UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
Annual
Report Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
For the
Fiscal Year Ended December 31, 2004
Commission
file number 0-16992
CONCORDE
CAREER COLLEGES, INC.
(Exact
name of registrant as specified in its charter)
5800
Foxridge Drive, Suite 500
Mission,
Kansas 66202
Telephone:
(913) 831-9977
Incorporated
in the State of Delaware
43-1440321
(I.R.S.
Employer Identification No.)
Securities
registered pursuant to Section 12(g) of the Act:
TITLE
OF CLASS
Common
Stock, $.10 par value
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), (2) has been subject to such filing requirements for the
past 90 days, and (3) is an accelerated filer (as defined by Rule 12 b-2 of the
Exchange Act).
(1)
Yes [ X ] No
[ ] (2)
Yes [ X ] No
[ ] (3)
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 ]
Indicate
the number of outstanding shares of the Registrant’s Common Stock, as of March
8, 2005:
5,977,908
Shares of Common Stock, $.10 par value
The
aggregate market value of Voting Securities (including Common Stock and Class B
Voting Convertible Preferred Stock), held by non-affiliates of the Registrant
was approximately $53,995,993 as of March 8, 2005. Part III incorporates
information by reference to the Registrant’s definitive proxy statement for
Annual Meeting of Stockholders to be held May 26, 2005.
CONCORDE
CAREER COLLEGES, INC.
FORM
10-K
YEAR
ENDED DECEMBER 31, 2004
| Item |
Index |
Page |
| |
Introduction
and Note on Forward Looking Statements |
I-1 |
| |
PART
I |
|
|
1.
|
Business |
I-1 |
|
2.
|
Properties |
I-11 |
|
3.
|
Legal
Proceedings |
I-11 |
|
4.
|
Submission
of Matters to a Vote of Security Holders |
I-11 |
PART
II
| 5. |
Market
for Registrant’s Common Equity, Related Stockholders Matters and Issuer
Purchases of Equity Securities |
II-1 |
| |
|
|
|
6.
|
Selected
Financial Data |
II-2 |
| |
|
|
|
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations |
II-3 |
| |
|
|
|
7a.
|
Quantitative
and Qualitative Disclosures about Market Risk |
II-14 |
| |
|
|
|
8.
|
Financial
Statements and Supplementary Data |
II-15 |
| |
|
|
|
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure |
II-34 |
| |
|
|
|
9a. |
Controls
and Procedures |
II-34 |
| |
|
|
|
9b. |
Other
Information |
II-34 |
PART
III
|
10.
|
Directors
and Executive Officers of the Registrant |
III-1 |
| |
|
|
|
11.
|
Executive
Compensation |
III-1 |
| |
|
|
|
12.
|
Security
Ownership of Certain Beneficial Owners and Management |
III-1 |
| |
|
|
|
13.
|
Certain
Relationships and Related Transactions |
III-1 |
| |
|
|
|
14.
|
Principal
Accountant Fees and Services |
III-1 |
PART
IV
|
15.
|
Exhibits,
Financial Statement Schedules, and Reports on Form 8-K |
IV-1 |
| |
|
|
|
|
Signatures |
IV-3 |
| |
|
|
| |
Exhibit
31-1 |
IV-4 |
| |
|
|
| |
Exhibit
31-2 |
IV-5 |
| |
|
|
| |
Exhibit
32-1 |
IV-6 |
| |
|
|
| |
Exhibit
32-2 |
IV-7 |
Introduction
and Note on Forward Looking Statements
The
discussion set forth below, as well as other portions of this Form 10-K, may
contain forward-looking comments. Such comments are based upon information
currently available to management and management’s perception thereof as of the
date of this Form 10-K and may relate to: (i) the ability of the Company to
realize increased enrollments from investments in infrastructure made over the
past year; (ii) the U.S. Department of Education’s (“ED’s”) enforcement or
interpretation of existing statutes and regulations affecting the Company’s
operations; and (iii) the sufficiency of the Company’s working capital,
financing and cash flow from operating activities for the Company’s future
operating and capital requirements. Actual results of the Company’s operations
could materially differ from those forward-looking comments. The differences
could be caused by a number of factors or combination of factors including, but
not limited to, potential adverse effects of regulations; impairment of federal
funding; adverse legislative action; student loan defaults; changes in federal
or state authorization or accreditation; changes in market needs and technology;
changes in competition and the effects of such changes; changes in the economic,
political or regulatory environments; litigation involving the Company; changes
in the availability of a stable labor force; or changes in management
strategies. Readers should take these factors into account in evaluating any
such forward-looking comments. The following should be read in conjunction with
Part II, Item 7 - Safe Harbor Statement.
The
forward-looking statements are qualified by important factors that could cause
actual results to differ materially from those in the forward-looking
statements, including, without limitation, the following: (i) the Company’s
plans, strategies, objectives, expectations and intentions are subject to change
at anytime at the discretion of the Company; (ii) the effect of economic
conditions in the postsecondary education industry and in the nation as a whole;
(iii) the effect of the competitive pressures from other educational
institutions; (iv) the Company’s ability to reduce staff turnover and the
attendant operating inefficiencies; (v) the effect of government statutes and
regulations regarding education and accreditation standards, or the
interpretation or application thereof, including the level of government funding
for, and the Company’s eligibility to participate in, student financial aid
programs; and (vi) the role of ED and Congress, and the public’s perception of
for-profit education as it relates to changes in education regulations in
connection with the reauthorization or the interpretation or enforcement of
existing regulations.
Also see
Part II Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations - Current Trends and Recent Events, and Liquidity and
Capital Resources.”
Documents
Incorporated By Reference
Portions
of the Company’s definitive Proxy Statement for the 2005 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
not later than 120 days after December 31, 2004, are incorporated by reference
into Part III of this report.
PART
I
Item
1. Business
Overview
The
Company owns and operates proprietary, postsecondary institutions that offer
career vocational training programs in the allied health field. The Company
serves the segment of population seeking to acquire a career-oriented education.
The Campuses generally enjoy long operating histories and strong franchise value
in their local markets. As of December 31, 2004, the Company operated Campuses
at 12 locations in seven states (the “Campuses”).
The
Company was formed in 1988 as a Delaware corporation. Prior to March 31, 1988,
the Company was the career college division of CenCor, Inc. (“CenCor”). The
Company’s principal office is located at 5800 Foxridge Drive, Suite 500,
Mission, Kansas 66202 (telephone: (913) 831-9977). Unless otherwise indicated,
the term “Company” refers to Concorde Career Colleges, Inc. and its direct
wholly owned subsidiaries.
Available
Information on Website
The
Company’s website is located at http://www.concorde.edu. The
Company’s filings are all placed on the Company’s website within a reasonable
time after the filing is completed with the SEC.
The
Campuses
The
Company’s twelve Campuses are located in the following cities: North Hollywood,
Garden Grove, San Bernardino, and San Diego, California; Aurora, Colorado;
Lauderdale Lakes, Jacksonville, and Tampa, Florida; Kansas City, Missouri;
Portland, Oregon; Memphis, Tennessee; and Arlington, Texas. The Company has
designated each Campus except Memphis, as a “Concorde Career Institute,” to
increase name recognition. The Memphis, Tennessee Campus has been designated as
“Concorde Career College.”
The
Company's programs of study are intended to provide students with the requisite
knowledge and job skills for the positions in their chosen career. The programs
are Vocational/Practical Nursing, Respiratory Therapist, Advanced Respiratory
Therapist, Surgical Technician, Pharmacy Technician, Radiology Technician,
Medical Administrative Assistant, Medical Office Professional, Medical
Assistant, Insurance Coding and Billing Specialist, Dental Assistant, Patient
Care Technician, and Massage Therapy. Program offerings vary by Campus. The
Garden Grove, San Bernardino, Kansas City, North Hollywood and Memphis Campuses
offer selected associate degree programs. Campuses utilize different program
titles pursuant to state regulations. In addition, certain Campuses offer
selected short term courses/programs, including Limited X-Ray, Expanded Duties
for Dental Assistants, Clinical Assistant, Patient Care Assistant, Home Health
Aide, and various certification test preparations in allied health
occupations.
The
Company’s five largest programs represented approximately 80% of the student
population at December 31, 2004. The programs and their percentage of the
student population at December 31, 2004 are Medical Assistant 31%, Vocational
Nursing/Practical Nursing 18%, Dental Assistant 16%, Insurance Coding and
Billing Specialist 13%, and Surgical Technology/Technologist 4%. Each of the
remaining programs represented less than 4% of the student
population.
The
Campuses utilize a non-traditional academic calendar with program start dates
varying by location and type of program. Programs typically commence monthly at
most Campuses. Programs of study range from five to eighteen months and include
from 400 to 2,985 hours of instruction. Programs are generally taught in a
classroom atmosphere, with hands-on clinical and/or laboratory experience as an
integral part of the curriculum. Programs generally include an externship
immediately prior to graduation, varying in duration from four to twelve weeks,
depending on the program.
Clinical
programs (Surgical Technology, Respiratory Therapy, Radiologic Technology, and
Practical/Vocational Nurse) are generally 12 to 15 months in length. The weekend
Vocational Nursing program and Radiological Technician are longer, 18 and 24
months respectively. Clinical programs utilize clinical training that occurs in
a hospital or medical facility.
Core
programs (Medical Assistant, Dental Assistant, Massage Therapy, Medical Office
Professional, Patient Care Technician, Pharmacy Technician, Patient Care
Assistant, Health Unit Coordinator, and Insurance Coding and Billing Specialist)
are generally 9 to 12 months in length and utilize an externship immediately
prior to graduation. Externships occur in medical offices, dental offices,
medical and dental clinics, medical facilities, and hospitals.
Program
advisory committees provide ideas, evaluate and recommend improvements to the
curriculum for each program. Advisory committees meet twice a year and are
comprised of local industry and business professionals. Advisory committee
members provide valuable input regarding changes in the program and suggest new
technologies and other factors that may enhance curriculum.
Recruitment
and Admissions
A typical
student is either: (i) unemployed and enrolls to learn new skills and obtain
employment or (ii) underemployed and enrolls to acquire new skills or to update
existing skills to increase his/her earning capacity. Students are recruited
through advertising in various media, including television, newspapers,
Internet, and direct mail. Management estimates that approximately 38% of all
enrollments during 2004 were the result of referrals from students and
graduates. Referrals accounted for approximately 37% of enrollment during
2003.
Each
Campus maintains an Admissions Department that is responsible for conducting
admissions interviews with potential applicants to provide information regarding
the programs and to assist with the application process. In addition, each
applicant for enrollment must take and pass an entrance examination administered
by persons other than admissions representatives. The entrance examination and
interview are designed to determine the student's ability to benefit from the
instruction provided by the Campus and the student's level of motivation to
complete the program.
The
admissions criteria vary according to the program of study. Each applicant for
enrollment must have a high school diploma or the equivalent of a high school
diploma. Some Campuses accept students without a high school diploma or
equivalent; however, the student must demonstrate the ability to benefit from
the program by meeting United States Department of Education (“ED”) requirements
before admission is granted. All students must be beyond the age of compulsory
high school attendance. The Company utilizes a database maintained by ED to
identify applicants who may be in default on a prior student loan.
The
Company had 5,148 students in attendance at the Campuses at December 31, 2004
compared to 5,732 at December 31, 2003.
Student
Retention
The
Company strives to help students complete their program of study through
admissions screening, financial planning and student services. Each Campus has
at least one staff member whose function is to provide student services
concerning academic and personal problems that might disrupt or result in a
premature end to a student’s studies. Programs of study are offered in the
morning, afternoon, and evening to meet the students’ scheduling needs. Campuses
do not offer all programs at all times. The Vocational Nursing Program and a few
other programs are offered on a limited basis during weekends at some
Campuses.
If a
student terminates enrollment prior to completing a program, federal and state
regulations permit the Company to retain only a certain percentage of the total
tuition, which varies with, but generally equals or exceeds, the percentage of
the program completed. Amounts received by the Company in excess of such set
percentage of tuition are refunded to the student or the appropriate funding
source. See “Financing Student Education,” and “Regulation” below.
The
President and Chief Executive Officer (the “CEO”) is responsible for the overall
performance of the Campuses. Reporting to him are the following Vice Presidents:
Chief Financial Officer, Human Resources; Campus Operations; Marketing and
Strategic Development; Academic Affairs; and Compliance.
The
Company changed its organizational structure during the fourth quarter of 2004
and created a regional structure designed to provide focused support to
campuses. Four new positions were created: Vice President of Campus Operations,
Regional Director of Operations - Eastern Region, Regional Director of
Operations - Western Region and Regional Admissions Director.
The
Company maintains a strict focus on compliance in all areas of campus
management. Campuses are divided into two divisions, East and West reporting to
their respective Regional Director of Operations. In addition, the Company
utilizes a variety of staff to review, train and support Campus programs and
personnel. These include admissions staff (regional and national), nursing
directors and specialists, internal compliance staff, financial aid specialists,
and academic specialists. Other corporate staff are utilized to train and
supplement Campus staff when needed.
Student
Placement
The
Company, through placement personnel at each Campus, provides job placement
assistance for graduates. The placement personnel establish and maintain contact
with local employers and other sources of information on positions available in
the local area. Additionally, the Director of Graduate Services works with
students on preparing resumes and interviewing techniques. Postgraduate
placement assistance is also provided, including referral to other cities in
which Campuses are located. Frequently, the externship programs result in
placement of students with the practitioners participating in the
externship.
Accreditation
and Licensing
The
Company and its campuses are subject to numerous regulations including
oversight, approvals and licensing by the Department of Education, accrediting
agencies, state education bodies and program specific agencies. ED authorizes
legislation regarding student loans, grants and other funding. In addition, ED
approves accrediting agencies and conducts periodic compliance reviews of
institutions. Accrediting agencies verify that institutions meet specific
standards established by the respective agency including completion and
placement rates. State education bodies approve institutions eligibility to
operate in their state, process student complaints and provide oversight
concerning state education regulations. Program specific agencies provide
oversight and approval for certain programs such as Vocational / Practical
Nursing, Respiratory Therapy, Radiologic Technology, and Surgical
Technologist.
The
Campuses are accredited through accreditation associations recognized by ED.
These associations are the Accrediting Commission of Career Schools and Colleges
of Technology (“ACCSCT”), the Council on Occupational Education (“COE”) and the
Accrediting Bureau of Health Education Schools (“ABHES”). The Memphis, Tennessee
Campus is accredited by COE. The Arlington, Texas Campus is accredited by ABHES.
The remaining Campuses are accredited by ACCSCT. Accreditation by an accrediting
body recognized by ED is necessary for a Campus to be eligible to participate in
federally sponsored financial aid programs. See “Financing Student
Education.”
Certain
Campuses have received accreditation or approval for specific programs from the
following agencies: The American Society of Health Systems Pharmacists,
Commission on Accreditation of Allied Health Education Programs, Joint Review
Committee on Education in Radiologic Technology, Committee on Accreditation for
Respiratory Care, the Commission on Dental Accreditation, the Committee on
Dental Auxiliaries-California Board of Dental Examiners, Accreditation Review
Committee on Education in Surgical Technology, the California Board of
Vocational Nurse and Psychiatric Technician Examiners, Colorado Board of
Nursing, Texas Board of Nursing, Florida Board of Nursing, and the Missouri
Board of Nursing. Program specific accreditation/approvals are not necessary for
participation in federally sponsored financial aid programs; however, they are
required for certification and/or licensure of graduates from some programs,
such as the Vocational or Practical Nurse and Respiratory Therapy programs
offered by some of the Campuses. These accreditations or approvals have been
obtained because management believes they enhance the students’ employment
opportunities in those states that recognize the accrediting
agencies.
The
qualifications of faculty members are regulated by applicable accreditation
associations and / or agencies. Faculty members teaching certain curriculum must
meet standards set by applicable state licensing laws.
Each
Campus is licensed as an educational institution under applicable state and
local laws, and is subject to a variety of state and local regulations. These
regulations may include approval of the curriculum, faculty and general
operations.
Financing
Student Education
Tuition
and other ancillary fees vary from program to program, depending on the subject
matter and length of the program. The total cost per program ranges from
approximately $6,000 to $25,000.
Most
students attending the Campuses utilize federal government grants and / or the
Federal Family Education Loan programs available under the Higher Education Act
of 1965 (“HEA”), and various programs administered thereunder to finance their
tuition.
Each
Campus has at least one financial aid officer to assist students in preparing
applications for federal grants and federal loans. Management estimates that
during 2004, 79% of cash receipts were derived from funds obtained by students
through these programs.
Currently,
each Campus is an eligible institution for some or all of the following
federally funded programs: Federal Pell Grant (Pell), Federal Supplemental
Education Opportunity Grant (SEOG), Federal Perkins Loan, Federal Parent Loan
for Undergraduate Students (PLUS), Federal Subsidized Stafford Loan, Federal
Unsubsidized Stafford Loan, and Veterans benefits. Also, some students are
eligible for assistance under the Department of Labor's Workforce Investment
Act.
The
states of California, Colorado, Tennessee, Florida, Oregon, and Texas each offer
state grants to students enrolled in educational programs of the type offered by
the Campuses. Typically, many restrictions apply in qualifying and maintaining
eligibility for participation in these state programs.
Students
principally rely on a combination of two Federal programs: Federal Pell Grants
and Federal Family Education Loans (FFELs) also referred to as Federal
Subsidized Stafford, Unsubsidized Stafford, and PLUS loans. Federal Subsidized
Stafford Loans are need based and awarded annually to students studying at least
half time at an approved postsecondary educational institution. The maximum Pell
Grant a student may receive for the 2004-2005 award year is $4,050. The amount a
student actually receives is based on a federal regulatory formula devised by
ED. The Company received 26.9% or $21,070,000 of its cash receipts from Pell
Grants in 2004 compared to 29.3% or $21,643,000 in 2003.
FFELs are
low interest federal student loans provided by banks and other lending
institutions, the repayment of which is fully guaranteed as to principal and
interest by the federal government through a guarantee agency. The student pays
no interest on a Subsidized Stafford Loan while in school and for a grace period
(up to six months); on unsubsidized loans, interest accrues but is capitalized
and added to the principal. Parents of dependent students can receive PLUS
loans. There is no interest subsidy for PLUS loans. The parent borrower is
responsible for all interest that accrues on the loan while the student is in
school. For both subsidized and unsubsidized loans, students do not need to
begin payment until expiration of a six-month grace period following last day of
attendance. After such time, repayment is required in monthly installments, with
a variable interest rate. Lenders making subsidized FFELs receive interest
subsidies during the term of the loan from the federal government, which also
pays all interest on these FFELs while the student attends school and during the
grace period. In the event of default, all FFELs are fully guaranteed as to
principal and interest by state or private guarantee agencies which, in turn,
are reimbursed by the federal government according to the guarantee agency
reinsurance provisions contained in the HEA.
State and
federal student financial aid programs are subject to the effects of state and
federal budgetary processes. There can be no assurance that government funding
for the financial aid programs in which the Company’s students participate will
continue to be available or maintained at current levels. The loss or reduction
in funding levels for state and federal student financial aid programs could
have a material adverse effect on the Company.
Regulation
Both
federal and state financial aid programs contain numerous and complex
regulations which require compliance not only by the recipient student but also
by the institution which the student attends. The Company monitors compliance
through periodic visits to the individual Campuses by Corporate staff. Failure
to materially comply with such regulations at any of the Campuses could have
serious consequences, including limitation, suspension, or termination of the
eligibility of that Campus to participate in the funding programs. Independent
certified public accountants audit the Campus’ administration of federal funds
as mandated by federal regulations. Additionally, these aid programs require
accreditation by the Campuses. See “Accreditation and Licensing” and “Financing
Student Education.”
One of
ED’s principal criteria for assessing a Campus’s eligibility to participate in
student loan programs is the cohort default rate threshold percentage
requirements (the “Cohort Default Rate”) enacted in the Student Loan Default
Prevention Initiative Act of 1990. The regulations apply to the FFEL and Federal
Perkins Loan Program loans. Cohort Default Rates are calculated by the Secretary
of Education and are designed to reflect the percentage of former students
entering repayment in the cohort year, the fiscal year of the federal government
- - October 1 to September 30, who default on their loans during that year or the
following cohort year. This calculation includes only those defaulted loans on
which federal guaranty claims have been paid. A Campus may request that a
defaulted loan be removed from the calculation if the Campus can demonstrate
that the loan was improperly serviced and collected under guidelines established
in ED’s regulations. A loan that is included in the default rate calculation may
be subsequently paid by the student, but is not removed from the cohort
calculation.
After
January 1, 1991, the Secretary of Education was authorized to initiate
proceedings to limit, suspend or terminate the eligibility of an institution to
participate in the FFEL program if the Cohort Default Rate for three consecutive
years exceeds the prescribed threshold. Beginning with the release of 1992
Cohort Default Rates in the summer of 1994, a Cohort Default Rate equal to or
exceeding 25% for three consecutive fiscal years may be used as grounds for
terminating FFEL eligibility.
