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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 2002 Commission File No. 0-16992
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CONCORDE CAREER COLLEGES, INC.
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Delaware 43-1440321
- -------------------------------- ----------------------------------
(State of other jurisdiction of (I. R. S. Employer Identification
Incorporation or Organization) Number)
5800 Foxridge, Suite 500
Mission, Kansas 66202
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (913) 831-9977
-----------------------------
Securities registered pursuant to Section 12(g) of the Act:
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) and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No _____ (2) Yes X No _____
--- ---
As of July 18, 2002 Concorde Career Colleges, Inc. had 3,996,801 shares of
Common Stock outstanding.
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CONCORDE CAREER COLLEGES, INC.
FORM 10-Q
SIX MONTHS ENDED June 30, 2002
INDEX
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Notes to Condensed Consolidated Financial Statements
Note 1, 2, and 3 ............................................. 3
Condensed Consolidated Balance Sheets ................................. 4
Condensed Consolidated Statements of Operations ....................... 6
Condensed Consolidated Statements of Cash Flows ....................... 7
Consolidated Statement of Changes in Stockholders' Equity ............. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk ............ 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ..................................................... 15
Item 2. Change in Securities .................................................. 15
Item 3. Defaults Upon Senior Securities ....................................... 15
Item 4. Submission of Matters to a Vote of Security Holders ................... 15
Item 5. Other Information ..................................................... 15
Item 6. Exhibits and Reports on Form 8-K ...................................... 15
Signatures ..................................................................... 16
Exhibit 11 ..................................................................... 17
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
Overview
The discussion set forth below, as well as other portions of this Form
10-Q, 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-Q. 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 default
rates; 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.
Notes to Financial Statements
Note 1:
The condensed interim consolidated financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared according to generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations although the Company
believes that the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's 2001 Annual Report on Form 10-K that was filed by the Company with the
Commission on March 26, 2002 (the "2001 Form 10-K") incorporated herein by
reference.
The information included in these interim financial statements reflects
all normal recurring adjustments that are, in the opinion of management,
necessary to fairly state the results of the periods presented. Annualization of
amounts in these interim financial statements may not necessarily be indicative
of the actual operating results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles 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. The Company
has litigation pending which arose in the normal course of business. See further
discussion in Part I, Item 2 - "Contingencies", and Part II, Item 1 - "Legal
Proceedings".
Note 2:
Basic earnings per share is computed by deducting imputed preferred
dividends from net income or loss. This amount is then divided by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share is computed by adding interest on
convertible debt, net of tax and deducting imputed preferred dividends from net
income or loss during the period after giving effect for antidilution. This
amount is then divided by the weighted average number of common shares
outstanding during the period after giving effect for common stock equivalents
(if dilutive) arising from stock options, warrants and preferred stock assumed
converted to common stock.
Note 3:
Other non-operating income consists of interest income from certificates
of deposit, money market accounts and both the amortization and settlement of
the Person/Wolinsky non-compete agreement. Prior year information has been
reclassified for comparative purposes.
