---------------
Net revenues................................ 100.0% 100.0%
Costs and expenses:
Instructional and educational support..... 59.2 67.0
Selling and promotional................... 15.3 16.4
General and administrative................ 15.8 15.0
--------------- ---------------
Total costs and expenses................... 90.3 98.4
--------------- ---------------
Income from operations..................... 9.7 1.6
Other (income) and expenses:
Interest expense...................... 0.7 1.3
Interest income....................... (0.4) (0.5)
--------------- ---------------
Income before income tax provision......... 9.4 0.8
Income tax provision....................... 3.8 0.3
--------------- ---------------
Net income ................................ 5.6% 0.5%
=============== ===============
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30,
2001
Net revenues increased by $4.9 million or 23.9% to $25.4 million for the
three months ended June 30, 2002 from $20.5 million for the three months ended
June 30, 2001. This increase was primarily due to a 9.8% increase in average
student enrollment and an increase in tuition rates.
The Associate Degree Division experienced an 18.6% increase in average
student enrollment and the University Degree Division experienced a 6.5%
decrease in average student enrollment. The increase in student enrollment in
the Associate Degree Division was primarily due to increased enrollment in the
medical assisting program and the health information specialist program offered
by the Ultrasound Diagnostic Schools and the allied health programs offered at
Sanford-Brown College. The decrease in student enrollment in the University
Degree Division was primarily due to a decline in enrollment in the information
technology programs offered at Colorado Technical University. The decrease in
average student enrollment in the University Degree Division was offset by an
increase in the revenue earned per student due to an increase in the number of
credit hours taken by students at Colorado Technical University.
11
Results of Operations - (Continued)
Instructional and educational support expenses increased by $1.3 million or
9.6% to $15.0 million for the three months ended June 30, 2002 from $13.7
million for the three months ended June 30, 2001. As a percentage of net
revenues, instructional and educational support expenses decreased to 59.2% for
the three months ended June 30, 2002 as compared to 67.0% for the three months
ended June 30, 2001. The increase in instructional and educational support
expenses was primarily due to an increase in payroll expenses and related
benefits for faculty, academic administrators and student support personnel to
support the increase in enrollment. The decrease in instructional and
educational support expenses as a percentage of net revenues was due to our
ability to better leverage our instructional and educational support expenses to
support an increased revenue base.
Selling and promotional expenses increased by $0.5 million or 15.6% to $3.9
million for the three months ended June 30, 2002 from $3.4 million for the three
months ended June 30, 2001. As a percentage of net revenues, selling and
promotional expenses decreased to 15.3% for the three months ended June 30, 2002
as compared to 16.4% for the three months ended June 30, 2001. The increase in
selling and promotional expenses was primarily due to an increase in advertising
expenses in the Associate Degree Division resulting from our marketing efforts
directed at increasing enrollment. The decrease in selling and promotional
expenses as a percentage of net revenues was due to our ability to better
leverage such expenses while supporting a growth in revenues.
General and administrative expenses increased by $0.9 million or 30.0% to
$4.0 million for the three months ended June 30, 2002 from $3.1 million for the
three months ended June 30, 2001. As a percentage of net revenues, general and
administrative expenses increased to 15.8% for the three months ended June 30,
2002 as compared to 15.0% for the three months ended June 30, 2001. The increase
in general and administrative expenses was primarily due to an increase in
administrative payroll expenses and related benefits and an increase in bad debt
expense. As a percentage of net revenues, however, bad debt expense decreased to
5.3% for the three months ended June 30, 2002 from 5.5% for the three months
ended June 30, 2001.
We reported income from operations of $2.5 million for the three months
ended June 30, 2002 as compared to income from operations of $0.3 million for
the three months ended June 30, 2001. This increase in profitability was
primarily due to an increase in income from operations of $2.6 million in the
Associate Degree Division which was partially offset by a decrease in income
from operations of $0.4 million in the University Degree Division.