The
following table sets forth the 2003, 2002, and 2001 cohort default rates for
each of the Campuses.
| |
Cohort
Default Rates |
|
|
Cohort
Default Rates |
|
Campus |
2003(1) |
2002 |
2001 |
|
|
2003(1) |
2002 |
2001 |
|
Garden
Grove, CA |
6.3 |
9.7 |
8.6 |
|
North
Hollywood, CA |
6.1 |
7.5 |
10.9 |
|
Denver,
CO |
7.2 |
4.6 |
14.5 |
|
Portland,
OR |
2.4 |
4.7 |
4.8 |
|
Jacksonville,
FL |
6.1 |
7.8 |
4.8 |
|
San
Bernardino, CA |
7.7 |
16.2 |
16.0 |
|
Kansas
City, MO |
7.9 |
5.8 |
5.2 |
|
San
Diego, CA |
8.8 |
8.2 |
10.9 |
|
Lauderdale
Lakes, FL |
5.0 |
8.8 |
14.1 |
|
Tampa,
FL |
6.9 |
9.4 |
11.6 |
|
Memphis
TN |
5.1 |
6.0 |
13.4 |
|
Arlington,
TX (2) |
0.0 |
7.1 |
|
| (1) |
Preliminary
rates received February 2005. These rates are subject to change and may
not be reflective of the final rates for
2003. |
| (2) |
The
Arlington Campus began participating in the FFEL program in July 2001.
Their first cohort year was October 1, 2001 to September 30, 2002.
|
All of
the Company’s Campuses have at least one of their three most recent rates below
25% and are, therefore, eligible to participate in the FFEL program. The Company
maintains aggressive default management plans for each Campus and monitors
activity frequently. Staff at each Campus and Corporate Office assist and
educate student borrowers in understanding their rights and responsibilities as
borrowers under these student loan programs.
In 1994,
ED established a policy of recertifying all institutions participating in Title
IV programs every five years. Provisional certification limits the Campus’
ability to add programs and change the level of educational award. In addition,
the Campus is required to accept certain restrictions on due process procedures
under ED guidelines. Eight of the Company’s Campuses have full certification.
Four Campuses currently have provisional certifications, Kansas City, Portland,
and Memphis, received provisional certification due to high Federal Perkins Loan
default rates. The Arlington Campus was acquired by the Company in August 2002
and received provisional certification due to the change of ownership. The
Company does not believe provisional certification will have a material impact
on its liquidity, results of future operations or financial position. There has
been no material impact due to provisional certification in prior
years.
The
Company is subject to extensive regulation by federal and state governmental
agencies and accreditation bodies. In particular, the Higher Education Act of
1965 (“HEA”), and the regulations promulgated thereunder by ED subject the
Campuses to significant regulatory scrutiny on the basis of numerous standards
that Campuses must satisfy to participate in the various federal student
financial assistance programs under Title IV of the HEA.
To
participate in Title IV Programs, an institution must be accredited by an
association recognized by ED. ED will certify an institution to participate in
the Title IV Programs only after an institution has demonstrated compliance with
the HEA and the ED’s extensive regulations regarding institutional eligibility.
Under the HEA, accreditation associations are required to include the monitoring
of certain aspects of Title IV Program compliance as part of their accreditation
evaluations.
The
Company had four programs that were placed on Outcomes Reporting by their
accreditation association. The programs are being monitored for completion
rates, placement rates, or both. The Campuses are addressing the issues
associated with the Outcomes issues. The Company does not believe that Outcomes
Reporting on the four programs will have a material impact on the results of
operations.
Congress
must reauthorize the HEA approximately every six years. The most recent
reauthorization in October 1998 reauthorized the HEA until September 30, 2004.
Congress has delayed the reauthorization scheduled for October 1, 2004. The
Company does not believe the reauthorization will have a material financial
impact on the Company when it is completed. However, there has been recent
negative publicity regarding for profit post secondary schools that may impact
reauthorization. The 1998 reauthorization has been extended until the 2004
reauthorization is completed. The 1998 HEA reauthorization imposed a limit on
the amount of Title IV funds a withdrawing student can use to pay their
education costs. This limitation permits a student to use only a pro rata
portion of the Title IV Program funds that the student would otherwise be
eligible to use, if the student withdraws during the first 60% of any period of
enrollment / payment period. The institution must refund to the appropriate
lenders or Title IV Programs any Title IV funds that the institution receives on
behalf of a withdrawing student in excess of the amount the student can use for
such period of enrollment / payment period. Under this HEA requirement, students
are obligated to the Company for education costs that the students can no longer
pay with Title IV funds. The Company implemented this requirement on October 7,
2000 as required by regulation. The Company monitors the increase in accounts
receivable from students and its impact on the Company’s results of operations,
financial condition and cash flows. The Company’s provision for uncollectible
accounts has increased as a result of this regulation.
ED issued
a new financial responsibility regulation that became effective July 1, 1998.
Institutions are required to meet this regulation to maintain eligibility to
participate in Title IV programs. This regulation uses a composite score based
upon three financial ratios. An institution demonstrates that it is financially
responsible by achieving a composite score of at least 1.5, or by achieving a
composite score in the zone from 1.0 to 1.4 and meeting certain
provisions.
An
institution in the zone may need to provide to ED timely information regarding
certain accrediting agency actions and certain financial events that may cause
or lead to a deterioration of the institution’s financial condition. In
addition, financial and compliance audits may have to be submitted soon after
the end of the institution’s fiscal year. Title IV HEA funds may be subject to
cash monitoring for institutions in the zone.
The
Company’s composite score was 2.0, 2.7, and 2.8 in 2002, 2003, and 2004,
respectively.
An
additional HEA standard prohibits an institution from providing any commission,
bonus or other incentive payment based directly or indirectly on success in
securing enrollments or financial aid to any person or entity engaged in any
student recruitment, admission or financial aid awarding activity. The Company
believes that its method of compensating persons engaged in student recruitment,
admission or financial aid awarding activity complies with the requirements of
the HEA. The regulations do not, however, establish clear standards for
compliance, and the Company cannot assure you that ED will not find any
deficiencies in our present or former methods of compensation.
Congress
temporarily extended the HEA reauthorization which was set to expire September
30, 2004. The reauthorization is currently being discussed and the Company is
not aware of any changes that may be made during reauthorization that will have
a material financial impact on the Company. However, there can be no assurance
of the impact of new regulations or requirements from reauthorization. A change
was implemented by ED in December 2004 reducing certain students Pell Grant
eligibility. The Company does not believe this change will have a material
impact on its student’s ability to fund their education.
Competition
The
Campuses are subject to competition from public educational institutions in
addition to a large number of other public and private companies providing
postsecondary education, many of which are older, larger and have greater
financial resources than the Company.
Management
believes that the educational programs offered, the Campus' reputation and
marketing efforts are the principal factors in a student's choice to enroll at a
Campus. Additionally, the cost of tuition and availability of financing, the
location and quality of the Campus' facilities, and job placement assistance
offered are important. The specific nature and extent of competition varies from
Campus to Campus, depending on the location and type of curriculum offered. The
Company competes principally through advertising and other forms of marketing,
coupled with specialized curricula offered at competitive prices.
Employees
As of
December 31, 2004, the Company had approximately 950 full and part-time
employees, of which approximately 500 were faculty members. The Company had 330
management and administrative staff members employed at the Campuses and 54
employed at corporate headquarters. The remaining 66 employees are admissions
personnel.
Management
and supervisory members of both the administrative staff and administrative
faculty are salaried. All other faculty and employees are paid on an hourly
basis. The Company employs full-time, part-time, and on a substitute or on-call
basis. The Company does not have an agreement with any labor union representing
its employees and has not been the subject of any union organization
efforts.
Risk
Factors
Any of
the following risks could materially adversely affect the Company’s business,
results of operations or financial condition.
Failure
to Comply with Extensive Regulations Could Have a Material Adverse Effect on the
Company’s Business. Failure of the Company’s Campuses to comply with extensive
regulations could result in financial penalties, loss or suspension of federal
funding.
The
Company’s revenue is derived almost entirely from tuition, textbook sales, fees
and charges paid by, or on behalf of, the Company’s students. A large number of
the Company’s students paid a substantial portion of tuition and other fees with
funds received through student assistance financial aid programs under Title IV
of the HEA. The Company received approximately 79% of cash receipts from such
funds for the year ended December 31, 2004. To participate in such programs, an
institution must obtain and maintain authorization by the appropriate state
agencies, accreditation by an accrediting agency recognized by the ED, and
certification by the ED. As a result, the Company’s Campuses are subject to
extensive regulation by these agencies that, among other things, requires the
Company to:
| ¨ |
undertake
steps to assure that the students at each of our Campuses do not default
on federally guaranteed or funded student loans at a rate of 25% or more
for three consecutive years; |
| ¨ |
limit
the percentage of revenues derived at each Campus from federal student
financial aid programs to less than 90%; |
| ¨ |
adhere
to financial responsibility and administrative capability
standards; |
| ¨ |
prohibit
the payment of incentives to personnel engaged in student recruiting,
admissions activities or awarding financial aid;
and |
| ¨ |
achieve
stringent completion and placement outcomes for short-term
programs. |
These
regulations cover virtually all phases of the Company’s operations, including
the Company’s educational programs, facilities, instructional and administrative
staff, administrative procedures, financial operations and financial strength.
They also affect the Company’s ability to acquire or open additional Campuses or
change the Company’s corporate structure. These regulatory agencies periodically
revise their requirements and modify their interpretations of existing
requirements.
If one of
the Company’s Campuses were to violate any of these regulatory requirements, the
Company could suffer a financial penalty. The regulatory agencies could also
place limitations on or terminate the Company’s Campuses’ receipt of federal
student financial aid funds, which could have a material adverse effect on the
Company’s business, results of operations or financial condition. The Company
believes that the Campuses substantially comply with the requirements of these
regulatory agencies, but the Company cannot predict with certainty how all of
these requirements will be applied, or whether the Company will be able to
comply with all of the requirements in the future. Some of the most significant
regulatory requirements and risks that apply to the Company’s Campuses are
described in the following paragraphs.
The
U.S. Congress may change the law or reduce funding for federal student financial
aid programs, which could harm the Company’s business.
The U.S.
Congress regularly reviews and revises the laws governing the federal student
financial aid programs and annually determines the funding level for each of
these programs. Congress must reauthorize HEA approximately every six years. The
most recent reauthorization occurred in 1998 and reauthorized the HEA until
September 30, 2004 which was temporarily extended. Any action by Congress that
significantly reduces funding for the federal student financial aid programs or
the ability of the Company’s Campuses or students to participate in these
programs could have a material adverse effect on the Company’s business, results
of operations or financial condition. Legislative action may also increase the
Company’s administrative costs and burden and require the Company to modify the
Company’s practices in order for the Company’s Campuses to comply fully with
applicable requirements, which could have a material adverse effect on the
Company’s business, results of operations or financial condition.
Congress
is currently reviewing the current HEA reauthorization which expired September
30, 2004 but was temporarily extended. The Company is not aware of any changes
that may be made during reauthorization that will have a material financial
impact on the Company. However, there has been recent negative publicity
regarding for profit post secondary schools that may impact reauthorization and
there can be no assurance of the impact of the new regulations or requirements
from reauthorization.
If
the Company does not meet financial responsibility standards, the Company’s
Campuses may lose eligibility to participate in federal student financial aid
programs.
To
participate in the federal student financial aid programs, an institution must
either satisfy numeric standards of financial responsibility, or post a letter
of credit in favor of the ED and possibly accept other conditions on its
participation in the federal student financial aid programs. Currently, none of
the Campuses are required to post a letter of credit in favor of the ED or
accept other conditions on its participation in the federal student financial
aid programs due to failure to satisfy the numeric standards of financial
responsibility. The Company cannot assure you that the Company or the Company’s
Campuses will satisfy the numeric standards in the future.
The
Campuses may lose eligibility to participate in federal student financial aid
programs if their student loan default rates are too high.
An
institution may lose its eligibility to participate in some or all of the
federal student financial aid programs if defaults by its students on their
federal student loans exceed specified rates. If any of the Company’s Campuses,
depending on its size, loses eligibility to participate in federal student
financial aid programs because of high student loan default rates, it could have
a material adverse effect on the Company’s business, results of operations or
financial condition.
Campuses
may lose eligibility to participate in federal student financial paid programs
if the percentage of their revenue derived from those programs is too
high.
A
proprietary institution loses its eligibility to participate in the federal
student financial aid programs if it derives more than 90% of its revenue from
these programs in any fiscal year (the “90/10” Regulation). If any of the
Company’s Campuses, depending on its size, loses eligibility to participate in
federal student financial aid programs, it could have a material adverse effect
on the Company’s business, results of operations or financial condition. The
Company received approximately $62,034,000 from federal student financial aid
programs during 2004, representing 79% of the total cash received on FFEL
eligible programs. Individual campuses 90/10 rates ranged from a low of 66.7% to
a high of 87.5 % in 2004.
If
the Company fails to demonstrate “administrative capability” to the ED, the
Company’s business could suffer.
ED
regulations specify extensive criteria an institution must satisfy to establish
that it has the requisite “administrative capability” to participate in federal
student financial aid programs. These criteria require, among other things, that
the institution:
comply
with all applicable federal student financial aid regulations;
| ¨ |
have
capable and sufficient personnel to administer the federal student
financial aid programs; |
| ¨ |
provide
financial aid counseling to its students;
and |
| ¨ |
submit
all reports and financial statements required by the
regulations. |
| |
If
an institution fails to satisfy any of these criteria, the ED
may: |
| ¨ |
require
the repayment of federal student financial aid
funds; |
| ¨ |
transfer
the institution from the “advance” system of payment of federal student
financial aid funds to the “reimbursement” system of payment or cash
monitoring; |
| ¨ |
place
the institution on provisional certification status;
or |
| ¨ |
commence
a proceeding to impose a fine or to limit, suspend or terminate the
participation of the institution in federal student financial aid
programs. |
Should
one or more of the Company’s Campuses be limited in their access to, or lose,
federal student financial aid funds due to their failure to demonstrate
administrative capability, the Company’s business could be materially adversely
affected.
If
the company fails to meet programmatic accreditation regulations, the Company
could lose its eligibility to enroll students in these
programs.
The
company has several programs that require additional regulation by specific
state boards or national organizations. The Vocational Nursing, Respiratory
Therapy, Surgical Technologist and Radiography programs must follow rules and
guidelines of the State Boards of Nursing, Commission on Accreditation of Allied
Health Education Programs, Joint Review Committee on Education in Radiologic
Technology and the Committee on Accreditation for Respiratory Care. If these
programs do not adhere to these more stringent rules the programs could lose
their eligibility to enroll students.
Regulatory
agencies or third parties may commence investigation, bring claims or institute
litigation against the Company.
Because
the Company operates in a highly regulated industry, the Company may be subject
from time to time to investigations, claims of non-compliance, or law suits by
governmental agencies, or third parties, which may allege statutory violation,
regulatory infractions, or common law causes of action. If the results of the
investigations are unfavorable to the Company or if the Company were unable to
successfully defend against third-party lawsuits, the Company may be required to
pay monetary damages or be subject to fines, penalties, injunctions or other
censure that could have a material adverse effect on the Company’s business.
Even if the Company adequately addresses the issues raised by an agency
investigation or successfully defend a third-party lawsuit, the Company may have
to devote significant money and management resources to address these issues,
which could harm the Company’s business.
If
regulators do not approve the Company’s acquisitions, the ability of the
acquired institution to participate in federal student financial aid programs
would be limited.
When the
Company acquires an institution, ED and most applicable state agencies and
accrediting agencies consider that a change of ownership or control of the
institution has occurred. A change of ownership or control of an institution
under the standards of ED may result in the temporary suspension of the
institution's participation in the federal student financial aid programs until
the ED issues a temporary certification document. If the Company were unable to
reestablish the state authorization, accreditation or ED certification of an
institution the Company acquired, depending on the size of that acquisition,
could have a material adverse effect on the Company’s business, results of
operations or financial condition. If regulators do not approve transactions
involving a change of control, the institutions acquired may lose their ability
to participate in federal student financial aid programs. If the Company or any
of the Company’s Campuses experience a change of control under the standards of
applicable state agencies or accrediting agencies or the ED, the Company or the
affected Campuses must seek the approval of the relevant agencies. The failure
of any of the Company’s Campuses to reestablish its state authorization,
accreditation or ED certification would result in a suspension or loss of
federal student financial aid funding, which could have a material adverse
effect on the Company’s business, results of operations or financial
condition.
If
there is a change in ownership, the Company may lose their ability to
participate in federal student financial aid programs.
The ED,
applicable state education agencies or applicable accrediting agencies may
consider other transactions or events to constitute a change of control of the
Company. Some of these transactions or events, such as a significant acquisition
or disposition of the Company’s common stock, may be beyond the Company’s
control and the Company could lose its ability to participate in federal student
financial aid and programs.
If
the Company’s Campuses do not maintain their state authorizations and
accreditations, they may not operate or participate in federal student financial
aid programs.
An
institution that grants degrees, diplomas or certificates must be authorized by
the relevant agencies of the state in which it is located and, in some cases,
other states. Requirements for authorization vary substantially among the
states. State authorization and accreditation by an accrediting agency
recognized by the ED are also required for an institution to participate in the
federal student financial aid programs. Loss of state authorization or
accreditation by any of the Company’s Campuses, depending on the size of the
Campus, could have a material adverse effect on the Company’s business, results
of operations or financial condition.
Failure
to effectively manage the Company’s growth could harm the Company’s
business.
The
Company expects to acquire new Campuses as a component of its strategy for
growth. The Company regularly engages in evaluations of possible acquisition
candidates, including evaluations relating to acquisitions that may be material
in size and/or scope. There can be no assurance that the Company will continue
to be able to identify educational institutions that provide suitable
acquisition opportunities or to acquire any such institutions on favorable
terms. Furthermore, there can be no assurance that any acquired institutions can
be successfully integrated into the Company's operations or be operated
profitably. Acquisitions involve a number of special risks and challenges,
including the diversion of management's attention, assimilation of the
operations and personnel of acquired companies, adverse short-term effects on
reported operating results, possible loss of key employees and difficulty of
presenting a unified corporate image. Continued growth through acquisition may
also subject the Company to unanticipated business or regulatory uncertainties
or liabilities.
Opening
new Campuses and
adding new services could be difficult for the Company.
The
Company expects to develop, open and operate new Campuses, most likely as
additional locations of existing Campuses. Establishing additional locations
would pose unique challenges and require the Company to make investments in
management, capital expenditures, marketing expenses and other resources.
Because the Company has not yet established any new additional locations, there
can be no certainty as to the Company's ability to be successful in any such
endeavor. Any failure of the Company to effectively manage the operations of
newly established Campuses could have a material adverse effect on the Company's
business, results of operations and financial condition.
Failure
to keep pace with changing market needs and technology could harm the Company’s
business.
Prospective
employers of the Company’s graduates increasingly demand that their entry-level
employees possess appropriate technological skills. Educational programs at the
Company’s Campuses must keep pace with these evolving requirements. If the
Company cannot respond to changes in industry requirements, it could have a
material adverse effect on the Company’s business, results of operations or
financial condition. Competitors with greater resources could harm the Company’s
business. The postsecondary education market is highly competitive. The
Company’s Campuses compete with traditional public and private two-year and
four-year colleges and universities and other proprietary schools, including
those that offer distance learning programs. Some public and private colleges
and universities, as well as other private career-oriented schools, may offer
programs similar to those of the Company’s Campuses. Although tuition at private
nonprofit institutions is, on average, higher than tuition at the Company’s
Campuses, some public institutions are able to charge lower tuition than the
Company’s Campuses, due in part to government subsidies, government and
foundation grants, tax-deductible contributions and other financial sources not
available to proprietary schools. Some of the Company’s competitors in both the
public and private sectors have substantially greater financial and other
resources than the Company.
Failure
to obtain additional capital in the future could reduce the Company’s ability to
grow.
No
assurance can be given that the Company will be able to obtain adequate funding
to complete any potential acquisition or new Campus opening or that such an
acquisition or opening will succeed in enhancing the Company's business and will
not ultimately have a material adverse effect on the Company's business, results
of operations and financial condition.
A
number of the Company’s shares of common stock will be eligible for future sale,
which may cause the Company’s stock price to decline.
The
exercise of substantial amounts of options or registration of common stock or
the perception that such sales might occur could cause the market price of the
Company’s Common Stock to decline. On December 31, 2004, the Company had
5,970,755 shares of the Company’s Common Stock outstanding. As of December 31,
2004, options to purchase 702,418 shares of the Company’s Common Stock were
outstanding, of which 266,504 were exercisable as of such date at an average
exercise price of $5.01. This concentration of stock options, relative to the
amount of Common Stock outstanding, if exercised, will have a dilutive effect on
the Company’s earnings per share which could adversely affect the market price
of the Company’s Common Stock. From time to time, the Company may issue
additional options to the Company’s employees under the Company’s existing stock
option plan and under any new plans the Company may adopt.
A
number of the Company’s shares of common stock have been registered and are
eligible for future sale which could impact the Company’s stock price.
The
Company filed a Registration Statement on Form S-3 to register 1,286,765 shares
of common stock. The Registration Statement was effective March 26, 2004. The
Company received no funds as a result of the registration. The Company
registered the 1,286,765 shares of Common Stock that were issued to
Cahill-Warnock pursuant to the exercise of the warrants and new debentures that
were cancelled, effective February 19, 2003. This concentration of stock
relative to the amount of Common Stock outstanding, if sold could have a
material impact on the market price of the Company’s Common Stock.