3
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
June 30, December 31,
2002 2001
------------ -------------
CURRENT ASSETS:
Cash and cash equivalents .................. $ 7,569,000 $ 7,556,000
Short term investments ..................... 3,506,000 2,183,000
Receivables
Accounts receivable ...................... 19,453,000 16,639,000
Notes receivable ......................... 1,458,000 1,534,000
Allowance for uncollectible accounts ..... (1,708,000) (1,639,000)
------------ ------------
Net receivables ...................... 19,203,000 16,534,000
Deferred income taxes .................... 962,000 962,000
Supplies and prepaid expenses ............ 1,936,000 1,119,000
------------ ------------
Total current assets ................. 33,176,000 28,354,000
FIXED ASSETS, NET ............................. 2,869,000 2,625,000
OTHER ASSETS:
Long-term notes receivable ............... 244,000 306,000
Allowance for uncollectible notes ........ (69,000) (28,000)
Deffered income taxes .................... 175,000 175,000
Goodwill ................................. 256,000 256,000
Deferred financing cost, net ............. 7,000 12,000
------------ ------------
Total other assets ................... 613,000 721,000
------------ ------------
$ 36,658,000 $ 31,700,000
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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4
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2002 2001
------------ ------------
CURRENT Liabilities:
Deferred revenues .......................................... $ 19,795,000 $ 17,378,000
Accrued salaries and wages ................................. 964,000 846,000
Accrued interest ........................................... 15,000 59,000
Accrued payable ............................................ 3,185,000 1,884,000
Accrued liabilities ........................................ 1,186,000 986,000
Current income taxes payable ............................... 10,000 816,000
Subordinated debt due to related party ..................... 3,500,000
Dividends payable .......................................... 44,000 45,000
------------ ------------
Total current liabilities .............................. 28,699,000 22,014,000
SUBORDINATED DEBT DUE TO RELATED PARTY .......................... 3,500,000
STOCKHOLDERS' EQUITY:
Preferred Stock, ($.10 par value, 600,000 shares authorized)
Class B, 53,309 shares issued and outstanding .......... 5,000 5,000
Common stock, ($.10 par value, 19,400,000 shares
authorized) 4,265,380 shares and 4,254,255 shares
issued and 3,993,870 and 3,985,370 shares
outstanding at June 30, 2002 and
December 31, 2001, respectively ........................ 427,000 425,000
Capital in excess of par ................................... 9,768,000 9,706,000
Accumulated deficit ........................................ (1,327,000) (3,055,000)
Less treasury stock, 271,510 and 268,885 shares at
cost at June 30, 2002 and December 31, 2001,
respectively ........................................... (914,000) (895,000)
------------ ------------
Total stockholders' equity ............................. 7,959,000 6,186,000
------------ ------------
$ 36,658,000 $ 31,700,000
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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5
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
-------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
Net Revenue ............................... $29,278,000 $22,869,000 $14,925,000 $12,101,000
Costs and Expenses:
Instruction costs and services ....... 9,189,000 8,345,000 4,510,000 4,229,000
Selling and promotional .............. 4,088,000 3,801,000 2,155,000 1,852,000
General and administrative ........... 11,425,000 9,209,000 5,895,000 4,755,000
Provision for uncollectible
accounts ........................... 1,662,000 945,000 860,000 476,000
----------- ----------- ----------- -----------
Total Expenses ................... 26,364,000 22,300,000 13,420,000 11,312,000
----------- ----------- ----------- -----------
Operating Income .......................... 2,914,000 569,000 1,505,000 789,000
Other Non-Operating Income ................ 105,000 308,000 50,000 257,000
Interest Expense .......................... 88,000 88,000 44,000 44,000
----------- ----------- ----------- -----------
Income Before Provision For Income Taxes .. 2,931,000 789,000 1,511,000 1,002,000
Provision For Income Taxes ................ 1,097,000 316,000 515,000 393,000
----------- ----------- ----------- -----------
Net Income ................................ 1,834,000 473,000 996,000 609,000
Class B Preferred Stock Accretion ......... 106,000 118,000 54,000 54,000
----------- ----------- ----------- -----------
Net Income Available to Common Shareholders $ 1,728,000 $ 355,000 $ 942,000 $ 555,000
=========== =========== =========== ===========
Weighted Average Shares Outstanding:
Basic ................................. 3,989,000 3,880,000 3,992,000 3,872,000
Diluted ............................... 6,130,000 5,327,000 6,147,000 5,887,000
Net Income Per Share:
Basic ................................. $ 0.43 $ 0.09 $ 0.24 $ 0.14
Diluted ............................... $ 0.31 $ 0.08 $ 0.17 $ 0.11
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
2002 2001
---- ----
Cash Flows Operating Activities:
Net Income ........................................................... $ 1,834,000 $ 473,000
Adjustments to reconcile net income to net cash provided by
operating activities - -
Depreciation and amortization ........................................ 440,000 515,000
Provision for uncollectible accounts ................................. 1,662,000 944,000
Decrease in Deferred income taxes .................................... 316,000
Change in assets and liabilities - -
Increase in receivables, net ......................................... (4,228,000) (3,239,000)
Increase in deferred revenue ......................................... 2,417,000 2,250,000
Increase (Decrease) in income taxes recoverable/payable .............. (806,000) 1,000
Other changes in assets and liabilities, net ......................... 762,000 290,000
----------- -----------
Total adjustments ................................................ 247,000 1,077,000
----------- -----------
Net operating activities ......................................... 2,081,000 1,550,000
----------- -----------
Cash Flows Investing Activities:
Purchase of short term investments ................................... (1,323,000) (1,519,000)
Capital expenditures ................................................. (684,000) (232,000)
----------- -----------
Net investing activities ......................................... (2,007,000) (1,751,000)
----------- -----------
Cash Flows Financing Activities:
Dividends paid ....................................................... (87,000) (46,000)
Treasury stock purchased ............................................. (19,000) (139,000)
Stock options exercised .............................................. 20,000
Stock purchase plan .................................................. 25,000 6,000
----------- -----------
Net financing activities ......................................... (61,000) (179,000)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents ...................... 13,000 (380,000)
Cash and Cash Equivalents at Beginning of Period .......................... 7,556,000 4,512,000
----------- -----------
Cash and Cash Equivalents at End of Period ................................ $ 7,569,000 $ 4,132,000
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year For:
Interest ............................................................. $ 132,000 $ 89,000
Income taxes ......................................................... $ 1,999,000 $ 10,000
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
CONCORDE CAREER COLLEGES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(unaudited)
Preferred Capital in Accumulated Treasury
Stock Common Stock Excess of Par Deficit Stock Total
----------- ------------ ------------- ----------- ------------ -----------
BALANCE, December 31, 2001 ............... $ 5,000 $ 425,000 $ 9,706,000 $(3,055,000) $ (895,000) $ 6,186,000
Net Income ............................ 1,834,000 1,834,000
Class B Preferred Stock Accretion, .... 106,000 (106,000)
Class B Preferred Stock Dividends, .... (87,000) (87,000)
Stock Options Exercised ............... 1,000 19,000 20,000
Employee Stock Purchase Plan .......... 1,000 24,000 25,000
Treasury Stock Purchased .............. (19,000) (19,000)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 2002 ................... $ 5,000 $ 427,000 $ 9,768,000 $(1,327,000) $ (914,000) $ 7,959,000
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table presents the relative percentage of revenues
derived from the campuses and certain consolidated statement of operations items
as a percentage of total revenue for the periods indicated.
Six Months Three Months
Ended June 30, Ended June 30,
---------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenue ..................................... 100.0% 100.0% 100.0% 100.0%
Operating Expenses:
Instruction costs and services ......... 31.4 36.5 30.2 34.9
Selling and promotional ................ 14.0 16.6 14.4 15.3
General and administrative ............. 39.0 40.3 39.5 39.3
Provision for uncollectible accounts ... 5.7 4.0 5.7 4.0
----- ----- ----- -----
Total operating expenses ............... 90.1 97.5 89.8 93.5
Operating income ............................ 9.9 2.5 10.2 6.5
Other non-operating income .................. 0.4 1.4 0.3 2.1
Interest expense ............................ 0.3 0.4 0.3 0.4
----- ----- ----- -----
Income before provision for income taxes 10.0 3.5 10.2 8.2
Provision for income taxes .................. 3.7 1.4 3.5 3.2
----- ----- ----- -----
Net income .................................. 6.3% 2.1% 6.7% 5.0%
===== ===== ===== =====
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9
Results of Operations
General
The Company owns and operates proprietary, postsecondary institutions
that offer career vocational training programs primarily in the allied health
field. As of June 30, 2002, the Company operated Campuses at 11 locations in six
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 83% of cash receipts from such funds
for the year ended December 31, 2001.
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 affect 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 the last two years.
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 and
expand the number of programs.