We reported net income of $1.4 million and $0.1 million for the three
months ended June 30, 2002 and 2001, respectively. The increase in net profits
was primarily due to the increase in profitability in the Associate Degree
Division.
Seasonality
We experience seasonality in our quarterly results of operations as a
result of changes in the level of student enrollment. New enrollment in our
schools tends to be lower in the first and second fiscal quarters covering the
summer months which are traditionally associated with recess from school. Costs
are generally not significantly affected by the seasonal factors on a quarterly
basis. Accordingly, quarterly variations in net revenues will result in
fluctuations in income from operations on a quarterly basis.
12
Liquidity and Capital Resources
Cash and cash equivalents at June 30, 2002 and March 31, 2002 were $15.2
million and $14.0 million, respectively. Our working capital totaled $11.7
million at June 30, 2002 and $9.9 million at March 31, 2002.
Net cash of $2.4 million was provided by operating activities for the three
months ended June 30, 2002 compared to net cash of $0.1 million used in
operating activities for the three months ended June 30, 2001. The increase in
cash provided by operating activities of $2.5 million was primarily due to an
increase in net profits of $1.3 million and an increase in income taxes payable
of $0.5 million.
Net cash of $0.5 million and $0.4 million were used in investing activities
for the three months ended June 30, 2002 and 2001, respectively. The net cash
used in investing activities related to the purchase of property and equipment.
Net cash of $0.7 million and $2.4 million were used in financing activities
for the three months ended June 30, 2002 and 2001, respectively. The net cash
used in financing activities related to principal payments made on our long-term
debt, line of credit and capital lease obligations net of proceeds received from
such financings, and proceeds received from purchases in our employee stock
purchase plan and from the exercise of stock options. The decrease in cash used
in financing activities was due to a decrease of $1.6 million in net payments on
long-term debt and capitalized lease obligations.
At March 31, 2002, we had a $2.0 million line of credit which was scheduled
to expire on October 31, 2002. In June 2002, we increased the line of credit to
$3.5 million and extended the expiration date to October 31, 2003. At June 30,
2002, we had no outstanding balance under this facility and letters of credit
outstanding of $0.5 million which reduced the amount available for borrowing.
Our primary source of operating liquidity is the cash received from
payments of tuition and fees. Most students attending our schools receive some
form of financial aid under Title IV Programs. Approximately 65% of our cash
collections are from students who received funds from Title IV Programs.
Disbursements under each program are subject to disallowance and repayment by
the schools. Because a significant percentage of our revenue is derived from the
Title IV Programs, any legislative or regulatory action that significantly
reduces Title IV Program funding or the ability of our schools or students to
participate in the Title IV Programs could have a material adverse effect on our
short-term and long-term liquidity.
We believe that with our working capital, our cash flow from operations,
and our line of credit, we will have adequate resources to meet our anticipated
operating requirements for the foreseeable future.
13
Contractual Obligations and Other Commercial Commitments
The following summarizes our contractual obligations at June 30, 2002, and
the effect such obligations are expected to have on our liquidity and cash flow
in future periods (in thousands):
Payments Due by Period
-------------------------------------------------------------
Within After
Total 1 Year 2-3 Years 4-5 Years 5 Years
---------- ---------- ----------- ---------- -----------
Note Payable $ 5,633 $ 1,300 $ 2,600 $ 1,733 $ -
Capital Lease
Obligations 4,173 1,709 2,024 440 -
Operating Leases 29,831 5,705 9,871 7,391 6,864
---------- ---------- ----------- ---------- -----------
$ 39,637 $ 8,714 $ 14,495 $ 9,564 $ 6,864
========== ========== =========== ========== ===========
We have a contractual commitment related to a $3.5 million line of credit
which expires on October 31, 2003. At June 30, 2002, we had no outstanding
balance under this facility and letters of credit outstanding of $0.5 million,
which reduced the amount available for borrowing.