If
the Company fails to maintain an effective system of internal controls, the
Company may not be able to accurately report financial results or prevent fraud.
As a result, current and potential stockholders could lose confidence in the
Company’s financial reporting, this would harm the Company’s business and the
trading price of the Company’s stock.
Effective
internal controls are necessary for the Company to provide reliable financial
reports and effectively prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, the Company’s operating results could be harmed.
Inferior internal controls could also cause investors to lose confidence in the
Company’s reported financial information, which could have a negative effect on
the trading price of the Company’s stock.
Item
2. Properties
The
Company’s corporate office is located in Mission, Kansas. All Company buildings
and facilities are leased.
The
Company purchased a parcel of land to construct a parking lot for the Tampa
Campus in December 2002. The land and improvements are recorded on the balance
sheet at its purchase price of $391,000.
The
following table sets forth the location, approximate square footage and
expiration of lease terms for each of the Campuses as of December 31,
2004:
|
Locations |
Square Footage |
Expiration(1) |
|
Garden
Grove, CA |
25,931 |
9-30-14 |
|
North
Hollywood, CA |
35,155 |
7-31-11 |
|
San
Bernardino, CA |
32,192 |
4-26-13 |
|
San
Diego, CA |
25,160 |
12-31-18 |
|
Denver,
CO . |
29,499 |
12-31-13 |
|
Lauderdale
Lakes, FL |
25,838 |
5-31-07 |
|
Jacksonville,
FL |
25,049 |
7-31-09 |
|
Tampa,
FL |
23,750 |
1-31-17 |
|
Kansas
City, MO |
24,214 |
2-28-06 |
|
Portland,
OR |
30,530 |
8-31-19 |
|
Mission,
KS (Corporate Office) |
14,384 |
7-31-06 |
|
Memphis,
TN. |
40,377 |
8-31-14 |
|
Arlington,
Texas |
26,639 |
6-30-13 |
| (1) |
Several
of the leases provide renewal options, although renewals may be at
increased rental rates. |
Item
3. Legal Proceedings
The
Company is sued from time to time by a student or students who claim to be
dissatisfied with the results of their program of study. Typically, the claims
allege a breach of contract; deceptive advertising and misrepresentation and the
student or students seek reimbursement of tuition. Punitive damages sometimes
are also sought. In addition, ED may allege regulatory violations found during
routine program reviews. The Company has, and will continue to dispute these
findings as appropriate in the normal course of business. In the opinion of the
Company’s management, resolution of such pending litigation and disputed
findings will not have a material effect on the Company’s financial condition or
its results of operation.
The
Company is not aware of any material violation by the Company of applicable
local, state and federal laws.
Item
4. Submission of Matters to a Vote of Security Holders. -
None
(The
remainder of this page was left blank intentionally.)
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
The
Company’s common stock (“Common Stock”) is currently traded under the symbol
“CCDC” on the NASDAQ SmallCap Market. The following table sets forth the high
and low closing price reported at the end of the trading day, for the periods
indicated as reported by NASDAQ. The Company’s stock was listed on the
Over-the-Counter Bulletin Board (“OTCBB”) prior to May 22, 2002. Prices prior to
listing on NASDAQ were reported by the OTCBB.
|
2004 |
High |
Low |
|
First
Quarter |
$27.75 |
$21.75 |
|
Second
Quarter |
$25.70 |
$14.60 |
|
Third
Quarter |
$17.39 |
$13.42 |
|
Fourth
Quarter |
$20.27 |
$14.87 |
| |
|
|
|
2003 |
High |
Low |
|
First
Quarter |
$16.00 |
$12.21 |
|
Second
Quarter |
$23.87 |
$15.94 |
|
Third
Quarter |
$24.05 |
$19.60 |
|
Fourth
Quarter |
$26.98 |
$20.02 |
| |
|
|
|
2002 |
High |
Low |
|
First
Quarter |
$7.80 |
$6.30 |
|
Second
Quarter |
$9.00 |
$7.15 |
|
Third
Quarter |
$10.78 |
$7.90 |
|
Fourth
Quarter |
$13.45 |
$10.35 |
There
were 198 shareholders of record of Common Stock at December 31,
2004.
On March
4, 2005, the bid and asked prices of the Company’s Common Stock on the NASDAQ
SmallCap Market were $17.16 and $17.84 per share, respectively.
The
Company has never paid cash dividends on its common stock. Management currently
anticipates retaining future earnings to finance internal growth and potential
acquisitions. Payment of common stock dividends in the future will depend upon
the Company’s earnings and financial condition and various other factors the
Company’s Board of Directors (“Board”) may deem appropriate at the time.
The
following table lists the Company’s treasury stock purchases in the fourth
quarter of 2004 and the remaining shares that may be purchased.
Issuer
Purchases of Equity Securities:
|
Period |
|
Total
Number of Shares Purchased |
|
Average
Price Paid per Share |
|
Total
Number of Shares Purchased as Part of Publicly Announced Program
(1) |
|
Maximum
Number of Shares That May Yet Be Purchased Under this
Program |
|
October
1, 2004 -
October
31, 2004 |
|
13,900 |
|
$15.15 |
|
13,900 |
|
166,665 |
|
November
1, 2004-
November
30, 2004 |
|
2,400 |
|
$15.32 |
|
2,400 |
|
664,265 |
|
December
1, 2004 -
December
31, 2004 |
|
---- |
|
---- |
|
---- |
|
664,265 |
|
Total |
|
16,300 |
|
|
|
16,300 |
|
|
| (1) |
On
August 22, 2000, the Company announced that the Board of Directors
approved a stock repurchase of up to 500,000 shares of the Company’s
stock. On November 2, 2004, the Company announced that the Board of
Director’s increased the stock repurchase authorization by an additional
500,000 shares which increased the plan to a total of 1,000,000 shares. As
of December 31, 2004, the Company acquired 335,735 shares at an average
price of $5.73. |
In 2001
and 2002, the Company awarded its Board Members options to purchase shares of
the Company’s stock. The granting of these options was not voted on by the
Company’s Shareholders. These options were issued under a non-qualified stock
option agreement and the market value on the date of the grant equaled the
exercise price. The Company issued 12,500 options in 2001 at an exercise price
of $4.50, 15,000 options in 2002 at an exercise price of $8.60, and 5,000
options in 2002 at an exercise price of $11.00.
Equity
Compensation Plan Information for the year ended December 31,
2004
The
following table is information related to the Employee Stock Option Plan. Equity
Compensation Plans not approved by security holders are options given to the
Board.
|
Plan
Category |
Number
of securities to be issued upon exercise of outstanding options, warrants,
and rights |
Weighted
average exercise price of outstanding options, warrants, and
rights |
Number
of securities remaining available for future issuance |
|
Equity
compensation plans not approved by security holders |
31,668 |
$5.93 |
---- |
|
Equity
compensation plans approved by security holders |
670,750 |
10.62 |
7,800 |
|
Total |
702,418 |
$
10.41 |
7,800 |
The
following securities have been sold by the Company within the past three years
and were not registered under the Securities Act:
Pursuant
to the exercise of options under the 1988, 1998, 2000, and 2002 Long Term
Executive Compensation Plans, the Company sold the following: on November 1,
2002, 2,000 shares of its common stock to an employee at a price of $1.35 per
share and for a total aggregate consideration of $2,700; on December 31, 2002,
2,500 shares of its common stock to an employee at a price of $1.02 per share
and for a total aggregate consideration of $2,550; on September 9, 2003, 12,000
shares of its common stock to an employee at a price of $1.00 per share and for
a total aggregate consideration of $12,000; on September 11, 2003, 6,000 shares
of its common stock to an employee at a price of $1.00 per share and for a total
aggregate consideration of $6,000 and 5,000 shares of its common stock to an
employee at a price of $1.02 per share and for a total aggregate consideration
of $5,100; on October 10, 2003, 7,500 shares of its common stock to an employee
at a price of $1.26 per share and for a total aggregate consideration of $9,450;
on November 3, 2003, 7,500 shares of its common stock to an employee at a price
of $1.02 per share and for a total aggregate consideration of $7,650; on
December 23, 2003, 400 shares of its common stock to an employee at the price of
$11.45 per share and for a total aggregate consideration of $4,580; on January
9, 2004, 20,000 shares of its common stock to an employee at a price of $1.10
per share and for a total aggregate consideration of $22,000; on February 9,
2004, 500 shares of its common stock to an employee at a price of $5.14 per
share and for a total aggregate consideration of $2,570; on February 17, 2004,
400 shares of its common stock to an employee at a price of $11.45 per share and
for a total aggregate consideration of $4,580; on February 17, 2004, 850 shares
of its common stock to an employee at a price of $2.26 per share and for a total
aggregate consideration of $1,921; on March 24, 2004, 400 shares of its common
stock to an employee at a price of $11.45 per share and for a total aggregate
consideration of $4,580; on March 24, 2004, 500 shares of its common stock to an
employee at a price of $2.26 per share and for a total aggregate consideration
of $1,130; on March 24, 2004, 600 shares of its common stock to an employee at a
price of $8.65 per share and for a total aggregate consideration of $5,190; on
March 30, 2004, 250 shares of its common stock to an employee at a price of
$2.26 per share and for a total aggregate consideration of $565; on March 30,
3004, 300 shares of its common stock to an employee at a price of $11.45 per
share and for a total aggregate consideration of $3,435; and on March 31, 2004,
300 shares of its common stock to an employee at a price of $1.00 per share and
for a total aggregate consideration of $300.
Pursuant
to the exercise of options under certain Non-Qualified Stock Option Agreements,
the Company sold the following: on April 30, 2002, 4,167 shares of its common
stock to a director at the price of $4.50 per share and for a total aggregate
consideration of $18,751.50; on December 12, 2003, 5,000 shares of its common
stock to a director at the price of $8.60 per share and for a total aggregate
consideration of $43,000.
All of
the transactions listed above were exempt under Section 4(2) of the Securities
Act. The Company used the proceeds from these sales for general corporate
purposes.
Item
6. Selected Financial Data
The
following data should be read in conjunction with Part II Item 7, “Management's
Discussion and Analysis of Financial Condition and Results of Operations,” and
Part II Item 8, “Financial Statements and Supplementary Data.”
Supplemental
Information
The
following selected data has been derived from the Company’s audited financial
statements for 2000 through 2004. All share and per share amounts have been
retroactively adjusted to reflect the Reverse Stock Split for all periods
presented.
| |
Years
Ended December 31, |
| |
2004 |
2003 |
2002 |
2001 |
2000 |
|
Income
Statement Data: |
(Dollars
in thousands, except for per share data) |
|
Revenues |
$81,507 |
$$74,714 |
$61,112 |
$49,049 |
$38,785 |
|
Operating
expenses |
75,228 |
64,798 |
54,412 |
46,562 |
39,211 |
|
Operating
income (loss) |
6,279 |
9,916 |
6,700 |
2,487 |
(426) |
|
Interest
and other non-operating income |
207 |
179 |
231 |
442 |
181 |
|
Interest
expense |
|
24 |
176 |
182 |
185 |
|
Income
(loss) before change in accounting principle |
3,922 |
6,163 |
4,234 |
1,633 |
(266) |
|
Basic
earnings (loss) per share before change in
accounting
principle (1) |
$.66 |
$1.05 |
$.85 |
$.36 |
($.12) |
|
Diluted
earnings (loss) per share before change in
accounting
principle (1) |
$.62 |
$.99 |
$.68 |
$.28 |
($.12) |
| |
|
|
|
|
|
|
Net
income (loss) |
3,922 |
6,163 |
4,234 |
1,633 |
(352) |
|
Basic
earnings (loss) per share (1) |
$.66 |
$1.05 |
$.85 |
$.36 |
($.14) |
|
Diluted
earnings (loss) per share (1) |
$.62 |
$.99 |
$.68 |
$.28 |
($.14) |
| |
|
|
|
|
|
|
Balance
Sheet Data: |
|
|
|
|
|
|
Total
assets |
$58,909 |
$53,155 |
$40,051 |
$31,700 |
$25,012 |
|
Subordinated
debt due to related party |
--- |
--- |
3,500 |
3,500 |
3,500 |
|
Stockholders'
equity |
24,164 |
20,663 |
9,990 |
6,186 |
4,977 |
| |
|
|
|
|
|
|
Other
Data: |
|
|
|
|
|
|
Number
of locations (2) |
12 |
12 |
12 |
11 |
11 |
|
Net
enrollments (3) |
9,323 |
9,454 |
8,510 |
7,080 |
6,072 |
|
(1) |
See
Note 9 of Notes to Consolidated Financial Statements for the basis of
presentation of earnings per share. |
| (2) |
Includes
only Campuses open at December 31. |
| (3) |
“Net
enrollments” are students who begin a program of study, net of
cancellations. |
Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion should be read with the Selected Financial Data and the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
included elsewhere in this report.
Executive
Summary
The
Company did not achieve its financial objectives in 2004 due to two primary
factors, enrollments and costs. Enrollments decreased in 2004 compared to 2003.
The Company’s leads (inquiries for enrollment) increased 5.8% in 2004 compared
to 2003. The Company was unable to convert leads into enrollments at the same
overall rate (conversion rate) as 2003 resulting in fewer enrollments for 2004.
The Company changed its advertising mix during 2004 spending a greater
percentage of overall advertising dollars on Internet advertising. Internet
advertising represented 14.0% of the total advertising dollars spent during 2004
compared to 6.0% during 2003. Leads from Internet advertising had a lower
conversion rate than other forms of advertising. The Company believes conversion
rates for Internet leads can be increased with additional training; however, the
Company believes Internet leads will not have the same conversion rates as
television and newspaper. Television leads were 15% of the total leads in 2004
compared to 22% in 2003. However, the dollars spent on television advertising
were approximately the same for both years. The Company also has one program
that received state board programmatic provisional accreditation extension due
to pass rates at one Campus. The result of the probation was a reduction during
2004 of 144 enrollments, as further discussed below. The Company believes that
it has made appropriate changes to increase pass rates to an acceptable level in
the future; however, there is no assurance that the state board will approve
additional enrollments in the future. Higher expenses negatively impacted the
Company’s performance. Payroll increased significantly as the Company
implemented new programs and added staff in advance of program implementation.
The Company moved several locations which increased rent and depreciation
expense significantly. The Company changed its management structure in the last
quarter of 2004 to provide additional support and training to its Campuses.
Management believes this structure creates the framework that will allow the
Company to improve operational results of existing campuses through training and
oversight and pursue future growth opportunities.
Overview
The
Company owns and operates proprietary, postsecondary institutions that offer
career vocational training programs in the allied health field. As of December
31, 2004, the Company operated Campuses at 12 locations in seven states (the
“Campuses”). The Company’s revenue is derived almost entirely from tuition,
textbook sales, fees and charges paid by, or on behalf of, our students. A large
number of the Company’s students paid a substantial portion of tuition and other
fees with funds received through student assistance financial aid programs under
Title IV of the Higher Education Act of 1965, as amended (the "HEA"). The
Company received approximately 79% of cash revenue from such funds for the year
ended December 31, 2004.
The
Company’s strategy over the next two years is to grow revenue primarily by
increasing the number of programs offered at each of its twelve campuses.
Programs that are currently being offered by the Company will be transplanted to
other campuses. Campuses currently offer an average of five of the Company’s
twelve primary programs. The Company has experience teaching each of the
programs targeted for transplant, however due to regulatory requirements each
transplanted program must receive its own regulatory approvals before being
offered at a campus. The Company did not achieve its goal of transplanting new
programs in 2003 and early 2004. The Company is generally required to hire
staff, purchase equipment and have classroom space available prior to submitting
new programs to accreditation bodies for approval. As a result the Company has
incurred expenses for new program transplants (occupancy, depreciation and
faculty) in advance of student enrollments.
The
Company has invested capital expenditures to improve and expand facilities over
the last two and one-half years. Additional space has been added at all of the
Company’s locations. Five Campuses were moved to larger facilities in the past
two years, San Bernardino, California in February 2003, Arlington, Texas in June
2003, San Diego, California in January 2004, Denver, Colorado in March 2004, and
Portland, Oregon in September 2004. Capital expenditures to improve facilities
and equipment were $1,842,000 in 2002, $3,731,000 in 2003, and $6,147,000 in
2004.
The
addition of classrooms and upgraded facilities has, and will provide the Company
the space to expand program offerings at its Campuses. Three programs were added
in 2003, Practical Nursing, Medical Assistant, and Surgical Technology. The
company added eleven programs in 2004, one in the first quarter, two in the
second quarter, three in the third quarter and five in the fourth quarter.
The
Company has traditionally relied primarily on television and newspaper
advertising to generate leads from prospective students. We increased the
portion of our advertising expense dedicated to the Internet beginning in the
fourth quarter of 2003. The investment in Internet advertising has resulted in a
dramatic increase in the amount of Internet leads compared to total leads and
now represents over 30% of the Company’s total leads. The Company must improve
its effectiveness in converting Internet leads into enrollments.
The
Company’s revenue varies based on student enrollment and population. The number
of students that attend our Campuses, the number of new enrollments during a
fiscal period, student retention rates and general economic conditions impact
student population. The introduction of new programs at certain campuses,
improved advertising effectiveness and student retention have been significant
factors of increased student population in prior years.
The
Company and each of its campuses are subject to extensive regulation. These
regulations cover virtually all phases of the Company’s operations, including
the Company’s educational programs, facilities, instructional and administrative
staff, administrative procedures, financial operations and financial strength.
They also affect the Company’s ability to acquire or open additional Campuses or
change the Company’s corporate structure. These regulatory agencies periodically
revise their requirements and modify their interpretations of existing
requirements. Each of the Company’s Campuses must be authorized by the state in
which it operates, accredited by an accrediting commission that the U.S.
Department of Education ("ED") recognizes, and certified by the ED to
participate in Title IV Programs. Any substantial restrictions on the Campuses
ability to participate in Title IV Programs would adversely affect our ability
to enroll students, expand programs and student population.
The
Company had a reduction in enrollments in one clinical program at one campus due
to state board programmatic provisional accreditation extension beginning with
the second quarter of 2004. The Company received notification in May 2004 that
the program would not be allowed to enroll additional students until yearly
average minimum pass rates on the licensure examination for
graduates were within acceptable levels as required by the state board. As a
result the campus can not enroll students in the program without obtaining state
board approval. The Company believes that it has made appropriate changes to
increase pass rates to an acceptable level. However, there can be no assurance
that the state board will approve additional enrollments in the future and the
board may require the Company to terminate the program. This change reduced
forecasted enrollments by approximately 48 students in the second quarter, 48 in
the third quarter, and 48 in the fourth quarter of 2004 for a total of 144 for
the year.
The
Company classifies programs in three general categories clinical, core and
other. Clinical programs (Surgical Technology, Respiratory Therapy, Radiologic
Technology, and Practical/Vocational Nurse) are generally 12 to 15 months in
length. The weekend Vocational Nursing program and Radiological Technician are
longer, 18 and 24 months respectively. Clinical programs utilize clinical
training that occurs in a hospital or medical facility. Core programs (Medical
Assistant, Dental Assistant, Massage Therapy, Medical Office Professional, and
Insurance Coding and Billing Specialist) are generally 9 to 12 months in length
and utilize an externship immediately prior to graduation. Externships occur in
medical offices, dental offices, medical and dental clinics, medical facilities,
and hospitals. The remaining programs are similar in nature to the core programs
but are not currently offered in as many campuses as the core
programs.
Revenues
fluctuate as a result of seasonal variations in our business and due to capacity
and scheduling limitations. These factors impact student population which varies
as a result of new student enrollments and student attrition. Historically, the
Campuses have had lower student enrollments in the fourth quarter of the year
compared to the remainder of the year. This is due to fewer scheduled
enrollments during the holiday periods of November and December. In addition,
the Campuses utilize a non-traditional academic calendar with program start
dates varying by location and type of program. Programs vary in length generally
from 9 to 24 months. This impacts the scheduling of new starts in some programs.
Expenses, however, do not vary as significantly as student population and
revenues. The Company expects quarterly fluctuations in operating results to
continue as a result of enrollment patterns, capacity and scheduling
limitations. Such patterns may change, however, as a result of acquisitions, new
school openings, increased capacity and new program introductions. The operating
results for any quarter are not necessarily indicative of the results for any
future period.
The
Company’s Campuses must be authorized by the state in which it operates,
accredited by an accrediting commission that the U.S. Department of Education
("ED") recognizes, and certified by the ED to participate in Title IV Programs.
Any substantial restrictions on the Campuses ability to participate in Title IV
Programs would adversely affect our ability to enroll students.
The
Company establishes an accounts receivable and a corresponding deferred revenue
liability for each student upon commencement of a program of study. The deferred
revenue liability, consisting of tuition and non-refundable registration fees,
is recognized into income ratably over the length of the program. If a student
withdraws from a program, the unearned portion of the tuition for which the
student has paid is refunded on a pro-rata basis. Textbook and uniform sales are
recognized when they occur. Any unpaid balance due when the student withdraws is
generally due directly from the student, not from a federal or state
agency.
Accounts
receivable are due from students and are primarily expected to be paid through
the use of federal and state sources of funds. Students are responsible for
amounts not available through federal and state sources and unpaid amounts due
when the student withdraws. The Company realized a higher level of uncollectible
accounts receivable from students since October 2000. This was a result of the
Higher Education Act of 1965 (“HEA”) refund provision that became effective
October 7, 2000. Under the HEA requirements, students are obligated to the
Company for education costs that the student can no longer pay with HEA Title IV
funds. The Company expects that non-Title IV accounts and notes receivable due
from students may increase in the future as student enrollment increases and
that the related provision for uncollectible accounts may also
increase.