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 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 realized a higher
level of uncollectible accounts receivable from students during the first and
second quarters of 2002 as enrollment increased significantly. The Company
expects that non-Title IV accounts and notes receivable due from students will
increase in the future as student enrollment increases and that the related
provision for uncollectible accounts will also increase.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO
SIX MONTHS ENDED JUNE 30, 2001
Student enrollments increased 23.8% to 4,225 for the six months ended
June 30, 2002 compared to 3,412 for the six months ended June 30, 2001. Higher
enrollments were the result of an increased demand for the Company's courses
compared to 2001. Student inquiries increased 35.8% for the six months ended
June 30, 2002 compared to 2001. Expansion of programs helped enrollment growth
as Massage Therapy, Computer Service Technician, and Surgical Technologist were
each added to one Campus during 2001, Computer Service Technician was added to
one Campus in the first quarter of 2002, and Massage Therapy was added to one
campus in the second quarter of 2002. These additional courses increased
enrollments for the six months ended June 30, 2002 by 185 students compared to
2001. Student population increased 14.6% to 4,718 at June 30, 2002 compared to
4,117 at June 30, 2001. Average student population for the six months ended June
30, 2002 increased 20.0% to 4,864 compared to 4,055 for the same period in 2001.
Net income of $1,834,000 was recorded for six months end June 30, 2002
compared to $473,000 for the same period in 2001. The increased profit was the
result of increased revenue compared to 2001.
Revenue increased 28.0% or $6,409,000 to $29,278,000 for the six months
ended June 30, 2002 compared to $22,869,000 for the same period in 2001. The
revenue increased due to higher student enrollments, increased average student
population and a minimal price increase compared to 2001.
Instruction Costs and Services - increased 10.1% or $844,000 to
$9,189,000 compared to $8,345,000 in 2001. The increase was primarily a result
of increased salary, textbook, and supply expenses compared to 2001. Salaries
increased $503,000 due to higher wages required to remain competitive in the
labor market and an increase in the number of staff due to
10
enrollment growth. Textbook and supply expense increased $131,000 and $142,000,
respectively due to enrollment growth.
Selling and Promotional -increased to $4,088,000 compared to $3,801,000
in 2001. Salary expense increased $180,000 for the six months ended June 30,
2002 compared to 2001. Salaries increased due to higher wages and increased
staff compared to 2001. Advertising increased $107,000 to generate additional
student inquiries.
General and Administrative - increased 24.1% or $2,216,000 to
$11,425,000 compared to $9,209,000 in 2001. The majority of the increase was a
result of a $1,206,000 payroll increase compared to 2001. Additional employees
due to enrollment increases, higher wage rates and incentive compensation were
factors in the increase. The Company also experienced increases in several other
categories as enrollment increased 23.8%.
Provision for Uncollectible Accounts - increased $717,000 to $1,662,000
compared to $945,000 in 2001. This increase is attributable to the $6,409,000
increase in revenue for the six months and a corresponding increase in accounts
and notes receivable of $3,328,000. The Company anticipates the 2002 provision
as a percentage of revenue will be higher than the previous year due to
increased accounts receivable.
Interest and Other Non-Operating Income - decreased to $105,000 for the
six months ended June 30, 2002 compared to $308,000 for the same period in 2001.
The decrease was the 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. In addition interest earned on the Company's cash and temporary
investments was reduced due to lower interest rates in 2002 compared to 2001.
Interest Expense - was $88,000 for the six months ended June 30, 2002
and 2001.
Provision for Income Taxes - a tax provision of $1,097,000 or 37.4% of
pretax income was recorded for the six months ended June 30, 2002 compared to
$316,000 or 40.1% for the six months ended June 30, 2001. The Company received a
tax refund from the IRS for prior years taxes, which decreased the 2002
provision by $87,000.
EPS and Weighted Average Common Shares - Basic weighted average common
shares increased to 3,989,000 in 2002 from 3,880,000 in 2001. The common share
increase is the result of the employee stock purchase plan and stock options
exercised offset by stock repurchases. Basic income per share was $.43 in 2002
compared with $.09 in 2001. Basic income per share is shown after a reduction
for preferred stock dividend accretion of $106,000 and $118,000 in 2002 and
2001, respectively. Diluted weighted average common shares outstanding increased
to 6,130,000 in 2002 from 5,327,000 in 2001. The share increase is primarily due
to the antidilutive effect of common stock equivalents in 2001. Diluted income
per share was $.31 for the six months ended June 30, 2002 compared with $.08 in
2001. Diluted income per share is shown after a reduction for preferred stock
dividend accretion of $118,000 in 2001 and interest on convertible debt, net of
tax of $54,000 and $53,000 in 2002 and 2001, respectively.