Transactions with Former Management
We purchase certain textbooks and materials for resale to our students from
an entity that is 40% owned by Randy S. Proto, our former Chief Operating
Officer and President. For the three months ended June 30, 2002 and 2001, we
purchased approximately $60,000 and $23,000, respectively, in textbooks and
materials from that entity.
Critical Accounting Policies and Estimates
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 to the Consolidated Financial Statements of Whitman
Education Group, Inc. for the fiscal year ended March 31, 2002 included in our
Form 10-K as filed with the Securities and Exchange Commission includes a
summary of the significant accounting policies and methods used in the
preparation of our Consolidated Financial Statements. The following is a brief
discussion of the more significant accounting policies and methods used by us.
Our discussions and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. On an on-going basis, we evaluate our
estimates, including those related to allowance for doubtful accounts,
intangible assets, accrued liabilities, income and other tax accruals, and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
14
Critical Accounting Policies and Estimates - (Continued)
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
conditions or if our assumptions change.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements:
o We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability, failure or refusal of our students to
make required payments. We determine the adequacy of this allowance by
regularly reviewing the accounts receivable aging and applying various
expected loss percentages to certain student account receivable
categories based on historical bad debt experience. We charge-off
accounts receivable balances deemed to be uncollectible usually after
they have been sent to a collection agency and returned uncollected.
While such losses have historically been within our expectations,
there can be no assurance that we will continue to experience the same
level of losses that we have in the past. Furthermore, because a
significant percentage of our revenue is derived from the Title IV
Programs, any legislative or regulatory action that significantly
reduces Title IV Program funding or the ability of our schools or
students to participate in the Title IV Programs could have a material
adverse effect on the collectability of our accounts receivable and
our future operating results, including a reduction in future revenues
and additional allowances for doubtful accounts.
o We have made acquisitions in the past that have resulted in the
recognition of goodwill. In assessing the recoverability of our
goodwill, we must make assumptions regarding estimated future cash
flows and other factors to determine the fair value of the respective
asset. If these estimates or their related assumptions change in the
future, we may be required to record impairment charges for this asset
not previously recorded which would adversely impact our operating
results for the period in which we made the determination. There are
many assumptions and estimates underlying the determination of an
impairment loss. Another estimate using different, but still
reasonable, assumptions could produce a significantly different
result. Therefore, impairment losses could be recorded in the future.
o We currently have deferred tax assets which are subject to periodic
recoverability assessments. Realization of our deferred tax assets is
principally dependent upon achievement of projected future taxable
income. We evaluate the realizability of our deferred tax assets
quarterly.
15
New Accounting Pronouncement
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 requires that one
accounting model be used for long-lived assets to be disposed of by sale and
broadens the presentation of discontinued operations to include more disposal
transactions. SFAS 144 supercedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions" for
the disposal of a segment of a business. The adoption of SFAS 144, which was
effective April 1, 2002, did not have an impact on our financial position or
results of operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit
Number Description Method of Filing
------- ------------ ----------------
10.13 Letter Agreement dated March 19, 2002 by and Filed herewith.
between Merrill Lynch Business Financial
Services, Inc. and Whitman Education Group,
Inc.
99.1 Certification of Chief Executive Officer Filed herewith.
99.2 Certification of Chief Financial Officer Filed herewith.
(b) Reports on Form 8-K
--------------------
On May 13, 2002, Whitman furnished a Current Report on Form 8-K. In that
report, Whitman furnished information relating to a presentation to investors
pursuant to Item 9 of Form 8-K and Regulation FD. The information contained in
that Current Report on Form 8-K shall not be construed to be included herein.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITMAN EDUCATION GROUP, INC.
By: /s/ FERNANDO L. FERNANDEZ
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Fernando L. Fernandez
Vice President - Finance,
Chief Financial Officer,
Treasurer and Secretary
Date: August 7, 2002
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