The
following table presents the revenue for the periods indicated.
|
|
Years Ended December 31, |
|
|
(In Thousands) |
| |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Revenue |
|
$ |
81,507 |
|
$ |
74,714 |
|
$ |
61,112 |
|
The
following table presents the relative percentage of revenues derived and certain
consolidated statement of operations items as a percentage of total revenues for
the periods indicated.
|
|
|
Years Ended December 31, |
| |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Revenue |
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
Instruction
costs and services |
|
|
32.2 |
|
|
30.1 |
|
|
30.6 |
|
Selling
and promotional |
|
|
14.0 |
|
|
13.2 |
|
|
13.7 |
|
General
and administrative |
|
|
41.8 |
|
|
39.6 |
|
|
39.1 |
|
|
Provision
for uncollectible accounts |
|
|
4.3 |
|
|
3.9 |
|
|
5.6 |
|
|
Total
operating expense |
|
|
92.3 |
|
|
86.8 |
|
|
89.0 |
|
Operating
income |
|
|
7.7 |
|
|
13.2 |
|
|
11.0 |
|
Interest
and other non-operating income |
|
|
0.2 |
|
|
0.2 |
|
|
0.4 |
|
|
Interest
expense |
|
|
---.-- |
|
|
---.-- |
|
|
0.3 |
|
Income
before income taxes |
|
|
7.9 |
|
|
13.4 |
|
|
11.1 |
|
|
Provision
for income taxes |
|
|
3.1 |
|
|
5.2 |
|
|
4.1 |
|
|
Net
Income |
|
|
4.8 |
% |
|
8.2 |
% |
|
7.0 |
% |
Safe
Harbor Statement
“Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 (the “Securities Act”) and Section 21E of the
Securities Exchange Act of 1934 (the “Exchange Act”), and the Company intends
that such forward-looking statements be subject to the safe harbors created
thereby. Statements in this Form 10-K containing the words “estimate,”
“project,” “anticipate,” “expect,” “intend,” “believe,” and similar expressions
may be deemed to create forward-looking statements which, if so deemed, speak
only as of the date the statement was made. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
This Form
10-K may contain forward-looking comments. Such comments are based upon
information currently available to management and management’s perception
thereof as of the date of this Form 10-K and may relate to: (i) the ability of
the company to realize increased enrollments from investments in infrastructure
made over the past year; (ii) ED’s enforcement or interpretation of existing
statutes and regulations affecting the Company’s operations; and (iii) the
sufficiency of the Company’s working capital, financings and cash flow from
operating activities for the Company’s future operating and capital
requirements. Actual results of the Company’s operations could materially differ
from those forward-looking comments. The differences could be caused by a number
of factors or combination of factors including, but not limited to, potential
adverse effects of regulations; impairment of federal funding; adverse
legislative action; student loan defaults; changes in federal or state
authorization or accreditation; changes in market needs and technology; changes
in competition and the effects of such changes; changes in the economic,
political or regulatory environments; litigation involving the Company; changes
in the availability of a stable labor force; or changes in management
strategies. Readers should take these factors into account in evaluating any
such forward-looking comments.
The
forward-looking statements are qualified by important factors that could cause
actual results to differ materially from those in the forward-looking
statements, including, without limitation, the following: (i) the Company’s
plans, strategies, objectives, expectations and intentions are subject to change
at anytime at the discretion of the Company; (ii) the effect of economic
conditions in the postsecondary education industry and in the nation as a whole;
(iii) the effect of the competitive pressures from other educational
institutions; (iv) the Company’s ability to reduce staff turnover and the
attendant operating inefficiencies; (v) the effect of government statutes and
regulations regarding education and accreditation standards, or the
interpretation or application thereof, including the level of government funding
for, and the Company’s eligibility to participate in, student financial aid
programs; and (vi) the role of ED and Congress, and the public’s perception of
for-profit education as it relates to changes in education regulations in
connection with the reauthorization or the interpretation or enforcement of
existing regulations.
Current
Trends and Recent Events
The
Company changed its organizational structure during the fourth quarter of 2004
and created a regional structure designed to provide focused support to
campuses. Four new positions were created: Vice President of Campus Operations,
Regional Director of Operations - Eastern Region, Regional Director of
Operations - Western Region and Regional Admissions Director.
State and
national elections preempted television advertising in many of the Company’s
markets during 2004. While this was anticipated some markets had an unusually
high number of preemptions compared to prior elections.
The
Company has three campuses in Florida; Tampa, Lauderdale Lakes, and
Jacksonville, that were impacted in some manner by the threat and effects of
hurricanes in the third quarter of 2004. All of the Company’s Florida campuses
are near coastal areas. While none of the Campuses experienced any material
building damage that required closure they experienced power outages, phone
outages and intermittent closures due to the threat of storms.
The
Company announced that it did not plan on releasing a financial forecast for
2005 due to several factors including consideration of several small
acquisitions during 2005 and the implementation of the new management
structure.
The
Company will implement Statement of Financial Accounting Standard (SFAS) No.
123R in its third quarter that begins July 1, 2005. This will require expensing
of stock based compensation plans. Compensation expense will be recorded for the
unvested portion of options outstanding at July 1, 2005, and additional
compensation expense will be recorded for new options granted and for shares of
stock purchased under the employee stock purchase plan. The Company has not
estimated the financial impact of this new regulation but believes it will have
a material effect on the Company’s financial statements.
The
student population was 5,148 at December 31, 2004 compared to 5,732 at December
31, 2003. The student population decrease was primarily due to decreased
enrollment demand. Student enrollments decreased 1.4% to 9,323 for the year
ended December 31, 2004 compared to 9,454 in 2003.
Operating
Results
2004
compared to 2003
Student
enrollments decreased 131 or 1.4 % to 9,323 for the year ended December 31, 2004
compared to 9,454 in 2003. Eleven new programs were added in 2004 and accounted
for 346 additional enrollments. Enrollments decreased 144 at one campus due to a
state board programmatic provisional accreditation extension (see Overview). The
remaining decrease of 202 was a result of reduced enrollments in programs that
have been active for at least twelve months. The decline in enrollments in this
category is due to increased competition in health care programs and the
Company’s inability to convert new student inquiries into enrollments. The
Company has changed its advertising mix and has increased leads from the
internet while reducing reliance on television and newspaper leads. Admission
Representatives require additional training to properly convert Internet leads
into enrollments. The Company changed its management structure in the fourth
quarter and is focusing on this issue. Enrollments in clinical programs were
1,994 in 2004 compared to 1,892 in 2003. Enrollments in core and other programs
were 7,329 in 2004 compared to 7,562 in 2003.
Student
population decreased 10.2% to 5,148 at December 31, 2004 compared to 5,732 at
December 31, 2003. Average student population for the year ended December 31,
2004 increased 2.3% to 5,991 compared to 5,859 for the same period in
2003.
Net
income was $3,922,000 for the year ended December 31, 2004 compared to
$6,163,000 in 2003. Profit decreased as expenses accelerated faster than
revenue. The year ended December 31, 2004 included $131,000 of payroll expense
related to one additional day of accrued payroll as compared to the same period
in 2003. This occurred in the first quarter of 2004. The remaining quarters of
2004 had the same number of payroll days as the corresponding periods in
2003.
The
Company was generally required to hire staff, purchase equipment and have
classroom space available prior to submitting new programs to accreditation
bodies for approval. As a result the Company has incurred expenses for new
program transplants (occupancy, depreciation and faculty) in advance of student
enrollments.
Revenue
increased 9.1% or $6,793,000 to $81,507,000 for the year ended December 31, 2004
compared to $74,714,000 for the same period in 2003. The revenue increased due
to additional average student population and an approximate 6% tuition increase
compared to 2003.
Instruction
Costs and Services - increased
16.7% or $3,744,000 to $26,226,000 compared to $22,482,000 in 2003. The increase
was primarily a result of increased salary expense compared to 2003. Salaries
increased $3,215,000 due to higher wages and an increase in the number of staff
compared to 2003. The Company had 43 additional full time equivalent (“FTE”)
employees for the year ended December 31, 2004 compared to year ended December
31, 2003. Instructional FTE’s increased 12.6% or 43 to 383 in 2004 compared to
340 in 2003. The Company added additional instructional staff as the average
population increased and in anticipation of new programs. Textbooks and
classroom supplies accounted for the remaining increase.
Selling
and Promotional -increased
16.2% or $1,596,000 to $11,435,000 compared to $9,839,000 in 2003. The increase
is primarily a result of additional newspaper and Internet advertising compared
to 2003. Internet advertising increased $659,000 to $1,030,000 compared to
$371,000 in 2003. Salaries increased $370,000 or 10.0% compared to 2003. The
increase is a result of increased salaries and approximately three additional
FTE employees compared to 2003.
General
and Administrative - increased
15.1% or $4,460,000 to $34,044,000 compared to $29,584,000 in 2003. Rent expense
increased $721,000. The increase was primarily the result of campus expansions
and acceleration of the rent for the old locations. Five campuses were moved to
new locations in 2003 and 2004 and additional space was leased at several
campuses. The Company leased approximately 354,000 square feet of space at
December 31, 2004 compared to 330,000 square feet at December 31, 2003. The
square footage increased approximately 24,000 feet at December 31, 2004 compared
to December 31, 2003. The Denver, Colorado Campus was moved to a new location
during March 2004. The lease on the previous location expired July 31, 2004. The
Company expensed the remaining lease liability of $103,000 for the old location
in the first quarter of 2004. The Portland, Oregon campus moved to a new
location in September 2004. The lease on the old location expired October 31,
2004. The Company paid rent for both the old and new location in September and
expensed the remaining lease liability of $21,000 for the old location in
September. Payroll increased $889,000 compared to 2003. Additional employees
added support to the campuses, higher wages, and one additional day of payroll
were factors in the increase. Depreciation expense increased $617,000 as capital
expenditures increased during 2004. Capital expenditures were primarily related
to leasehold improvements and new equipment for campus moves and transplanted
programs. The Company has increased capital expenditures in the last two years
in preparation of transplanting programs and moving campuses to new expanded
facilities. Professional fees increased $486,000 due to regulatory filings and
legal costs. Health insurance expense increased $319,000 due to increased
claims, administrative expenses, and additional employees participating in the
health plan. Employee procurement increased $371,000 as expenses increased for
the cost of new hires. Outside services increased $333,000 compared to 2003. The
primary factor related to this increase is approximately $257,000 related to
Sarbanes-Oxley Section 404 compliance. This includes fees paid to Grant
Thornton, L.L.P., who were contracted to assist the company with this compliance
as well as BKD, LLP who audited the Company’s internal controls. The Company
also experienced increased expenses in several other categories as average
student population increased 2.3%.
Provision
for Uncollectible Accounts - increased
$630,000 to $3,523,000 compared to $2,893,000 in 2003. Students that dropped
from their program of study as a percentage of population increased to 6.2% in
2004 from 5.5% at December 31, 2003. Accounts receivable due from dropped
students are generally less collectible than balances due from graduates.
Therefore, an increase in the drop percentage in future quarters may lead to an
increase in the provision for uncollectible accounts as a percentage of revenue
in future periods. Accounts receivable due from dropped students increased
$835,000 to $2,658,000 at December 31, 2004 compared to $1,823,000 at December
31, 2003.
Interest
and Other Non-Operating Income - increased
to $207,000 for the year ended December 31, 2004 compared to $179,000 in 2003.
The Company maintains its cash and temporary investments in short-term highly
liquid accounts including CD’s and money markets.
Interest
Expense - was
$24,000 for the year ended December 31, 2003. The
Company’s subordinated debt was eliminated in February 2003 and the Company was
no longer required to make interest payments after that date. See discussion
under Liquidity and Capital Resources.
Provision
for Income Taxes - a tax
provision of $2,564,000 or 39.5% of pretax income was recorded for the year
ended December 31, 2004 compared to $3,908,000 or 38.8% in 2003.
EPS
and Weighted Average Common Shares - Basic
weighted average common shares increased to 5,980,000 in 2004 from 5,880,000 in
2003. Common shares increased due to the Company’s employee stock purchase plan
and stock options exercised. Basic income per share was $.66 in 2004 compared
with $1.05 in 2003. Diluted weighted average common shares outstanding increased
to 6,322,000 in 2004 from 6,250,000 in 2003. The average common shares increased
due to stock options not yet exercised. Diluted income per share was $.62 for
the year ended December 31, 2004 compared with $.99 for 2003.
2003
compared to 2002
Student
population was 5,732 at December 31, 2003 compared to 5,056 at December 31,
2002. The student population increase was primarily due to increased demand for
courses. Student enrollments increased 11.1% to 9,454 for the year ended
December 31, 2003 compared to 8,510 in 2002. Three new courses added 211
enrollments to the Campuses during 2003. The Arlington, Texas campus purchased
in August 2002 contributed 155 additional enrollments compared to 2002 excluding
one new course mentioned above. The remaining enrollment increase of 578 or 6.8%
was from existing programs at established Campuses.
Net
income of $6,163,000 was recorded for the year ended December 31, 2003 compared
to $4,234,000 for the year ended December 31, 2002. The increase in net income
was attributable to increased student enrollment and related revenues exceeding
increased costs. Total operating expense as a percentage of revenue decreased to
86.8% in 2003 from 89.0% in 2002.
Revenue
increased 22.3% or $13,602,000 to $74,714,000 for the year ended December 31,
2003 compared to $61,112,000 in 2002. Revenue increased due to higher student
enrollments, increased average student population and an approximate 5.4% price
increase. Approximately $416,000 of the revenue increase was due to the
elimination of an estimate for refunds of tuition. Average student population
increased 15.6% to 5,859 in 2003 compared with 5,069 in 2002.
Instruction
Costs and Services - increased
$3,773,000 or 20.2% to $22,482,000 compared to $18,709,000 in 2002. The increase
from 2002 was primarily a result of increased salaries, textbooks, and uniform
expense due to additional enrollments. Salaries increased $2,846,000 and
textbook and uniform expense increased $927,000 compared to 2002. The average
per hour wage for the instructional staff increased approximately 5%. There was
an approximate 15% increase in full time equivalent (“FTE”) employees compared
to 2002. This was a result of the enrollment growth the Company had in 2003.
Textbook and uniform expense increased as a result of the enrollment
growth.
Selling
and Promotional - increased
$1,449,000 or 17.3% to $9,839,000 compared to $8,390,000 in 2002. The increase
was due to additional advertising expense and salaries compared to 2002.
Advertising expense increased $1,238,000 to generate more leads. The Company’s
two major advertising sources, television and newspaper, increased a combined
$1,019,000 or 26.8% compared to 2002. The Company also increased Internet
advertising $188,000 and anticipates increased spending in this area in 2004.
Salaries increased 6.0% or $211,000 due to regular salary increases and an
approximate 7% increase in FTE employees.
General
and Administrative -
increased 23.9% or $5,713,000 to $29,584,000 compared to $23,871,000 in 2002.
The increase was primarily the result of additional payroll, rent, insurance
expense, depreciation, and employee procurement. Administrative payroll
increased $1,500,000 as the Company added staff at Campuses to provide services
for the increased enrollments. Administrative FTE employees increased
approximately 10% in 2003 compared to 2002. As the Company grows, additional
staff will be required to effectively service students. Rent increased $851,000
due to annual rent increases, additional leased space at current locations, and
higher rent due to two Campus moves. The Company moved two Campuses to larger
facilities in 2003 due to capacity and parking constraints. The Arlington, Texas
Campus moved in June 2003 and the San Bernardino, California Campus moved in
February 2003. The Arlington Campus, purchased in August 2002, added rent
expense with the facility move in 2003. In addition, the Company did not have a
full year of rent expense for Arlington in 2002. The Company added space at
several locations during 2003 in anticipation of adding new programs. Insurance
expense increased $332,000 compared to 2002 from increased insurance premiums.
All categories of insurance expense increased compared to the prior year.
However, Worker’s Compensation insurance accounted for the largest increase. The
Company has improved management of Worker’s Compensation insurance in the past
three years. This has offset increased rates mandated by individual states.
Depreciation expense increased $451,000 to $1,408,000 compared to $957,000 in
2002. Depreciation has increased as capital expenditures increased for 2003 to
$3,264,000. Capital expenditures related to the two Campus moves were $1,640,000
for leasehold improvements and equipment. Employee procurement increased
$536,000 to $1,297,000 compared to $761,000 in 2002. The Company has seen a
significant increase in this expense due to enrollment growth and increased
competition to hire qualified instructors and staff. The Company experienced
increased expenses in most other general and administrative expense categories
as enrollment increased 11.1% compared to 2002. In 2002, the Company received an
insurance settlement of $306,000 for damages at the Lauderdale Lakes, Florida
Campus in 2000. The settlement was recorded as a reduction of expense in the
fourth quarter of 2002
Provision
for Uncollectible Accounts -
decreased $549,000 during 2003. The Company improved student retention and
increased efforts in the collections area. The number of student drops as a
percentage of population decreased to 5.5% in 2003 from 6.3% in 2002. A higher
percentage of students completing their programs generally results in lower
write-offs. The Company also improved its’ collections of student receivables
for students out of school. However, the provision as a percentage of revenue
has increased each quarter in 2003. The Company anticipates that the provision
for uncollectible accounts may increase in future periods as enrollments
increase.
Interest
and Other Non-Operating Income - decreased
$52,000 to $179,000 compared to $231,000 in 2002. Interest income continued to
decrease due to falling interest rates in 2003. The Company had larger cash
balances in 2003 but the interest rate decreases accounted for the decreased
interest income.
Interest
Expense - decreased
$152,000 to $24,000 compared to $176,000 in 2002 due to conversion of the
subordinated debt to equity. The Company anticipates it will not have any
interest expense in 2004.
Provision
for Income Taxes - a tax
provision of $3,908,000 or 38.8% of pretax income was recorded in 2003 compared
to $2,521,000 or 37.3% of pretax income in 2002.
EPS
and Weighted Average Common Shares - Basic
weighted average common shares increased to 5,880,000 in 2003 from 4,533,000 in
2002. Basic income per share was $1.05 in 2003 compared to $.85 in 2002. Basic
income per share is shown after a reduction for preferred stock dividend
accretion of $214,000 in 2002. In addition, basic income per share is shown
after the special dividend payment of $174,000 for the early payment of the 2003
dividends; see discussion of Cahill, Warnock transaction under Liquidity and
Capital Resources. Diluted weighted average common shares outstanding increased
to 6,250,000 in 2003 from 6,142,000 in 2002. Diluted income per share was $.99
for the year ended December 31, 2003 compared to $.68 in 2002. Diluted income
per share is shown after interest on convertible debt, net of tax of $108,000 in
2002. In addition, diluted income per share is shown after the special dividend
payment of $174,000 for the early payment of the 2003 dividends; see discussion
of Cahill, Warnock transaction under Liquidity and Capital
Resources.
2002
compared to 2001
The
student population was 5,056 at December 31, 2002 compared to 4,269 at December
31, 2001. The student population increase was primarily due to increased demand
for courses. Student enrollments increased 20.2% to 8,510 for the year ended
December 31, 2002 compared to 7,080 in 2001. Two new courses at current
locations increased enrollment by 133 students. The Arlington, Texas campus
purchased in August 2002 contributed 49 new enrollments. The remaining
enrollment increase of 1,248 or 17.2% was from existing programs at established
schools.
Net
income of $4,234,000 was recorded for the year ended December 31, 2002 compared
to $1,633,000 for the year ended December 31, 2001. The increase in net income
is mostly attributable to increases in student enrollment and related revenues
exceeding increases in variable costs. Total operating expenses as a percentage
of revenues decreased to 89.0% in 2002 from 94.9% in 2001.
Revenue
increased 24.6% or $12,063,000 to $61,112,000 for the year ended December 31,
2002 compared to $49,049,000 in 2001. The revenue increased due to higher
student enrollments, increased average student population and a small price
increase. Average student population increased 19.1% to 5,069 in 2002 compared
with 4,257 in 2001.
Instruction
Costs and Services - increased
$1,379,000 or 8.0% to $18,709,000 compared to $17,330,000 in 2001. The increase
from 2001 was primarily a result of increased salaries due to additional
enrollments. Salaries increased $1,215,000 compared to 2001.
Selling
and Promotional - increased
$621,000 or 8.0% to $8,390,000 compared to $7,769,000 in 2001. The increase was
due to additional advertising expenses and salaries compared to 2001.
Advertising and salary expense increased $226,000 and $395,000, respectively to
generate more prospective student leads.
General
and Administrative - increased
25.0% or $4,767,000 to $23,871,000 compared to $19,104,000 in 2001. The increase
was primarily the result of additional payroll, rent, insurance expense, and
health insurance. Administrative payroll increased $2,382,000 as enrollments
improved compared to 2001. Rent increased $413,000 due to annual rent increases,
additional leased space at current locations, and rent at the new Campus in
Arlington, Texas. Insurance expense increased $439,000 compared to 2001 as a
result of higher insurance premiums. Health insurance increased $473,000 due to
higher administrative expenses and claims filed in 2002. The Company received an
insurance settlement of $306,000 for damages done to its’ Lauderdale Lakes,
Florida Campus in 2000. The settlement was recorded as a reduction of expenses
in the fourth quarter of 2002. The Company also experienced increases in several
other categories as enrollments increased 20.2% compared to 2001.