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO
THREE MONTHS ENDED JUNE 30, 2001
Student enrollments increased 16.9% to 1,934 for the quarter ended June
30, 2002 compared to 1,655 in the second quarter of 2001. Higher enrollments
were the result of an increased demand for the Company's courses compared to
2001. Student inquiries increased 44.6% for the quarter ended June 30, 2002
compared to 2001. Expansion of programs helped enrollment growth as Massage
Therapy, Computer Service Technician, and Surgical Technologist were each added
to one Campus during 2001, Computer Service Technician was added to one Campus
in the first quarter of 2002, and Massage Therapy was added to one campus in the
second quarter of 2002. These additional courses increased enrollments for the
quarter by 70 students compared to 2001. Student population increased 14.6% to
4,718 at June 30, 2002 compared to 4,117 at June 30, 2001. Average student
population for the second quarter increased 16.6% to 4,850 compared to 4,161 for
the same period in 2001.
Net income of $996,000 was recorded for the quarter ended June 30, 2002
compared to $609,000 for the same period in 2001. The increased profit was the
result of increased revenue off set by lower increases in expenses.
Revenue increased 23.3% or $2,824,000 to $14,925,000 for the quarter
ended June 30, 2002 compared to $12,101,000 for the same period in 2001. The
revenue increased due to higher student enrollments, increased average student
population, and a minimal price increase compared to 2001.
11
Instruction Costs and Services - increased 6.6% or $281,000 to
$4,510,000 compared to $4,229,000 in 2001. The increase was a result of
increased salary expense compared to 2001. Salaries increased $406,000 due to
higher wages to remain competitive in the labor market and an increase in the
number of staff due to enrollment growth. This increase was offset primarily by
a $160,000 decrease in textbook expense. Textbook expense decreased as
enrollments increased because the Company was able to purchase a large quantity
of textbooks at a large discount. The reduction will not recur in subsequent
periods.
Selling and Promotional -increased to $2,155,000 compared to $1,852,000
in 2001. Salaries increased $171,000 due to higher wages and increased staff
compared to 2001. Advertising increased $132,000 to generate additional student
inquiries.
General and Administrative - increased 24.0% or $1,140,000 to
$5,895,000 compared to $4,755,000 in 2001. The majority of the increase was a
result of a $393,000 payroll increase, $193,000 insurance expense increase and
$178,000 health insurance increase. Payroll increased due to higher wage rates,
additional employees, and incentive compensation compared to 2001. Insurance
expense increased due to higher workers' compensation insurance rates based on
an increase in the previous years claims that were filed. Health insurance
increased as more employees participated in the Company's health plan and the
related administration and claims expense increased. The Company also
experienced increases in several other categories as enrollments increased
16.9%.
Provision for Uncollectible Accounts - increased $384,000 to $860,000
compared to $476,000 in 2001. This increase is attributable to the $2,824,000
increase in revenue in the second quarter of 2002 and a corresponding increase
in accounts and notes receivable of $3,328,000. The Company anticipates the 2002
provision will be higher than the previous year due to increased accounts
receivable as enrollments increase.
Interest and Other Non-Operating Income - decreased to $50,000 for the
quarter ended June 30, 2002 compared to $257,000 for the quarter ended June 30,
2001. The decrease was the 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. In addition interest earned on the Company's cash and
temporary investments was reduced due to lower interest rates in 2002 compared
to 2001.
Interest Expense - was $44,000 for the quarters ended June 30, 2002 and
2001.
Provision for Income Taxes - a tax provision of $515,000 or 34.1% of
pretax income was recorded for the quarter ended June 30, 2002 compared to
$393,000 or 39.2% for the quarter ended June 30, 2001. The Company received a
tax refund from the IRS for prior year's taxes, which decreased the 2002
provision by $87,000.
EPS and Weighted Average Common Shares - Basic weighted average common
shares increased to 3,992,000 in 2002 from 3,872,000 in 2001. The common share
increase is the result of the employee stock purchase plan and stock options
exercised offset by stock repurchases. Basic income per share was $.24 in 2002
compared with $.14 in 2001. Basic income per share is shown after a reduction
for preferred stock dividend accretion of $54,000 in 2002 and 2001. Diluted
weighted average common shares outstanding increased to 6,147,000 in 2002 from
5,888,000 in 2001. Diluted income per share was $.17 for the quarter ended June
30, 2002 compared with $.11 in 2001. Diluted income per share is shown after
interest on convertible debt, net of tax of $27,000 and $26,000 in 2002 and
2001, respectively.
Recent Events
The Company signed a definitive purchase agreement to acquire all
assets of Extended Health Education ("EHE") of Arlington, Texas for $900,000.
EHE provides Vocational Nursing and other health care-related courses. The
Company anticipates closing the all cash transaction in August 2002. The Company
currently plans to enlarge the facility and expand the number of programs
offered at the school beginning sometime in 2003.
The Company received approval to offer a practical nursing program at
the Kansas City Campus. The Kansas City Campus expects to begin offering the
nursing program in the fall of 2002.
The Company's Common Stock began trading on the NASDAQ Small Cap Market
on May 22, 2002 under the ticker symbol CCDC.
12
Liquidity and Capital Resources
Bank Financing
The Company negotiated a $3,000,000 secured revolving credit facility
on December 28, 1998, with Security Bank of Kansas City. The amount available
under the facility is offset by the letter of credit discussed below. As a
result $2,646,000 is currently available under the facility. This facility is
due to expire on April 30, 2003. Funds borrowed under this facility, if any,
will be used for general corporate purposes. This facility has a variable
interest rate equal to the prime rate 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 consolidated tangible net worth as part of this agreement. The
Company is currently in compliance with this agreement. The Company has not
borrowed any funds under this facility.
On December 30, 1998 Security Bank of Kansas City issued a $589,000
letter of credit as security for a lease on the Company's Garden Grove,
California location. The letter of credit will expire October 2, 2003. Each year
as the letter of credit expires it will be replaced by replacement letters of
credit expiring annually through October 2, 2005. The replacement letters of
credit will be issued at amounts decreasing 20% annually from the original issue
amount. The letter of credit was $589,000, $471,000 an $354,000 at December 31,
1999, 2000, and 2001, respectively. The letter can only be drawn upon if there
is default under the lease agreement. There has been no default at any time
under the lease agreement.
Cash Flows and Other
Net cash flows provided by operating activities were $2,081,000 for the
six months ended June 30, 2002 compared to $1,550,000 in 2001. Cash flows from
operating activities increased due to an increase in net income of $1,361,000,
offset by an increase in accounts receivable, net of deferred revenue and the
provision for uncollectible accounts, of $822,000.
Cash used in investing activities was $2,007,000 for the six months
ended June 30, 2002 compared to $1,751,000 in 2001. Cash was used in both years
to purchase short-term investments and fixed assets, principally computer
equipment.
Cash used in financing activities was $61,000 for the six months ended
June 30, 2002 compared to $179,000 in 2001. The decrease in cash used in
financing activities is a result of purchasing less treasury stock in 2002
offset by increased preferred dividends paid, stock options exercised and funds
received from the employee stock purchase plan.
The Company's Board of Directors approved a 500,000 shares repurchase
program in August 2000. As of June 30, 2002 the Company has purchased a total of
259,235 shares at an average price of $3.30 pursuant to the buy back plan. The
Company's last purchase was 3,000 shares at $6.35 per share in the first quarter
of 2002. The shares repurchase plan remains in effect.
The 5% Debentures issued to Cahill, Warnock Strategic Partners Fund, LP
and Strategic Associates, LP, an affiliated Baltimore-based venture capital
fund, mature February 2003. The Debentures have nondetachable warrants for
1,286,765 shares of common stock, exercisable at $2.72 per share of common
stock, through February 2003. The $3.5 million in Debentures have been
reclassified to short term liabilities reflecting the maturity date of less than
one year.
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.
Contingencies
Southern Career Institute
On May 31, 1990, a wholly owned subsidiary of the Company, Concorde
Career Institute, Inc., a Florida corporation, acquired substantially all the
assets of Southern Career Institute, Inc. ("SCI"), a proprietary, postsecondary
vocational home-study school specializing in paralegal education. In 1991, an
accrediting commission failed to reaffirm accreditation of SCI under the
ownership of Concorde Career Institute, Inc. Also in 1991, SCI received notice
from the United States Department of Education ("ED") alleging that commencing
June 1, 1990, SCI was ineligible to participate in federal student financial
assistance programs.