Provision
for Uncollectible Accounts - increased
$1,083,000 during 2002. This increase is attributable to the $12,063,000
increase in revenues, the $3,256,000 increase in accounts and notes receivable
from December 31, 2001 and a slight deterioration in the aging of accounts
receivable. The accounts and notes receivable increased due to higher student
enrollments.
Other
Non-Operating Income - decreased
$211,000 to $231,000 compared to $442,000 in 2001. The decrease was primarily a
result of the Company recognizing the $157,500 remaining balance of the
Person/Wolinsky non-compete agreement as income in the second quarter of 2001,
see discussion under Asset Sales. In addition, interest income decreased due to
falling interest rates in 2002.
Interest
Expense - decreased
$6,000 or 3.3% to $176,000 compared to $182,000 in 2001.
Provision
for Income Taxes - a tax
provision of $2,521,000 or 37.3% of pretax income was recorded in 2002 compared
to $1,114,000 or 40.6% of pretax income in 2001.
EPS
and Weighted Average Common Shares - Basic
weighted average common shares increased to 4,533,000 in 2002 from 3,940,000 in
2001. Basic income per share was $.85 in 2002 compared to $.36 in 2001. Basic
income per share is shown after a reduction for preferred stock dividend
accretion of $214,000 and $226,000 in 2002 and 2001, respectively. In addition,
basic income per share is shown after the special dividend payment of $174,000
for the early payment of the 2003 dividends; see discussion of Cahill, Warnock
transaction under Liquidity and Capital Resources. Diluted weighted average
common shares outstanding increased to 6,142,000 in 2002 from 5,473,000 in 2001.
Diluted income per share was $.68 for the year ended December 31, 2002 compared
to $.28 in 2001. Diluted income per share is shown after a reduction for
preferred stock dividend accretion of $226,000 in 2001 and interest on
convertible debt, net of tax of $108,000 in 2002 and $105,000 in 2001. In
addition, diluted income per share is shown after the special dividend payment
of $174,000 for the early payment of the 2003 dividends; see discussion of
Cahill, Warnock transaction under Liquidity and Capital Resources.
Liquidity
and Capital Resources
The
Company’s students paid a substantial portion of tuition and other fees with
funds received through student assistance financial aid programs under Title IV
of the Higher Education Act of 1965, as amended (the "HEA"). The Company
received approximately 79% of cash revenue from such funds for the year ended
December 31, 2004 compared to 81% for 2003. Nearly 100% of the Company’s
students qualify for some type of federal financial assistance.
Accounts
receivable are due from students and are primarily expected to be paid through
the use of federal and state sources of funds. Students are responsible for
amounts not available through federal and state sources and unpaid amounts due
when the student withdraws. The Company expects that non-Title IV accounts and
notes receivable due from students may increase in the future as student
enrollment increases and that the related provision for uncollectible accounts
may also increase.
Cahill,
Warnock Transactions
The
Company entered into agreements on February 25, 1997 with Cahill, Warnock
Strategic Partners Fund, LP and Strategic Associates, LP, affiliated
Baltimore-based venture capital funds (“Cahill-Warnock”), for the issuance by
the Company and purchase by Cahill-Warnock of 55,147 shares of the Company’s new
Class B Voting Convertible Preferred Stock (“Voting Preferred Stock”) for $1.5
million, and 5% Debentures due 2003 (“New Debentures”) for $3.5 million
(collectively, the “Cahill Transaction”). Cahill-Warnock subsequently assigned
(with the Company’s consent) its rights and obligations to acquire 1,838 shares
of Voting Preferred Stock to James Seward, a Director of the Company. Mr. Seward
purchased such shares for their purchase price of approximately $50,000. On
September 30, 2001, Mr. Seward converted his 1,838 shares of Voting Preferred
Stock into 18,380 shares of Common Stock. The New Debentures had nondetachable
warrants (“Warrants”) for approximately 1,286,765 shares of Common Stock,
exercisable at $2.72 per share of Common Stock. The following transactions have
occurred with respect to the Voting Preferred Stock and New Debentures since
December 31, 2001:
| (1) |
The
Company entered into a Conversion and Exchange Agreement with Cahill,
Warnock Strategic Partners Fund, L.P. and Strategic Association, L.P.
(collectively “Cahill-Warnock”) on November 25, 2002. The purpose of the
agreement was to convert the Voting Preferred Stock into Common
Stock. |
| (2) |
The
Company filed a Registration Statement on Form S-3 to register 1,133,090
shares of common stock. The Registration Statement was effective February
5, 2003. The Company received no funds as a result of the registration or
subsequent distribution of common stock. Six hundred thousand (600,000)
shares of the common stock were issued and outstanding as of the date of
the Registration Statement. The Robert F. Brozman Trust held 350,000
shares, Cahill, Warnock Strategic Partners Fund, L.P. held 237,000 shares,
and Strategic Associates, L.P. held 13,000 shares. The remaining 533,090
shares related to common shares issued upon conversion of the preferred
stock to common stock. |
| (3) |
The
Securities and Exchange Commission declared the Registration Statement
effective February 5, 2003. |
| (4) |
Cahill-Warnock
exchanged their 53,309 shares of Class B Voting Convertible Preferred
Stock for 533,090 shares of Common Stock on February 7, 2003. The Company
has no remaining Preferred Stock
outstanding. |
| (5) |
The
Company paid to Cahill-Warnock a dividend equal to $4.08 per share of the
Class B Voting Convertible Preferred Stock on February 7, 2003. This
constituted all dividend payments owed to Cahill-Warnock including the
fourth quarter 2002 dividend of $43,500 and a special dividend to
encourage the conversion of $174,000. |
| (6) |
Cahill-Warnock
exercised the non-detachable Warrants on February 19, 2003, at which time
they were cancelled. |
| (7) |
The
Company issued 1,286,765 shares of Common Stock to Cahill-Warnock pursuant
to the exercise of the Warrants and the New Debentures were cancelled,
effective February 19, 2003. |
| (8) |
The
Company filed a Registration Statement on Form S-3 to register 1,286,765
shares of common stock. The Registration Statement was effective March 26,
2004. The Company received no funds as a result of the registration.
|
Please
see note 8 of Notes to the Consolidated Financial Statements concerning the
pro-forma effect of the redemption of debentures and related exercise of
warrants.
Credit
Facility
The
Company secured a $3,000,000 revolving credit facility with Security Bank of
Kansas City in 1997. As of December 31, 2004, the full amount is available under
this facility. This facility is due to expire on April 30, 2005 and the Company
currently plans to let the facility expire since the Company currently does not
anticipate a use for the facility. This facility has a variable interest rate of
prime plus one percent, and no commitment fee. The credit facility is secured by
all cash, accounts and notes receivable, furniture and equipment, and capital
stock of the subsidiaries. The Company is required to maintain a minimum level
of subordinated debt plus consolidated tangible net worth of not less than
$7,600,000 as part of this agreement. The Company has not borrowed any funds
under this facility.
On
October 2, 2004, a $118,000 letter of credit as security for a lease on the
Garden Grove, California location expired.
Other
The
Company entered into a $367,000 letter of credit with Commerce Bank in March
2004. The letter of credit is used to secure worker’s compensation claims for
the Company’s worker’s compensation insurance from April 1, 2004 through March
31, 2005. The letter of credit is secured by certificates of deposit in the same
amount that expire on March 31, 2005. The Company anticipates renewing the
letter of credit to secure worker’s compensation claims for the Company’s
insurance period of April 1, 2005 through March 31, 2006. This may be at a
higher amount than the previous year.
The
Company changed its worker’s compensation insurance plan from a guaranteed cost
plan to a high deductible plan effective April 1, 2004. The high deductible plan
requires the Company to pay all worker’s compensation claims for the plan year
as they are incurred up to certain limits in addition to a premium paid to the
insurance carrier for claims processing and administrative costs. The Company
will pay individual claims up to $250,000 with an annual aggregate deductible of
$1,250,000. The previous plan required the Company to pay premiums to its
insurance carrier for all estimated costs of the worker’s compensation insurance
with the carrier assuming all risk for individual claims with no deductible. The
new plan has resulted in lower insurance costs compared to the Company’s prior
plan as of December 31, 2004. The Company believes that by assuming the risk
associated with the new plan that it will reduce the overall cost associated
with worker’s compensation insurance for future periods. However, the cost of
the new plan may increase in future periods. The Company’s worker’s compensation
claims for any of the prior four years have not exceeded $367,000 and in most
years have been significantly below this amount.
Cash
Flows and Other
Cash
provided by operating activities was $6,416,000 for the year ended December 31,
2004 compared with $10,454,000 in 2003. Cash flows from operating activities
decreased due to a decrease in net income of $2,241,000. In addition, net
receivables less deferred revenue decreased cash flows from operating activities
$4,627,000 in 2004 compared to $1,649,000 in 2003. The decreases were offset by
$2,083,000 received from landlords in 2004 to fund leasehold
improvements.
Cash used
in investing activities was $10,569,000 for the year ended December 31, 2004
compared to $3,773,000 in 2003. Capital expenditures increased $2,416,000 in
2004 compared to 2003. The Company purchased $4,374,000 in short term
investments in 2004 compared to a minimal change in short-term investments
during 2003. Capital expenditures increased as the Company moved three campuses
during 2004. Capital expenditures for the three campuses were approximately
$4,363,000. The remaining capital expenditures were for leasehold improvements
and computers at current locations.
Cash used
by financing activities was $421,000 for the year ended December 31, 2004
compared with cash provided of $792,000 in 2003. The primary difference was the
result of dividends paid in 2003, stock options exercised in 2003, and treasury
stock purchased in 2004. The Company paid to Cahill-Warnock a dividend equal to
$4.08 per share of the Class B Voting Convertible Preferred Stock on February 7,
2003. This constituted all dividend payments owed to Cahill-Warnock, including
the fourth quarter 2002 dividend of $43,500 and a special dividend to encourage
the conversion of the Preferred Stock. In addition, the Company purchased
$828,000 of treasury stock in 2004 compared to $35,000 in 2003 and received
$287,000 for stock options exercised, including tax benefit, compared with
$930,000 in 2003.
The Board
approved a 500,000 shares repurchase program in August 2000. The Board approved
a 500,000 share increase to its repurchase program in November 2004. The
authorization increased the total repurchase program to 1,000,000 shares. As of
December 31, 2004, the Company had purchased a total of 335,735 shares at an
average price of $5.73 pursuant to the plan. The Company purchased 19,900 shares
during 2002 at an average price of $11.18, 2,800 shares during 2003 at an
average price of $12.52, and 56,800 shares at an average price of $14.57 in
2004. The share repurchase plan remains in effect.
On
February 27, 2003, the Board unanimously adopted the Concorde Career Colleges,
Inc. 2003 Long-term Executive Compensation Plan (the “Compensation Plan”). The
Company’s shareholders approved the Compensation Plan at the Annual Meeting held
on May 27, 2004. The Compensation Plan provides an aggregate 200,000 incentive
stock options to be issued to certain employees as authorized by the
Compensation Committee of the Board.
The
Company has additional incentive stock option plans (the “2002 Option Plan,”
“2000 Option Plan” and the “1998 Option Plan”) which authorize the Company to
issue 300,000, 125,000 and 250,000 shares, respectively, of its common stock to
certain officers and employees of the Company. Options for all plans, including
the 2003 Compensation Plan, are granted at fair market value or greater on the
date of grant for a term of not more than ten years unless options are canceled
due to employee termination. As of December 31, 2004, 7,800 shares remain
available to be granted with all of the option plans.
On
February 27, 2003 the Board unanimously adopted the Concorde Career Colleges,
Inc. Restated Employee Stock Purchase Plan (“Employee Plan”). The Plan was
approved by the Company’s shareholders at its Annual Meeting held on May 22,
2003. An aggregate of 75,000 shares of Common Stock of the Company are subject
to the Employee Plan and are reserved for issuance under such Plan. Options to
purchase 15,000 shares of Common Stock of the Company are to be offered to
participants for purchase in the first year (commencing October 1, 2003 and
ending September 30, 2004) and each of the four succeeding plan years. The
option price of Common Stock purchased with payroll deductions made during such
annual, semi-annual or calendar-quarterly offering for participant therein shall
be the lower of:
| |
(a)
|
95%
of the closing price of the Common Stock on the Offering Commencement Date
or the nearest prior business day on which trading occurred on the NASDAQ
Stock Market; or |
| |
(b)
|
95%
of the closing price of the Common Stock on the Offering Termination Date
or the nearest prior business day on which trading occurred on the NASDAQ
Stock Market. |
The
Company meets its working capital, capital equipment purchases and cash
requirements with funds generated internally. Management currently expects its
cash on hand, funds from operations and borrowings available under existing
credit facilities to be sufficient to cover both short-term and long-term
operating requirements. However, cash flows are dependent on the Company’s
ability to maintain Title IV eligibility, maintain demand for programs and to
minimize uncollectible accounts receivable through effective collections and
improved retention.
The
Company has no off balance sheet financing arrangements.
Contractual
Obligations and Commercial Commitments
The
Company’s contractual obligations and other commercial commitments are
summarized below as of December 31, 2004:
|
Year
Ending December 31, |
Facility
Operating
Leases |
Other
Operating
Lease |
Capital
Asset Obligations |
Purchase
Obligations |
|
2005 |
$ 5,056,000 |
$8,000 |
$148,000 |
$498,000 |
|
2006 |
4,840,000 |
--- |
--- |
184,000 |
|
2007 |
4,541,000 |
--- |
--- |
82,000 |
|
2008 |
4,515,000 |
--- |
--- |
--- |
|
2009 |
4,479,000 |
--- |
--- |
--- |
|
Thereafter |
24,694,000 |
--- |
--- |
--- |
|
Total |
$
48,125,000 |
$8,000 |
$
148,000 |
$764,000 |
Facility
operating leases consist of the Company rental agreements for its building and
office space rentals.
The other
operating lease is for the Chief Executive Officer’s automobile.
Capital
asset obligations consist of contracts for leasehold improvements at several
campuses.
Purchase
obligations consist of outstanding purchase orders and commitments for
telecommunications and copier contracts.
Critical
Accounting Policies and Estimates
The
Company’s consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. The preparation of the financial
statements requires us to make estimates and judgments that affect the reported
amount of assets and liabilities, revenues and expenses and contingent assets
and liabilities. Actual results may differ from those estimates and judgments
under different assumptions or conditions. The Company evaluates on a continuing
basis, our estimates, including those related to allowance for uncollectible
accounts and intangible assets. The Company bases estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. The Company believes the following critical accounting
policies affect our more significant judgments and estimates used in the
preparation of our financial statements:
Allowance
for Uncollectible Accounts
Accounts
and notes receivable are due from students and are expected to be paid primarily
through the use of federal and state sources of funds. Students are responsible
for amounts not available through federal and state sources and unpaid amounts
due when the student withdraws. The Company offers a variety of payment plans to
students for payment of the portion of their education expense not covered by
financial aid programs. These balances are unsecured and not guaranteed. The
Company maintains an allowance for uncollectible accounts for estimated losses
resulting from the inability or failure of our students to make required
payments. The Company bases its allowance for uncollectible accounts on the
aging of student payments. Historical experience of the collectbility of student
payments is analyzed to assign each aging category a percentage that the Company
believes will be uncollectible. The allowance percentages range from 2.5% to
100% based on the aging category of the student balances. The Company
continually tests its allowance and has found that it is reasonable. The Company
realized a higher level of uncollectible accounts receivable from students
during 2004 compared to 2003. The provision for uncollectible accounts as a
percentage of revenue was 4.3% in 2004 compared to 3.9% in 2003. Depending on
the effectiveness of the Company’s internal and external collection efforts, the
provision for uncollectible accounts may vary as a percentage of revenue in
future periods. The Company expects that non-Title IV accounts and notes
receivable due from students may increase in the future as student enrollment
increases and that the related provision for uncollectible accounts may also
increase. Based on the Company’s analysis, the Company believes its’ allowance
for uncollectible accounts is reasonable. However, losses may exceed the
allowance if students pay at different rates than they did
historically.
Intangible
Assets
The
Company has intangible assets, including goodwill and non-compete agreements.
The determination of related estimated useful lives and whether or not these
assets are impaired involves significant judgments. The Company reviews
intangible assets whenever certain events occur or there are changes in
circumstances for impairment by comparing the carrying value to future
undiscounted cash flows. To the extent that there is impairment, analysis is
performed based on several criteria, including but not limited to, revenue
trends, discounted operating cash flows and other operating factors to determine
the impairment amount. In addition, a determination is made by management to
ascertain whether goodwill has been impaired. Analysis is performed on an
operating business unit basis under the fair value method. If the review
indicates that goodwill is not recoverable, the Company would recognize an
impairment loss.
Revenue
Recognition
The
Company establishes an account receivable and a corresponding deferred revenue
liability for each student upon commencement of a program of study. The deferred
revenue liability, consisting of tuition and non-refundable registration fees,
is recognized into income ratably over the length of the program including
externship if applicable. If a student withdraws from a program, the unearned
portion of the tuition for which the student has paid is refunded on a pro-rata
basis. Textbook and uniform sales are recognized when they occur.
Most
students enrolled at the Company’s Campuses utilize state and federal government
grants and/or guaranteed student loan programs to finance their tuition. During
2004, 79 percent of its cash receipts were derived from funds obtained by
students through federal Title IV student aid programs and 21 percent were
derived from state sponsored student education and training programs and cash
received from students and other sources.
Contingencies
The
Company assessed each Campus’ compliance with the regulatory provisions
contained in 34 CFR 600.5(d) - (e) for the year ended December 31, 2004. These
provisions state that the percentage of cash revenue derived by federal Title IV
student assistance program funds cannot exceed 90% of total cash revenues. This
is commonly referred to as the 90/10 Rule which was modified as part of
legislation extending the Higher Education Act of 1965, as amended. During 2004,
the Campus’ percentages of Title IV Funds ranged from 66.7% to
87.5%.
New
Accounting Pronouncements
On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123 (revised), "Share-Based
Payment" ("SFAS 123(R)" or the “standard”). The standard requires expensing of
stock options and other share-based payments beginning in 2005, and supersedes
FASB's earlier rule (the original SFAS 123) that had allowed companies to choose
between expensing stock options or showing pro forma disclosure only. Public
companies will be required to measure the cost of employee services received in
exchange for an award of equity instruments based on a grant-date fair value of
the award (with limited exceptions), and that cost must generally be recognized
over the vesting period. The FASB does not specify a preference for using a
closed form valuation method (such as Black Scholes Merton) or a lattice method
(such as a binomial model). The Company is required to implement the standard as
of July 1, 2005. Transition provisions set forth by SFAS 123(R) include the
“modified prospective” method and “modified retrospective” method. The Company
has not estimated the financial impact of this new regulation but believes it
will have a material effect on the Company’s financial statements.
SFAS 153,
Exchanges of Nonmonetary Assets - Issued December 16, 2004, SFAS 153 represents
an amendment of APB No. 29, Accounting for Nonmonetary Transactions. SFAS 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after the date of issuance. The
provisions of SFAS 153 are to be applied prospectively.
SFAS 151,
Inventory Costs - Issued November 24, 2004, SFAS 151 represents an amendment of
ARB No. 43, Chapter 4. FASB announced it believes SFAS 151 will improve
financial reporting by clarifying that abnormal amount of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be recognized as
current-period charges and by requiring the allocation of fixed production
overheads to inventory based on the normal capacity of the production
facilities. SFAS 151 is effective for inventory costs incurred during fiscal
years beginning after June 15, 2005. Earlier application is permitted for
inventory costs incurred during fiscal years beginning after November 23, 2004.
The standard is to be applied prospectively.
Item
7a. Quantitative and Qualitative Disclosures about Market
Risk.
The
Company’s exposure to market risk for changes in interest rates relate to the
increase or decrease in the amount of interest income the Company can earn on
short-term investments in certificate of deposits and cash balances. Because the
Company’s investments are in short-term, investment-grade, interest-bearing
securities, the Company is exposed to minimum risk on the principal of those
investments. The Company ensures the safety and preservation of its invested
principal funds by limiting default risks, market risk and investment risk. The
Company does not use derivative financial instruments.
Item
8. Financial Statements and Supplementary Data
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
| |
Page |
|
Concorde
Career Colleges, Inc. and Subsidiaries: |
|
| |
|
|
Report
of Management on Concorde Career Colleges, Inc.’s Internal Control over
Financial Reporting |
II-15 |
| |
|
|
Report
of Independent Registered Public Accounting Firm |
II-16 |
| |
|
|
Report
of Independent Registered Public Accounting Firm |
II-17 |
| |
|
|
Consolidated
Balance Sheets-December 31, 2004 and 2003. |
II-18 |
| |
|
|
Consolidated
Statements of Operations-Years Ended December 31, 2004, 2003 and
2002 |
II-20 |
| |
|
|
Consolidated
Statements of Cash Flows-Years Ended December 31, 2004, 2003 and
2002 |
II-21 |
| |
|
|
Consolidated
Statements of Changes In Stockholders' Equity- |
|
|
Years
Ended December 31, 2004, 2003 and 2002 |
II-22 |
| |
|
|
Notes
to Consolidated Financial Statements-Years Ended December 31, 2004, 2003
and 2002 |
II-23 |
Report
of Management on Concorde Career Colleges, Inc.’s Internal Control over
Financial Reporting
March 5,
2005
We, as
members of management of Concorde Career Colleges, Inc., are responsible for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rules 13a-15(f). Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of our
management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of our assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, our internal control over financial reporting may
not prevent or detect misstatements. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, have
been detected. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies and
procedures may deteriorate.
We, under
the supervision of and with the participation of our management, including the
Chief Executive Officer and Chief Financial Officer, assessed the Company's
internal control over financial reporting as of December 31, 2004, based on
criteria for effective internal control over financial reporting described in
"Internal Control - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, we concluded
that we maintained effective internal control over financial reporting as of
December 31, 2004, based on the specified criteria.
Management's
assessment of the effectiveness of our internal control over financial reporting
has been audited by BKD LLP, an independent registered public accounting firm,
as stated in their report which is included herein.
(The
remainder of this page left intentionally blank.)
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit
Committee, Board of Directors and Stockholders
Concorde
Career Colleges, Inc.
Mission,
Kansas
We have
audited the accompanying consolidated balance sheets of Concorde Career
Colleges, Inc. and subsidiaries as of December 31, 2004 and 2003 and the related
consolidated statements of operations, changes in stockholders’ equity and cash
flows for each of the years in the three-year period ended December 31, 2004.
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 in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Concorde Career
Colleges, Inc. and subsidiaries as of December 31, 2004 and 2003 and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Concorde Career Colleges,
Inc. and Subsidiaries’ internal control over financial reporting as of December
31, 2004 based on criteria established in Internal
Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
and our report dated March 7, 2005 expressed unqualified opinions on
management’s assessment and on the effectiveness of the Company’s internal
control over financial reporting.
BKD,
LLP
Kansas
City, Missouri
March 7,
2005
(The
remainder of this page left intentionally blank.)
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit
Committee, Board of Directors and Stockholders
Concorde
Career Colleges, Inc.
Mission,
Kansas
We have
audited management’s assessment, included in the accompanying Report of
Management on Concorde Career Colleges, Inc. Internal Control over Financial
Reporting, that Concorde Career Colleges, Inc. and Subsidiaries maintained
effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal
Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management’s assessment and an opinion on the effectiveness of the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit includes obtaining an understanding of internal control over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control and performing such
other procedures as we consider necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, management’s assessment that Concorde Career Colleges, Inc. and
Subsidiaries maintained effective internal control over financial reporting as
of December 31, 2004, is fairly stated, in all material respects, based on
criteria established in Internal
Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Also in our opinion, Concorde Career Colleges, Inc. and Subsidiaries maintained,
in all material respects, effective internal control over financial reporting as
of December 31, 2004, based on criteria established in Internal
Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements of
Concorde Career Colleges, Inc. and Subsidiaries and our report dated March 7,
2005 expressed an unqualified opinion thereon.
BKD,
LLP
Kansas
City, Missouri
March 7,
2005
CONCORDE
CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
|
|
December 31, |
| |
|
|
2004 |
|
|
2003 |
|
|
Current
Assets: |
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
12,676,000 |
|
$ |
17,250,000 |
|
|
Restricted
short-term investments |
|
|
367,000 |
|
|
|
|
|
Short-term
investments |
|
|
6,570,000 |
|
|
2,563,000 |
|
|
Receivables |
|
|
|
|
|
|
|
|
Accounts
and notes receivable |
|
|
24,259,000 |
|
|
24,247,000 |
|
|
Allowance
for uncollectible accounts and notes |
|
|
(2,039,000 |
) |
|
(1,652,000 |
) |
|
Net
receivables |
|
|
22,220,000 |
|
|
22,595,000 |
|
|
Recoverable
income taxes |
|
|
1,197,000 |
|
|
|
|
|
Deferred
income taxes |
|
|
992,000 |
|
|
833,000 |
|
|
Supplies
and prepaid expenses |
|
|
2,803,000 |
|
|
2,400,000 |
|
|
Total
current assets |
|
|
46,825,000 |
|
|
45,641,000 |
|
| |
|
|
|
|
|
|
|
|
Fixed
Assets, Net |
|
|
9,896,000 |
|
|
5,397,000 |
|
| |
|
|
|
|
|
|
|
|
Other
Assets: |
|
|
|
|
|
|
|
|
Notes
receivable |
|
|
1,709,000 |
|
|
1,327,000 |
|
|
Allowance
for uncollectible notes |
|
|
(586,000 |
) |
|
(348,000 |
) |
|
Net
long-term notes receivable |
|
|
1,123,000 |
|
|
979,000 |
|
|
Goodwill |
|
|
954,000 |
|
|
954,000 |
|
|
Intangible,
net |
|
|
111,000 |
|
|
184,000 |
|
|
Total
other assets |
|
|
2,188,000 |
|
|
2,117,000 |
|
| |
|
$ |
58,909,000 |
|
$ |
53,155,000 |
|
| |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated
statements.
CONCORDE
CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
Decmber 31, |
| |
|
|
2004 |
|
|
2003 |
|
Current
Liabilities: |
|
|
|
|
|
|
|
Deferred
revenues |
|
$ |
24,582,000 |
|
$ |
25,540,000 |
|
Accrued
salaries and wages |
|
|
1,830,000 |
|
|
1,889,000 |
|
Accounts
payable |
|
|
3,638,000 |
|
|
2,883,000 |
|
Accrued
liabilities |
|
|
1,780,000 |
|
|
1,328,000 |
|
|
Accrued
income taxes payable |
|
|
|
|
|
4,000 |
|
|
Total
current liabilities |
|
|
31,830,000 |
|
|
31,644,000 |
|
Long
Term Liabilities: |
|
|
|
|
|
|
|
Deferred
rent |
|
|
1,874,000 |
|
|
420,000 |
|
|
Deferred
income taxes |
|
|
1,041,000 |
|
|
428,000 |
|
|
Total
long term liabilities |
|
|
2,915,000 |
|
|
848,000 |
|
Stockholders’
Equity: |
|
|
|
|
|
|
|
Common
stock, ($.10 par value, 19,400,000 shares
authorized)
6,318,573 shares issued and 5,970,755
shares
outstanding in 2004 and 6,254,140 shares issued
and
5,963,030 shares outstanding in 2003 |
|
|
632,000 |
|
|
625,000 |
|
Capital
in excess of par |
|
|
14,636,000 |
|
|
14,236,000 |
|
Retained
Earnings |
|
|
10,876,000 |
|
|
6,954,000 |
|
|
Less
treasury stock, 347,818 shares in 2004 and 291,110 in
2003,
at cost |
|
|
(1,980,000 |
) |
|
(1,152,000 |
) |
|
Total
stockholders’ equity |
|
|
24,164,000 |
|
|
20,663,000 |
|
| |
|
$ |
58,909,000 |
|
$ |
53,155,000 |
|
The
accompanying notes are an integral part of these consolidated
statements.
CONCORDE
CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Years Ended December 31, |
|
| |
|
|
2004 |
|
|
2003 |
|
2002 |
|
Net
Revenues |
|
$ |
81,507,000 |
|
$ |
74,714,000 |
|
$61,112,000 |
Operating
Expenses: |
|
|
|
|
|
|
|
|
Instruction
costs and services |
|
|
26,226,000 |
|
|
22,482,000 |
|
18,709,000 |
Selling
and promotional |
|
|
11,435,000 |
|
|
9,839,000 |
|
8,390,000 |
General
and administrative |
|
|
34,044,000 |
|
|
29,584,000 |
|
23,871,000 |
|
Provision
for uncollectible accounts |
|
|
3,523,000 |
|
|
2,893,000 |
|
3,442,000 |
|
Total
Costs and Expenses |
|
|
75,228,000 |
|
|
64,798,000 |
|
54,412,000 |
Operating
Income |
|
|
6,279,000 |
|
|
9,916,000 |
|
6,700,000 |
Interest
Income |
|
|
207,000 |
|
|
179,000 |
|
231,000 |
|
Interest
Expense |
|
|
|
|
|
24,000 |
|
176,000 |
Income
before Provision for Income Taxes |
|
|
6,486,000 |
|
|
10,071,000 |
|
6,755,000 |
|
Provision
for Income Taxes |
|
|
2,564,000 |
|
|
3,908,000 |
|
2,521,000 |
Net
Income |
|
|
3,922,000 |
|
|
6,163,000 |
|
4,234,000 |
|
Class
B Preferred Stock Accretion |
|
|
|
|
|
|
|
388,000 |
|
Net
Income Available to Common Shareholders |
|
$ |
3,922,000 |
|
$ |
6,163,000 |
|
$3,846,000 |
Weighted
Average Shares Outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
5,980,000 |
|
|
5,880,000 |
|
4,533,000 |
Diluted |
|
|
6,322,000 |
|
|
6,250,000 |
|
6,142,000 |
Net
Income Per Share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
.66 |
|
$ |
1.05 |
|
$.85 |
Diluted |
|
$ |
.62 |
|
$ |
.99 |
|
$.68 |
The
accompanying notes are an integral part of these consolidated
statements.
CONCORDE
CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
Years Ended December 31, |
|
|
|
|
2004 |
|
|
2003 |
|
|
|
2002 |
|
Cash
Flows Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
$ |
3,922,000 |
|
$ |
6,163,000 |
|
$4,234,000 |
Adjustments
to reconcile net income to net cash provided by operating activities
- - |
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
2,146,000 |
|
|
1,513,000 |
|
992,000 |
Provision
for uncollectible accounts |
|
|
3,523,000 |
|
|
2,893,000 |
|
3,442,000 |
Provision
for deferred income taxes |
|
|
454,000 |
|
|
390,000 |
|
342,000 |
Leasehold
improvement incentives received |
|
|
2,083,000 |
|
|
27,000 |
|
|
Change
in assets and liabilities - - |
|
|
|
|
|
|
|
|
Increase
in receivables, net |
|
|
(3,669,000 |
) |
|
(6,193,000 |
) |
(6,307,000) |
Increase
in deferred revenue |
|
|
(958,000 |
) |
|
4,544,000 |
|
3,355,000 |
Income
taxes payable/recoverable |
|
|
(1,201,000 |
) |
|
231,000 |
|
(1,043,000) |
|
Increase
in accounts payable and other, net |
|
|
116,000 |
|
|
866,000 |
|
533,000 |
|
Total
adjustments |
|
|
2,494,000 |
|
|
4,291,000 |
|
1,314,000 |
|
Net
operating activities |
|
|
6,416,000 |
|
|
10,454,000 |
|
5,548,000 |
Cash
Flows Investing Activities: |
|
|
|
|
|
|
|
|
Acquisition
of Extended Health Education |
|
|
|
|
|
|
|
(890,000) |
Purchase
of short-term investments |
|
|
(4,374,000 |
) |
|
(42,000 |
) |
(338,000) |
Acquisition
of intangible assets |
|
|
(48,000 |
) |
|
|
|
|
|
Capital
expenditures |
|
|
(6,147,000 |
) |
|
(3,731,000 |
) |
(1,842,000) |
|
Net
investing activities |
|
|
(10,569,000 |
) |
|
(3,773,000 |
) |
(3,070,000) |
Cash
Flows Financing Activities: |
|
|
|
|
|
|
|
|
Treasury
stock purchased |
|
|
(828,000 |
) |
|
(35,000 |
) |
(222,000) |
Dividends
paid |
|
|
|
|
|
(218,000 |
) |
(174,000) |
Stock
options exercised, including tax benefit |
|
|
287,000 |
|
|
930,000 |
|
73,000 |
|
Stock
purchase plan |
|
|
120,000 |
|
|
115,000 |
|
66,000 |
|
Net
financing activities |
|
|
(421,000 |
) |
|
792,000 |
|
(257,000) |
Net
Increase in Cash and Cash Equivalents |
|
|
(4,574,000 |
) |
|
7,473,000 |
|
2,221,000 |
|
Cash
and Cash Equivalents at Beginning of Year |
|
|
17,250,000 |
|
|
9,777,000 |
|
7,556,000 |
|
Cash
and Cash Equivalents at End of Year |
|
$ |
12,676,000 |
|
$ |
17,250,000 |
|
$9,777,000 |
Supplemental
Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash
Paid During the Year For: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
- |
|
$ |
39,000 |
|
$220,000 |
Income
taxes |
|
|
3,158,000 |
|
|
2,526,000 |
|
3,319,000 |
Noncash
Investing and Financing Activities: |
|
|
|
|
|
|
|
|
Conversion
of subordinated debt to common stock through
exercise of warrants |
|
|
|
|
|
3,500,000 |
|
|
Accounts
receivable for leasehold improvement incentives……………………………………………. |
|
|
90,000 |
|
|
467,000 |
|
|
The
accompanying notes are an integral part of these consolidated statements.
CONCORDE
CAREER COLLEGES, INC., AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
|
|
Preferred
Stock |
|
|
Common
Stock |
|
|
Capital
in Excess of Par |
|
|
Retained
Earnings (Deficit) |
|
|
Treasury
Stock |
|
|
Total |
|
BALANCE,
December 31, 2001 |
|
$ |
5,000 |
|
$ |
425,000 |
|
$ |
9,706,000 |
|
$ |
(3,055,000 |
) |
$ |
(895,000 |
) |
$ |
6,186,000 |
|
Net
Income |
|
|
|
|
|
|
|
|
|
|
|
4,234,000 |
|
|
|
|
|
4,234,000 |
|
Class
B Preferred Stock Accretion |
|
|
|
|
|
|
|
|
388,000 |
|
|
(388,000 |
) |
|
|
|
|
|
|
Class
B Preferred Stock Dividends including special dividend of
$174,000 |
|
|
|
|
|
|
|
|
(347,000 |
) |
|
|
|
|
|
|
|
(347,000 |
) |
Preferred
Stock Converted to
Common
Stock |
|
|
(5,000 |
) |
|
53,000 |
|
|
(48,000 |
) |
|
|
|
|
|
|
|
|
|
Stock
Options Exercised |
|
|
|
|
|
6,000 |
|
|
67,000 |
|
|
|
|
|
|
|
|
73,000 |
|
Employee
Stock Purchase Plan |
|
|
|
|
|
1,000 |
|
|
65,000 |
|
|
|
|
|
|
|
|
66,000 |
|
|
Treasury
Stock Purchased |
|
|
___________ |
|
|
_________ |
|
|
___________ |
|
|
___________ |
|
|
(222,000 |
) |
|
(222,000 |
) |
|
BALANCE,
December 31, 2002 |
|
|
---- |
|
|
485,000 |
|
|
9,831,000 |
|
|
791,000 |
|
|
(1,117,000 |
) |
|
9,990,000 |
|
Net
Income |
|
|
|
|
|
|
|
|
|
|
|
6,163,000 |
|
|
|
|
|
6,163,000 |
|
Stock
Options Exercised, including tax benefit |
|
|
|
|
|
10,000 |
|
|
920,000 |
|
|
|
|
|
|
|
|
930,000 |
|
Warrants
Exercised |
|
|
|
|
|
129,000 |
|
|
3,371,000 |
|
|
|
|
|
|
|
|
3,500,000 |
|
Employee
Stock Purchase Plan |
|
|
|
|
|
1,000 |
|
|
114,000 |
|
|
|
|
|
|
|
|
115,000 |
|
|
Treasury
Stock Purchased |
|
|
___________ |
|
|
_________ |
|
|
___________ |
|
|
___________ |
|
|
(35,000 |
) |
|
(35,000 |
) |
|
BALANCE,
December 31, 2003 |
|
|
---- |
|
|
625,000 |
|
|
14,236,000 |
|
|
6,954,000 |
|
|
(1,152,000 |
) |
|
20,663,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income |
|
|
|
|
|
|
|
|
|
|
|
3,922,000 |
|
|
|
|
|
3,922,000 |
|
Stock
Options Exercised, including tax benefit |
|
|
|
|
|
6,000 |
|
|
281,000 |
|
|
|
|
|
|
|
|
287,000 |
|
Employee
Stock Purchase Plan |
|
|
|
|
|
1,000 |
|
|
119,000 |
|
|
|
|
|
|
|
|
120,000 |
|
|
Treasury
Stock Purchased |
|
|
___________ |
|
|
_________ |
|
|
___________ |
|
|
___________ |
|
|
(828,000 |
) |
|
(828,000 |
) |
|
BALANCE,
December 31, 2004 |
|
$ |
---- |
|
$ |
632,000 |
|
$ |
14,636,000 |
|
$ |
10,876,000 |
|
$ |
(1,980,000 |
) |
$ |
24,164,000 |
|
The
accompanying notes are an integral part of these consolidated
statements.
(The
remainder of this page left intentionally blank.)
CONCORDE
CAREER COLLEGES, INC., AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
Ended December 31, 2004, 2003, and 2002
1.
Business and Summary of Significant Accounting Policies:
Background
The
Company owns and operates proprietary, postsecondary institutions that offer
career vocational training programs primarily in the allied health field. The
Company serves the segment of population seeking to acquire a career-oriented
education. The Campuses generally enjoy long operating histories and strong
franchise value in their local markets. As of December 31, 2004, the Company
operated Campuses at 12 locations in seven states.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Concorde
and its wholly owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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.
Revenue
Recognition
The
Company establishes an account receivable and a corresponding deferred revenue
liability for each student upon commencement of a program of study. The deferred
revenue liability, consisting of tuition and non-refundable registration fees,
is recognized into income ratably over the length of the program including
externship if applicable. If a student withdraws from a program, the unearned
portion of the tuition for which the student has paid is refunded on a pro-rata
basis. Textbook and uniform sales are recognized when they occur.
Most
students enrolled at the Company’s Campuses utilize state and federal government
grants and/or guaranteed student loan programs to finance their tuition. During
2004, 79 percent of the Company’s cash receipts were derived from funds obtained
by students through federal Title IV student aid programs and 21 percent were
derived from state sponsored student education and training programs and cash
received from students and other sources.
Cash
and Cash Equivalents
Cash and
cash equivalents are made up of cash and those items with maturity at the date
of purchase of three months or less. Cash equivalents include money market
funds, certificates of deposit and treasury bills that are carried at cost,
which approximates fair value. Income on cash equivalents is included in
interest and other non-operating income in the statement of
operations.
Short-Term
Investments
Short-term
investments are those items with maturity of three months to one year.
Short-term investments are carried at cost, which approximates fair value. At
December 31, 2004, short-term investments consisted of certificates of deposit
with a six-month maturity. Income related to short-term investments is included
in interest and other non-operating income in the statement of
operations.
Accounts
Receivable and Notes Receivable
Accounts
receivable are amounts due from students and are primarily expected to be paid
through the use of federal and state sources of funds. Under the Higher
Education Act of 1965 (“HEA”) refund provisions, students are obligated to the
Company for education costs that the student can no longer pay with Title IV
funds. Notes receivable are promissory notes due the Company from current and
former students. The notes are not secured by collateral and have differing
interest rates.
The
Company maintains an allowance for uncollectible accounts and notes receivable.
A provision is charged to earnings for the amount of estimated uncollectible
accounts based upon collection trends, aging of accounts and other current
factors. However, unpaid balances are usually written-off within 180 days after
the student withdraws or graduates and/or ceases to make payments. Internal
collection efforts, as well as outside professional services, are used to pursue
collection of delinquent accounts. The amount of actual uncollectible accounts
could differ materially from the estimates reflected in the financial
statements.
Fixed
Assets
Fixed
assets are recorded at cost. Furniture and equipment is depreciated over the
estimated useful lives of the assets (three to five years) using the
straight-line method. Leasehold improvements are amortized over the shorter of
their estimated useful life or terms of the related leases using the
straight-line method.
Leasehold
improvements that are funded by landlord incentives or allowances under
operating leases are recorded as leasehold improvements and deferred rents. The
leasehold improvements are depreciated over the shorter of their economic life
or the lease term. Deferred rents are amortized as a reduction of rent expense
so that rent expense is recognized on a straight-line basis over the lease
term.
Maintenance
and repairs are charged to expense as incurred. The costs of additions and
improvements are capitalized and depreciated over the remaining useful lives of
the assets. The costs and accumulated depreciation of assets sold or retired are
removed from the accounts and any gain or loss is recognized in the year of
disposal. Depreciation expense was $2,025,000 in 2004, $1,408,000 in 2003, and
$957,000 in 2002.
Income
Taxes
The
Company accounts for income taxes using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities based on the
difference between the financial statement and income tax basis of assets and
liabilities as measured by the enacted tax rates which will be in effect when
the differences reverse. Deferred tax expense (benefit) is generally the result
of changes in the deferred tax assets and liabilities.
Impairment
of Long-Lived Assets
Long-lived
assets and certain identifiable intangibles are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of the asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair value less costs to sell. The Company has
not reported any provision for impairment of long-lived assets.
Goodwill
Goodwill
is tested annually for impairment. If the implied fair value of goodwill is
lower than its carrying amount, goodwill impairment is indicated and goodwill is
written down to its implied fair value. Subsequent increases in goodwill value
are not recognized in the financial statements.
Advertising
Costs
The
Company expenses advertising costs as they occur. Advertising expense, which is
included in selling and promotional expenses, was $7,364,000 in 2004, $6,137,000
in 2003, and $4,899,000 in 2002.
Fair
Value of Financial Instruments
The
carrying amounts reported in the balance sheets for cash and cash equivalents,
accounts and notes receivable, accounts payable, and accrued liabilities
approximate fair value because of immediate or relatively short-term maturity of
these financial instruments. Short-term investments are recorded at their cost.
As it was not practicable to estimate the fair value of the subordinated
debentures with nondetachable warrants without incurring excessive costs, these
were carried at their original value of $3,500,000 in the consolidated balance
sheet. The warrants were exercised in 2003. The warrant exercise resulted in the
issuance of 1,286,765 shares of common stock and cancellation of the
debentures.
Reclassifications
Certain
amounts in the prior years’ consolidated financial statements have been
reclassified to conform to the current year presentation.
Stock-Based
Compensation
The
Company has stock-based employee compensation plans, which are described more
fully in Note 8. The Company accounts for these plans under the recognition and
measurement principles of APB Opinion No. 25, Accounting
for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation cost is reflected
in the results of operations, as all options granted under those plans had an
exercise price equal to or exceeding the market value of the underlying common
stock on the grant date. The following table illustrates the effect on net
income and income per share if the Company had applied the fair value provisions
of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, to
stock-based employee compensation.
| |
Year
Ended December 31, |
| |
2004 |
2003 |
2002 |
|
Net
income as reported |
$3,922,000 |
$6,163,000 |
$4,234,000 |
|
Total
stock-based employee compensation cost determined under the fair value
based method, net of income taxes |
(891,000) |
(551,000) |
(329,000) |
|
Pro
forma net income |
$3,031,000 |
$5,612,000 |
$3,905,000 |
| |
|
|
|
|
Income
per share |
|
|
|
|
Basic
- as reported |
$.66 |
$1.05 |
$
.85 |
|
Basic
- pro forma |
$.51 |
$.95 |
$
.78 |
|
Diluted
- as reported |
$.62 |
$.99 |
$
.68 |
|
Diluted
- pro forma |
$.48 |
$.90 |
$
.63 |
The
Company will implement Statement of Financial Accounting Standards (SFAS) No.
123R in its third quarter that begins July 1, 2005. This will require expensing
of stock-based compensation plans. Compensation expense will be recorded for the
unvested portion of options outstanding at July 1, 2005, and additional
compensation expense will be recorded for new options granted and for shares of
stock purchased under the employee stock purchase plan. The Company has not
estimated the financial impact of this new standard but believes it will have a
material effect on the Company’s financial statements.
2.
Business Combination and Intangible Assets:
On
August 22, 2002, the Company acquired certain assets and assumed certain
liabilities of Extended Health Education, Inc. for $890,000 in cash. This
business combination has been accounted for as a purchase whereby the purchase
price was allocated based on the estimated fair value of assets acquired and
liabilities assumed at the date of acquisition. Of the $998,016 of acquired
intangible assets, $250,000 was assigned to non-compete agreements and will be
amortized over the three-year term of the agreements, and $50,000 was allocated
to course curriculum and will be amortized over three years. The excess of the
purchase price over the fair value of the net assets acquired of $698,016 has
been recorded as goodwill and is not subject to amortization. The revenues and
expenses contributed by Extended Health Education, Inc. have been included in
the statement of operations since the date of acquisition. The Company also
capitalized $24,000 in 2003 and $48,000 in 2004 for course curriculum developed
internally. These costs are amortized over three years.
The
carrying basis and accumulated amortization of recognized intangible assets as
December 31, 2004 and 2003 were:
| |
Gross
Carrying Amount |
|
Accumulated
Amortization |
|
Gross
Carrying Amount |
|
Accumulated
Amortization |
| |
2004 |
|
2003 |
|
Amortizable
intangible assets |
|
|
|
|
|
|
|
|
Non
compete agreement |
$250,000 |
|
$196,000 |
|
$250,000 |
|
$113,000 |
|
Course
curriculum |
122,000 |
|
65,000 |
|
74,000 |
|
27,000 |
|
Gross
intangible assets |
$372,000 |
|
$261,000 |
|
$324,000 |
|
$140,000 |
|
Amortization
expense relative to acquired intangibles was $121,000 in 2004.
Amortization of purchased intangibles with estimable useful lives is
estimated as follows: 2005 - $89,000, 2006 - $19,000, and 2007 -
$3,000. |
|
There
were no changes in the carrying amount of goodwill during the years ended
December 31, 2004 and 2003. |
|
3.
Receivables: |
|
|
|
|
Changes
in the allowance for uncollectible accounts and notes receivable were as
follows for the years ended December 31: |
2004 |
2003 |
2002 |
|
Balance-beginning
of year |
$2,000,000 |
$1,928,000 |
$1,667,000 |
|
Provision
for uncollectible accounts |
3,523,000 |
2,893,000 |
3,442,000 |
|
Charge-offs,
net of recoveries |
(2,898,000) |
(2,821,000) |
(3,181,000) |
|
Balance
- end of year |
$2,625,000 |
$2,000,000 |
$1,928,000 |
| |
|
|
|
|
4.
Fixed Assets and Leases: |
|
|
|
|
Fixed
assets consist of the following at December 31: |
2004 |
2003 |
|
|
Furniture
and equipment |
$9,642,000 |
$7,296,000 |
|
|
Leasehold
improvements |
7,642,000 |
3,924,000 |
|
|
Land |
391,000 |
244,000 |
|
|
Gross
fixed assets |
17,675,000 |
11,464,000 |
|
|
Less
accumulated depreciation and amortization |
7,779,000 |
6,067,000 |
|
|
Net
fixed assets |
$9,896,000 |
$5,397,000 |
|
(The
remainder of this page was left blank intentionally.)
The
Company rents office space and buildings under operating leases generally
ranging in terms from 5 to 15 years. The leases provide renewal options and
require the Company to pay utilities, maintenance, insurance and property taxes.
The Company also has a lease obligation for the Chief Executive Officer’s
automobile. The Company rents various equipment under operating leases that are
generally cancelable within 30 days. Rental expense for operating leases was
$5,507,000 in 2004, $4,696,000 in 2003, and $3,817,000 in 2002. Aggregate
minimum future rentals payable under the operating leases at December 31, 2004,
were:
2005 $5,056,000
2006 4,840,000
2007 4,541,000
2008 4,515,000
2009 4,479,000
2010 and
thereafter2
4,694,000
|
5.
Accrued Liabilities: |
|
|
|
Accrued
Liabilities consist of the following at December 31:
|
2004 |
2003 |
|
Vacation |
$1,129,000 |
$974,000 |
|
Health
insurance claims |
203,000 |
215,000 |
|
Worker’s
compensation |
200,000 |
|
|
Deferred
rent - current |
170,000 |
49,000 |
|
Other
liabilities |
55,000 |
70,000 |
|
Other
taxes |
23,000 |
20,000 |
|
Total
accrued liabilities |
$1,780,000 |
$1,328,000 |
The
Company secured a $3,000,000 revolving credit facility with Security Bank of
Kansas City in 1997. As of December 31, 2004, the full amount is available under
this facility. This facility is due to expire on April 30, 2005 and the Company
currently plans to let the facility expire since the Company currently does not
anticipate a use for the facility. This facility has a variable interest rate of
prime plus one percent, and no commitment fee. The credit facility is secured by
all cash, accounts and notes receivable, furniture and equipment, and capital
stock of the subsidiaries. The Company is required to maintain a minimum level
of subordinated debt plus consolidated tangible net worth of not less than
$7,600,000 as part of this agreement. The Company has not borrowed any funds
under this facility.
On
October 2, 2004, a $118,000 letter of credit as security for a lease on the
Garden Grove, California location expired.
The
Company entered into a $367,000 letter of credit with Commerce Bank in March
2004. The letter of credit is used to secure worker’s compensation claims for
the Company’s worker’s compensation insurance from April 1, 2004 through March
31, 2005. The letter of credit is secured by certificates of deposit in the same
amount that mature on March 31, 2005.
The
Company changed its worker’s compensation insurance plan from a guaranteed cost
plan to a high deductible plan effective April 1, 2004. The high deductible plan
requires the Company to pay all worker’s compensation claims for the plan year
as they are incurred up to certain limits in addition to a premium paid to the
insurance carrier for claims processing and administrative costs. The Company
will pay individual claims up to $250,000 with an annual aggregate deductible of
$1,250,000. The previous plan required the Company to pay premiums to its
insurance carrier for all estimated costs of the worker’s compensation insurance
with the carrier assuming all risk for individual claims with no deductible.
7.
Income Taxes:
The
income tax expense for the years ended December 31, consists of the
following:
| |
2004 |
2003 |
2002 |
|
Current
tax expense |
|
|
|
|
Federal |
$1,848,000 |
$3,146,000 |
$1,851,000 |
|
State |
262,000 |
372,000 |
328,000 |
| |
2,110,000 |
3,518,000 |
2,179,000 |
|
Deferred
tax expense |
454,000 |
390,000 |
342,000 |
|
Tax
provision |
$2,564,000 |
$3,908,000 |
$2,521,000 |
The
Company’s effective income tax expense rate differs from the federal statutory
rate of 34% for the years ended December 31, as follows:
|
|
2004 |
2003 |
2002 |
| |
|
|
|
|
Expense
at federal statutory rate |
$2,205,000 |
$3,424,000 |
$2,297,0000$ |
|
State
expense, net |
324,000 |
344,000 |
224,000 |
|
Other,
net |
35,000 |
140,000 |
|
| |
$2,564,000 |
$3,908,000 |
$2,521,000 $2 |
Deferred
tax assets and liabilities consisted of the following at December
31:
| |
2004 |
2003 |
| |
|
|
|
Credit
losses |
$1,024,000 |
$780,000 |
|
Deferred
student tuition |
130,000 |
113,000 |
|
Depreciation
and amortization |
60,000 |
43,000 |
|
Operating
loss carryforwards |
4,000 |
4,000 |
|
Other
expenses currently deductible for financial reporting purposes
but not for tax |
332,000 |
290,000 |
|
Net
assets |
1,550,000 |
1,230,000 |
|
Depreciation
and amortization |
(1,334,000) |
(598,000) |
|
Other
expenses currently deductible for tax purposes but not for financial
reporting |
(265,000) |
(227,000) |
|
Net |
$
(49,000) |
$405,000 |
At
December 31, 2004 and 2003, deferred tax assets included $992,000 and $833,000
current assets and $1,041,000 and $428,000 non-current liabilities,
respectively.
The
Company has not recorded a valuation allowance relating to the deferred tax
assets, as taxable temporary differences are expected to be offset by deductible
temporary differences and future taxable income.
The tax
benefit associated with the exercise of non-statutory stock options and
disqualifying dispositions by employees of shares issued in the Company’s Stock
Purchase Plan reduced taxes payable by $174,000 in 2004 and $763,000 in 2003.
The benefit is reflected as additional capital in excess of
par.
8.
Stockholder’s Equity:
Preferred
Stock Conversion
The
Company entered into a Conversion and Exchange Agreement with Cahill, Warnock
Strategic Partners Fund, L.P. and Strategic Association, L.P. (collectively,
“Cahill-Warnock”) on November 25, 2002, which provides in part, that upon the
second business day following the effectiveness of a Registration Statement (the
“Conversion Date”), (i) the Selling Shareholders shall exchange their 53,309
shares of Class B Voting Convertible Preferred Stock for 533,090 shares of
Common Stock and (ii) the Company shall pay to Cahill-Warnock an amount that is
equal to $4.08 per share, of the Class B Voting Convertible Preferred Stock
beneficially owned by Cahill-Warnock on the Conversion Date, which,
notwithstanding anything to the contrary in the certificate of designation of
the Company, shall constitute all dividend payments owed to Cahill-Warnock
through the years ended December 31, 2002 and December 31, 2003. The $4.08 per
share is the fourth quarter 2002 dividend of $43,500 and a special dividend of
$174,000 that was paid to induce the holder to convert the Preferred Stock. The
Conversion and Exchange Agreement provides, among other things; that the Company
and the Selling Stockholders execute the Amended and Restated Stockholders’
Agreement, dated as of November 25, 2002, which contains agreements pertaining
to (i) the manner in which the Board of Directors of the Company are elected,
(ii) restrictions on the transfer of shares of Common Stock and (iii) the right
of the Selling Stockholders to require the Company to register their shares of
Common Stock in the event this Registration Statement does not remain effective.
The 2002 consolidated financial statements reflect the conversion of preferred
shares to common shares as of November 25, 2002.
The
Company filed a Registration Statement on Form S-3 to register 1,133,090 shares
of common stock. The Registration Statement was effective February 5, 2003. The
Company received no funds as a result of the registration and subsequent
distribution of common stock. Six hundred thousand (600,000) shares of the
common stock are currently issued and outstanding. The issued shares are held by
the Robert F. Brozman Trust (350,000 shares), Cahill, Warnock Strategic Partners
Fund, L.P. (237,000 shares), and Strategic Associates, L.P. (13,000 shares). The
remaining 533,090 shares relate to common shares issued upon conversion of the
preferred stock to common stock.
The
Company filed a Registration Statement on Form S-3 to register 1,286,765 shares
of common stock. The Registration Statement was effective March 26, 2004. The
Company received no funds as a result of the registration. The Company
registered the 1,286,765 shares of Common Stock that were issued to
Cahill-Warnock pursuant to the exercise of the warrants and new debentures that
were cancelled, effective February 19, 2003.
Conversion
of Subordinated Debt to Equity
In
conjunction with the Company borrowing $3,500,000 of 5% subordinated debt in
1997, Cahill-Warnock was issued non-detachable warrants to purchase 1,286,765
shares of common stock. On February 13, 2003, the Company informed
Cahill-Warnock it would pay the entire $3,500,000 of debt. Subsequent to this
notification, Cahill-Warnock elected to exercise the warrants and purchase 1,
286,765 shares of common stock at the exercise price of $2.72 per share, for a
total purchase price of $3,500,000. No cash was exchanged and this transaction
was completed on February 19, 2003. The following table presents pro forma
information as if the transaction had occurred on January 1, 2002.
| |
For
the Year Ended December 31, 2002 |
| |
As
Reported |
|
Adjustments |
|
Pro
forma |
|
Net
Income |
$4,234,000 |
|
$108,000(a) |
|
$4,342,000 |
|
Net
Income Available to Common Shareholders |
$3,846,000 |
|
$108,000(a) |
|
$3,954,000 |
|
Weighted
Average Shares Outstanding |
4,533,000 |
|
1,287,000(b) |
|
5,820,000 |
|
Basic
Income Per Share |
$0.85 |
|
|
|
$0.68 |
|
Diluted
Income Per Share |
$0.68 |
|
|
|
$0.68 |
| |
As
of December 31, 2002 |
| |
As
Reported |
|
Adjustments |
|
Pro
forma |
|
5%
Subordinated Debt |
$3,500,000 |
|
$(3,500,000)(c) |
|
$- |
|
Total
Stockholders’ Equity |
$9,990,000 |
|
$3,500,000(b) |
|
$13,490,000 |
| (a) |
Interest
expense on 5% subordinated debt, net of
tax. |
| (b) |
Issuance
of common shares upon exercise of warrants. |
| (c) |
Retirement
of 5% subordinated debt. |
Treasury
Stock
In August
2000, the Board authorized the repurchase of up to 500,000 shares of Concorde’s
common stock in the open market, subject to normal trading restrictions. In
November 2004, the Board increased the authorization to purchase an additional
500,000 shares which increased the plan total to 1,000,000 shares. The Company
purchased 56,800 shares at a cost of $827,000 during 2004, 2,800 shares at a
cost of $35,000 during 2003, 19,900 shares at a cost of $222,000 during 2002 and
196,485 shares at a cost of $724,000 during 2001. The Company’s last purchase
was during November 2004. The Company currently uses treasury stock for general
corporate purposes.
Stock
Purchase Plan
The
Company’s shareholders approved an employee stock purchase plan (the “Purchase
Plan”) during 1998, which expired in 2003. A restated plan was approved by the
Company’s shareholders during 2003. The 1998 Purchase Plan allowed employees of
the Company to purchase shares of the Company’s common stock at periodic
intervals, generally quarterly, through payroll deductions. The maximum numbers
of shares that could be purchased under the Plan were 125,000 with no more than
25,000 in any year. The purchase price per share was the lower of 95% of the
closing price on the offering commencement date or termination date. A total of
77,967 shares were issued under the original plan. In 2001, 15,348 shares of
stock were issued at prices between $1.58 and $2.15. In 2002, 9,927 shares of
stock were issued at prices between $4.75 and $8.22. In 2003, 8,786 shares of
stock were issued at prices between $9.83 and $19.36. The restated Plan became
effective October 1, 2003. In 2004, 6,583 shares of stock were issued at prices
between $14.60 and $22.37.
On
February 27, 2003, the Board unanimously adopted the Concorde Career Colleges,
Inc. Restated Employee Stock Purchase Plan (“Employee Plan”). The Plan was
approved by the Company’s shareholders at its Annual Meeting held on May 22,
2003. The Plan is similar to the original Plan which expired September 30, 2003.
An aggregate of 75,000 shares of Common Stock of the Company are subject to the
Employee Plan and are reserved for issuance under such Plan. Options to purchase
15,000 shares of Common Stock of the Company are to be offered to participants
for purchase in the first year (commencing October 1, 2003 and ending September
30, 2004) and each of the four succeeding plan years. The option price of Common
Stock purchased with payroll deductions made during such annual, semi-annual or
calendar-quarterly offering for participant therein shall be the lower of 95% of
the closing price on the offering commencement or termination date.
Stock
Option Plans
The
Company has Long Term Executive Compensation plans (the “2003 Plan”, the “2002
Plan,” the “2000 Plan,” and the “1998 Plan”) which authorized the Company to
issue 200,000, 300,000, 125,000 and 250,000 shares, respectively, of its common
stock to certain officers and employees of the Company. The options are
primarily Incentive Stock Options granted at fair market value or greater on the
date of grant for a term of not more than ten years unless options are canceled
due to employee termination. As of December 31, 2004, 7,800 shares remain
available to be granted with the 1998 and 2002 Plans combined.
During
2001, the Company awarded the three non-officer Directors the option to purchase
4,167 shares each pursuant to a non-qualified stock option agreement. Under the
agreement three Directors’ were granted the right to immediately exercise 4,167
shares each at an exercise price of $4.50. The market value on the date of the
grant equaled the exercise price.
During
2002, the Company awarded the three non-officer Directors the option to purchase
5,000 shares each pursuant to a non-qualified stock option agreement. Under the
agreement three Directors’ were granted the right to immediately exercise 5,000
shares each at an exercise price of $8.60. In addition, a fourth non-officer
Director was awarded the option to purchase 5,000 shares pursuant to a
non-qualified stock option agreement and was granted the right to immediately
exercise 5,000 shares at an exercise price of $11.00. The market value on the
date of each grant equaled the exercise price. The fourth Director was appointed
to the Board in December 2002.
The
following table reflects activity in options for 2004, 2003, and
2002.
| |
|
1988
Plan(1) |
NQSO |
1998
Plan |
2000
Plan |
2002
Plan |
2003
Plan |
Total
Number of
Shares |
Weighted-Average
Exercise Price |
Option
Price
Per
Share |
| |
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
12/31/01 |
28,850 |
20,835 |
240,250 |
122,500 |
|
|
412,435 |
$1.52 |
$0.20
to
$5.50 |
|
Exercised |
|
(2,250) |
(4,167) |
(38,550) |
(4,500) |
|
|
(49,467) |
$1.46 |
$0.20
to
$4.50 |
|
Cancelled |
|
(4,000) |
|
|
|
|
|
(4,000) |
$0.45 |
$0.20
to
$1.18 |
|
Issued |
|
|
20,000 |
|
|
265,500 |
|
285,500 |
$9.39 |
$7.75
to
$12.60 |
| |
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
12/31/02 |
22,600 |
36,668 |
201,700 |
118,000 |
265,500 |
|
644,468 |
$5.02 |
$0.20
to
$12.60 |
|
Exercised |
|
(11,100) |
(5,000) |
(57,400) |
(38,000) |
(400) |
|
(111,900) |
$1.49 |
$0.20
to
$11.45 |
|
Cancelled |
|
|
|
(2,250) |
(3,000) |
(5,000) |
|
(10,250) |
$6.79 |
$1.35
to
$11.45 |
|
Issued |
|
|
|
|
|
10,000 |
|
10,000 |
$20.81 |
$19.90
to
$21.71 |
| |
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
12/31/03 |
11,500 |
31,668 |
142,050 |
77,000 |
270,100 |
|
532,318 |
$6.10 |
$0.56
to
$21.71 |
|
Exercised |
|
|
|
(40,150) |
(15,500) |
(2,200) |
|
(57,850) |
$1.95 |
$0.92
to
$11.45 |
|
Cancelled |
|
(750) |
|
(1,700) |
|
(1,600) |
|
(4,050) |
$5.95 |
$2.26
to
$11.45 |
|
Issued |
|
|
|
5,000 |
3,000 |
24,000 |
200,000 |
232,000 |
$18.11 |
$13.61
to
$26.63 |
| |
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
12/31/04 |
10,750 |
31,668 |
105,200 |
64,500 |
290,300 |
200,000 |
702,418 |
$10.41 |
$0.56
to
$26.63 |
| (1) |
The
1988 Plan expired in 1998; however options issued under the Plan remain
active until exercised, canceled, or expiration. These options expire ten
years from date of issuance. |
The
following table reflects information for exercisable options at December
31:
| |
Range
of
Exercise
Prices |
|
Shares
Exercisable |
|
Weighted
Average
Exercise
Price |
|
2002 |
$0.20
- $11.00 |
|
202,138 |
|
$2.33 |
|
2003 |
$0.56
- $12.60 |
|
236,658 |
|
$3.92 |
|
2004 |
$0.56
- $21.71 |
|
266,504 |
|
$5.01 |
The
following table reflects option information as of December 31,
2004.
|
Range
of
Exercise
Prices |
|
Shares
Outstanding at 12/31/04 |
|
Average
Remaining
Contractual
Life |
|
Weighted
Average
Exercise
Price |
|
Shares
Exercisable
at
12/31/04 |
|
Weighted
Average Exercise Price |
| |
|
|
|
(Years) |
|
|
|
|
|
|
|
$
0.56-$ 5.50 |
|
189,118 |
|
4.4 |
|
$1.75 |
|
155,984 |
|
$
1.69 |
|
$
7.75-$12.60 |
|
271,300 |
|
7.8 |
|
$9.49 |
|
108,520 |
|
$
9.49 |
|
$13.61-$16.61 |
|
152,000 |
|
9.7 |
|
$14.58 |
|
0 |
|
$
0.00 |
|
$19.90-$26.63 |
|
90,000 |
|
8.9 |
|
$24.37 |
|
2,000 |
|
$20.81 |
| |
|
702,418 |
|
|
|
|
|
266,504 |
|
$
5.01 |
The
Company applies Accounting Principles Board Opinion 25 and related
interpretations in accounting for its stock option plans and employee stock
purchase plan. Accordingly, no compensation expense has been recognized for the
Option Plans as the exercise price equals the stock price on the date of grant.
Also, no compensation expense has been recognized for the employee stock
purchase plan because the purchase plan qualifies as a non-compensatory plan.
Information about compensation expense determined based on the fair value at
grant dates consistent with SFAS No. 123 Accounting
for Stock-Based Compensation, the
Company’s pro forma net income and basic and diluted earnings per share are
presented in Note 1.
The pro
forma amounts set forth in Note 1 were estimated for common stock options using
the Blank-Scholes option-pricing model with the following
assumptions:
|
Stock
Options |
2004 |
2003 |
2002 |
|
Weighted
average expected life (years) |
7 |
7 |
7 |
|
Expected
volatility |
79% |
85% |
95% |
|
Annual
dividend per share |
0 |
0 |
0 |
|
Risk
free interest rate |
3.97% |
3.74% |
3.34% |
|
Weighted
average fair value of options granted |
$13.44 |
$16.07 |
$7.64 |
|
Stock
Purchase Plan |
2004 |
2003 |
2002 |
|
Weighted
average expected life (years) |
.25 |
.25 |
.25 |
|
Expected
volatility |
52% |
42% |
41% |
|
Annual
dividend per share |
0 |
0 |
0 |
|
Risk
free interest rate |
2.47% |
.85% |
.92% |
|
Weighted
average fair value of options granted |
$2.53 |
$1.52 |
$1.05 |
9.
Employee Benefit Plan
The
Company has a 401(k) retirement savings plan covering all employees that meet
certain eligibility requirements. Eligible participating employees may elect to
contribute up to a maximum amount of tax deferred contribution allowed by the
Internal Revenue Code. In 2001 and 2002, the Company matched 50% of an
employee’s contributions up to 2% of the employee’s salary that was contributed
to the plan. In 2003, the Company matched 50% of an employee’s contribution up
to 3% of an employee’s salary that was contributed to the plan. In 2004, the
Company matched 50% of an employee’s contribution up to 4% of an employee’s
salary that was contributed to the plan. The Company contributed $236,000,
$149,000, and $86,000 to the plan in 2004, 2003, and 2002,
respectively.
10. Earnings
Per Share (EPS)
Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed giving effect to all dilutive
potential common shares that were outstanding during the period (i.e., the
denominator used in the basic calculation is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued). A summary of the calculations of basic
and diluted earnings per share is presented below:
(The
remainder of this page was left blank intentionally.)
| |
Basic
EPS
Year
Ended December 31, |
|
Diluted
EPS
Year
Ended December 31, |
| |
2004 |
2003 |
2002 |
|
2004 |
2003 |
2002 |
|
Weighted
Average Shares Outstanding |
5,980,000 |
5,880,000 |
4,533,000
|
|
5,980,000 |
5,880,000 |
4,533,000 |
|
Options |
|
|
|
|
342,000 |
370,000 |
322,000 |
|
Debt/Non-detachable
Warrants |
|
|
|
|
|
|
1,287,000 |
|
Adjusted
Weighted Average Shares |
5,980,000 |
5,880,000 |
4,533,000 |
|
6,322,000 |
6,250,000 |
6,142,000 |
|
Net
Income |
$3,922,000 |
$6,163,000 |
$4,234,000
|
|
$3,922,0006 |
$6,163,0006 |
$4,234,000 |
|
Class
B Preferred Stock Accretion |
|
|
(214,000) |
|
|
|
|
|
Special
Dividend on Preferred Stock |
|
|
(174,000)
|
|
|
|
(174,000) |
|
Interest
on Convertible debt, net of tax |
|
|
|
|
|
|
108,000 |
|
Net
Income Available to Common
Shareholders |
$3,922,000 |
$6,163,000 |
$3,846,000 |
|
$3,922,000 |
$6,163,000 |
$4,168,000 |
|
Net
Income per Share |
$.66 |
$1.05 |
$.85 |
|
$.62 |
$.99 |
$.68 |
11.
Contingencies and Litigation:
Legal
Proceedings
The
Company is sued from time to time by a student or students who claim to be
dissatisfied with the results of their program of study. Typically, the claims
allege a breach of contract; deceptive advertising and misrepresentation and the
student or students seek reimbursement of tuition. Punitive damages sometimes
are also sought. In addition, the Department of Education (“ED”) may allege
regulatory violations found during routine program reviews. The Company has, and
will continue to dispute these findings as appropriate in the normal course of
business. In the opinion of the Company’s management, resolution of such pending
litigation and disputed findings will not have a material effect on the
Company’s financial condition or its results of operations.
12.
Department of Education Matters
The
Company assessed each Campus’ compliance with the 90/10 regulatory provisions
for the year ended December 31, 2004. These provisions state that the percentage
of cash revenue derived by federal Title IV student assistance program funds
cannot exceed 90% of total cash revenues. This is commonly referred to as the
90/10 Rule that was modified as part of legislation extending the Higher
Education Act of 1965, as amended. The Campus’ 90/10 percentages ranged between
66.7% and 87.5% for the year ended December 31, 2004.
ED issued
a financial responsibility regulation that became effective July 1, 1998.
Institutions are required to meet this regulation to maintain eligibility to
participate in Title IV programs. This regulation uses a composite score based
upon three financial ratios. An institution demonstrates that it is financially
responsible by achieving a composite score of at least 1.5, or by achieving a
composite score in the zone from 1.0 to 1.4 and meeting certain provisions. An
institution in the zone may need to provide to ED timely information regarding
certain accrediting agency actions and certain financial events that may cause
or lead to a deterioration of the institution’s financial condition. In
addition, financial and compliance audits may have to be submitted soon after
the end of the institution’s fiscal year. Title IV HEA funds may be subject to
cash monitoring for institutions in the zone.
The
Company’s composite score was 2.0, 2.7, and 2.8 in 2002, 2003, and 2004,
respectively.
(The
remainder of this page was left blank intentionally.)
13.
Quarterly Financial Information (unaudited):
| |
|
|
|
|
|
2004
|
March
31 |
June
30 |
September
30 |
December
31 |
| |
|
|
|
|
|
Operating
revenue |
$20,375,000 |
$20,627,000 |
$21,082,000 |
$19,423,000 |
|
Income
before income taxes |
$2,138,000 |
$1,963,000 |
$1,884,000 |
$501,000 |
|
Net
income. |
$1,304,000 |
$1,197,000 |
$1,150,000 |
$271,000 |
|
Basic
earnings per share. |
$.22 |
$.20 |
$.19 |
$.05 |
|
Diluted
earnings per share |
$.20 |
$.19 |
$.18 |
$.04 |
| |
|
|
|
|
|
2003 |
March
31 |
June
30 |
September
30 |
December
31 |
| |
|
|
|
|
|
Operating
revenue |
$17,359,000 |
$17,891,000 |
$19,888,000 |
$19,576,000 |
|
Income
before income taxes$ |
$2,500,000 |
2,419,000 |
2,893,000 |
2,259,000 |
|
Net
income |
$1,535,000 |
1,485,.000 |
1,765,000 |
1,378,000 |
|
Basic
earnings per share. |
$.26 |
.25 |
.30 |
.23 |
|
Diluted
earnings per share |
$.25 |
.24 |
.28 |
.22 |
| |
|
|
|
|
|
2002 |
March
31 |
June
30 |
September
30 |
December
31 |
| |
|
|
|
|
|
Operating
revenue |
$14,353,000 |
14,295,000 |
16,060,000 |
15,774,000 |
|
Income
before income taxes |
$1,420,000 |
1,511,000 |
2,085,000 |
1,739,000 |
|
Net
income |
$838,000 |
996,000 |
1,333,000 |
1,067,000 |
|
Basic
earnings per share. |
$.20 |
.24 |
.32 |
.18 |
|
Diluted
earnings per share |
$.14 |
.17 |
.22 |
.15 |
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
There
were no disagreements with the Company’s accountants which require disclosure
pursuant to this rule.
Item
9a. Controls and Procedures
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
The
Company conducted an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures; as such term is defined under Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended
(Exchange Act), under the supervision of and with the participation of our
management, including the Chief Executive Officer and Chief Financial Officer.
Based on that evaluation, our management, including the Chief Executive Officer
and Chief Financial Officer, concluded that our disclosure controls and
procedures, subject to limitations as noted below, were effective at December
31, 2004, and during the period prior to and including the date of this report.
There have been no material changes in our internal controls or in other factors
that could materially affect internal controls subsequent to December 31, 2004.
The Report of Management on Internal Controls can be found under Item
8.
Because
of its inherent limitations, our disclosure controls and procedures may not
prevent or detect misstatements. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been
detected.
Item
9b. Other Information -- None
PART
III
Item
10. Directors and Executive Officers of the Registrant
Information
regarding Directors and Executive Officers is incorporated herein by reference
from the Company’s definitive proxy statement. This information can be found in
the proxy statement under the headings: DIRECTORS and EXECUTIVE
OFFICERS.
Item
11. Executive Compensation
Information
regarding Executive Compensation is incorporated herein by reference from the
Company’s definitive proxy statement. This information can be found in the proxy
statement under the heading: EXECUTIVE COMPENSATION AND OTHER INFORMATION
(specifically excluding disclosures in such section relating to Item 402(I),
(k), and (l) of Regulation S-K.)
Item
12. Security Ownership of Certain Beneficial Owners and
Management
Information
regarding Security Ownership of Certain Beneficial Owners and Management is
incorporated herein by reference from the Company’s definitive proxy statement.
This information can be found in the proxy statement under the headings: PROXY
STATEMENT and STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Item
13. Certain Relationships and Related Transactions
Information
regarding Certain Relationships and Related Transactions is incorporated herein
by reference from the Company’s definitive proxy statement. This information can
be found in the proxy statement under the headings: EXECUTIVE COMPENSATION AND
OTHER INFORMATION and OTHER TRANSACTIONS.
Item
14. Principal Accountant Fees and Services
Information
regarding Principal Accountant Fees and Services is incorporated herein by
reference from the Company’s definitive proxy statement. This information can be
found in the proxy statement under the headings: PRINCIPAL ACCOUNTANT FEES AND
SERVICES.
(The
remainder of this page left intentionally blank.)
PART
IV
Item
15. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
a.
List of documents filed as part of this report.
| Description |
|
Page |
| 1. |
Financial Statements: |
|
| |
|
|
| |
Concorde
Career Colleges, Inc. and Subsidiaries |
|
| |
Report
of Independent Registered Public Accounting Firm. |
II-16 |
| |
Report
of Independent Registered Public Accounting Firm. |
II-17 |
| |
Consolidated
Balance Sheets |
II-18 |
| |
Consolidated
Statements of Operations |
II-20 |
| |
Consolidated
Statements of Cash Flows |
II-21 |
| |
Consolidated
Statements of Changes In Stockholders' Equity |
II-22 |
| |
Notes
to Consolidated Financial Statements. |
II-23 |
| |
|
|
| 2. |
Financial
Statement Schedules: |
|
|
|
Schedules have been
omitted as not applicable or not required under the instructions contained
in Regulations S-X or the information is included elsewhere in the
financial statements or notes
thereto. |
3. Exhibits:
Exhibit
Number Description
|
3(a) |
Restated
Certificate of Incorporation of the Registrant, as amended (Incorporated
by reference to Exhibit 3(a) of the Annual Report on
Form
10-K for the year ended December 31, 1994).** |
| |
|
|
3(b) |
Amended
and Restated Bylaws of the Registrant (Incorporated by reference to
Exhibit 3(b) of the Annual Report on Form 10-K for the year ended December
31, 1991).** |
| |
|
|
4(a) |
Specimen
Common Stock Certificate (Incorporated by reference to Exhibit 4(a) to
Registration Statement on Form S-1 [SEC
File
No. 33-21654]).** |
| |
|
|
4(b)
|
Certificate
of Designation of the Class A Redeemable Preferred Stock (Incorporated by
reference to Exhibit 4(d) of the Annual
Report
on Form 10-K for the year ended December 31, 1994).** |
| |
|
|
4(c)
- |
Certificate
of Designation of Class B Convertible Preferred Stock. (Incorporated by
reference to Exhibit 4(e) of the Annual Report on
Form
10-K for the year ended December 31, 1996).** |
| |
|
|
4(d)
|
Amended
and Restated Registration Rights Agreement dated January 10, 2003 by and
among the Corporation, Cahill, Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P.* |
| |
|
|
4(e)
|
Definitive
14C information statement regarding a one-for-two Reverse Stock Split.
(Incorporated by reference to Exhibit 10(j) of the Annual Report on Form
10-K for the year ended December 31, 2001).** |
| |
|
|
9(a) |
Amended
and Restated Shareholders’ Agreement dated November 25, 2002 by and among
the Corporation, Cahill, Warnock Strategic Partners Fund, L.P., Strategic
Associates, L.P., Jack L. Brozman and the Robert F. Brozman Trust under
Agreement dated December 28, 1989.* |
Exhibit
Number Description
|
10(a)
-- |
Second
Amended and Restated Concorde Career Colleges, Inc. 1988 Incentive Stock
Option Plan, dated May 4, 1989 (Incorporated by reference to Exhibit 10
(a) to Pre-effective Amendment No. 1 to Registration Statement on Form S-1
[SEC File No. 33-30002]).** |
| |
|
|
10(b)(i)
-- |
Concorde
Career Colleges, Inc. 1998 Incentive Stock Option Plan, dated May 29, 1998
(Incorporated by reference to Exhibit 10(b) of the Annual Report on Form
10-K for the year ended December 31, 1998).** |
| |
|
|
10(b)(ii)-- |
Concorde
Career Colleges, Inc 2000 Long Term Executive Compensation Plan, dated May
25, 2000 (Incorporated by reference to Exhibit 10(b) of the Annual Report
on Form 10-K for the year ended December 31, 2000).** |
| |
|
|
10(b)(iii)-- |
Concorde
Career Colleges, Inc. 2002 Long Term Executive Compensation Plan
(Incorporated by reference to Exhibit B of the Definitive Information
Statement on Form DEF 14C filed with the SEC on April 1,
2002).** |
| |
|
|
10(b)(iv)-- |
Concorde
Career Colleges, Inc. 2003 Long Term Executive Compensation Plan
(Incorporated by reference to Exhibit B of the Definitive Proxy Statement
on Form DEF 14A filed with the SEC on April 9, 2003).** |
| |
|
|
10(b)(v)-- |
Concorde
Career Colleges, Inc. Restated Employee Stock Purchase Plan (Incorporated
by reference to Exhibit A of the Definitive Proxy Statement on Form DEF
14A filed with the SEC on April 9, 2003).** |
| |
|
|
10(c)
-- |
Revolving
Credit, Security and Guaranty Agreement dated March 13, 1997 by and among
the Registrant and Security Bank of Kansas City attached herewith.
(Incorporated by reference to Exhibit 10(i) of the Annual Report on Form
10-K for the year ended December 31, 1996.)** |
| |
|
|
14(a) |
Code
of Ethics for Officers and Senior Financial Staff of Concorde Career
Colleges, Inc. (Incorporated by reference to Exhibit 14(a) of the Annual
Report on Form 10-K for the year ended December 31,
2003).* |
| |
|
|
21 |
Subsidiaries
of Registrant.** |
| |
|
|
31-1 |
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.* |
| |
|
|
31-2 |
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.* |
| |
|
|
32-1 |
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.* |
| |
|
|
32-2 |
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.* |
* Filed
Herewith.
**
Previously filed.
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.
| |
|
|
| |
CONCORDE
CAREER COLLEGES, INC. |
|
|
|
|
| Date: March 15, 2005 |
By: |
/s/ Jack L. Brozman
|
| |
|
| |
Chairman of the
Board |
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of Registrant and in the
capacities and on the dates indicated.
Signature Date
| |
|
|
|
| /s/ JACK L. BROZMAN |
|
|
March 15, 2005 |
|
|
|
|
|
Jack
L. Brozman
(Chairman
of the Board, Chief Executive Officer,
President,
Treasurer and Director) |
|
|
|
| |
|
|
|
| /s/ PAUL R. GARDNER |
|
|
March
15, 2005 |
|
|
|
|
|
Paul R. Gardner
(Vice President, Chief Financial Officer,
and Principal Accounting Officer) |
|
|
|
| |
|
|
|
| /s/ JAMES R. SEWARD |
|
|
March 15, 2005 |
|
|
|
|
|
James
R. Seward
(Director) |
|
|
|
| |
|
|
|
| /s/ THOMAS K.
SIGHT |
|
|
March 15,
2005 |
|
|
|
|
|
Thomas
K. Sight
(Director) |
|
|
|
| |
|
|
|
| /s/ JANET M.
STALLMEYER |
|
|
March 15,
2005 |
|
|
|
|
|
Janet
M. Stallmeyer
(Director) |
|
|
|
| |
|
|
|
| /s/ DAVID L.
WARNOCK |
|
|
March 15,
2005 |
|
|
|
|
|
David
L. Warnock
(Director) |
|
|
|
Exhibit
31-1
I, Jack
L. Brozman, certify that:
| 1. |
I
have reviewed this annual report on Form 10-K of Concorde Career Colleges,
Inc.; |
| 2. |
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report; |
| 3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
| 4. |
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) for the registrant and
have: |
| a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
| b) |
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for the external
purposes in accordance with generally accepted accounting
principles; |
| c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and |
| d) |
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and |
| 5. |
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent
functions): |
| |
a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and |
| |
b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting |
Date:
March 15, 2005
/s/
Jack L. Brozman
Jack L.
Brozman, Chief Executive Officer
Exhibit
31-2
I, Paul
R. Gardner, certify that:
| 1. |
I
have reviewed this annual report on Form 10-K of Concorde Career Colleges,
Inc.; |
| 2. |
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report; |
| 3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
| 4. |
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) for the registrant and
have: |
| a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
| b) |
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for the external
purposes in accordance with generally accepted accounting
principles; |
| c) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and |
| d) |
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and |
| 5. |
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent
functions): |
| |
a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and |
| |
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting. |
Date:
March 15, 2005
/s/
Paul R. Gardner
Paul R.
Gardner, Vice President, Chief Financial Officer
(Exhibit
32-1)
CONCORDE
CAREER COLLEGES, INC.
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the annual report of Concorde Career Colleges, Inc. (the
“Company”) on Form 10-K for the year ending December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Jack L.
Brozman, Chief Executive Officer of the Company, certify, to the best of my
knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
| (1) |
The
Report fully complies with the requirements of Section 13(a) or 15 (d) of
the Securities Exchange Act of 1934; and |
| (2) |
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company. |
/s/
Jack L. Brozman
Jack L.
Brozman, Chief Executive Officer
Concorde
Career Colleges, Inc.
March 15,
2005
A signed
original of this written statement required by Section 906, or other document
authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required
by Section 906, has been provided to Concorde Career Colleges, Inc. and will be
retained by Concorde Career Colleges, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.
(Exhibit
32-2)
CONCORDE
CAREER COLLEGES, INC.
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the annual report of Concorde Career Colleges, Inc. (the
“Company”) on Form 10-K for the year ending December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Jack L.
Brozman, Chief Executive Officer of the Company, certify, to the best of my
knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that:
| (1) |
The
Report fully complies with the requirements of Section 13(a) or 15 (d) of
the Securities Exchange Act of 1934; and |
| (2) |
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company. |
/s/
Paul R. Grdner
Paul R.
Gardner, Chief Financial Officer
Paul R.
Gardner, Chief Financial Officer
Concorde
Career Colleges, Inc.
March 15,
2005
A signed
original of this written statement required by Section 906, or other document
authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required
by Section 906, has been provided to Concorde Career Colleges, Inc. and will be
retained by Concorde Career Colleges, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.