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Subsequently, the ED gave notice that it intends to require SCI to
repay all student financial assistance funds disbursed from June 1, 1990, to
November 7, 1990, the effective date upon which ED discontinued disbursing
student financial assistance funds to SCI. The amount currently being claimed by
ED is not determinable, but the total of the amounts shown on six separate
notices dated January 13, 1994, is approximately $2.7 million. By letter dated
February 24, 1994, counsel for SCI notified ED's collection agency that SCI
disputes these claims, provided certain information to the collection agency for
ED and offered to settle all of ED"s claims for the amount of the funds then
held by SCI in its only bank account. In December 1996, SCI was informed
verbally that the matter had been referred to ED's General Counsel. In March of
1999, SCI received correspondence from ED's Financial Improvement and
Receivables Group requesting that SCI pay amounts totaling $2,901,497. In May
1999, SCI received a billing requesting $4,614,245. The 1999 correspondence was
similar to correspondence received in prior years. In response to the 1999
correspondence, SCI again notified ED that it disputes these claims. Since that
time, SCI has not received any further demands, notice or information from ED.
In light of applicable corporate law, which limits the liability of
stockholders, and the manner in which SCI was operated by Concorde Career
Institute, Inc. as a subsidiary of the Company, management believes that the
Company is not liable for debts of SCI. Therefore, if it were determined that
SCI is obligated to pay ED's claims it is the opinion of management such
obligation of SCI would not have a material adverse impact on the Company's
financial condition or its results of operations. In addition, in light of
applicable statutory and regulatory provisions existing in 1991 and ED's
interpretation of those provisions, it is the opinion of management that any
debt SCI might be determined to owe to ED should have no impact on the existing
participation of the Campuses in federal financial aid programs.
Item 3. 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.
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PART II -- OTHER INFORMATION
Item 1. 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 had a pending suit against the United States Department of
Education (ED) challenging past Cohort Default Rates published for the Company's
Campuses and the rate correction regulations, which ED adopted in 1994. ED's
rate correction regulations contain a very restrictive standard for removal of
defaulted loans from a Campus Cohort Default Rate due to improper servicing and
collection, and the Company's suit contended that the regulations are unlawful
because they contravene provisions of the Higher Education Act of 1965 (as
amended) and are arbitrary and capricious. All of the Company's Campuses,
currently have one or more of their three most recent default rates below 25%,
following administrative appeal rulings and continuing aggressive default
management efforts by the Company. The Company and ED agreed to dismiss the
suit. The suit was dismissed in June 2002.
The Company is not aware of any material violation by the Company of
applicable local, state and federal laws.
Item 2. Change in Securities -- None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------
a) The Company held its 2002 Annual Meeting of Stockholders ("Annual
Meeting") on May 22, 2002. On the Record Date, the Company had
4,265,380 shares of Common Stock and 53,309 shares of Voting
Preferred Stock (having 533,090 votes) issued and outstanding and
entitled to vote at the Annual Meeting.
b) Proxies for the meeting were solicited pursuant to Regulation
14A; there was no solicitation in opposition to management's
nominees for Directors as listed in such Proxy Statement and all
such nominees were elected. The voting was as follows:
Election of four Directors: For Withheld
--- --------
1. Jack L. Brozman 3,832,694 887
2. James R. Seward 3,833,069 512
3. Thomas K. Sight 3,833,069 512
4. David L. Warnock 3,833,069 512
c) Ratification of the appointment of the independent auditors for
the Company for 2002 was voted as follows:
For Against Withheld
BKD, LLP 3,820,918 1 12,662
Item 5. Other Information
. The Company has updated its estimate of results for 2002. The
Company anticipates revenue for the full year ending December
31, 2002 will increase approximately 18% compared to 2001. In
addition, the Company anticipates diluted earnings per share
will be approximately $.50 to $.52 per share compared to $.28 in
2001.
Item 6. Exhibits
11 Computation of per share earnings
On June 3, 2002 the Company filed a Form 8-K disclosing information
the Company presented on June 3, 2002 to institutional holders and
investors.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONCORDE CAREER COLLEGES, INC.
DATED: July 25, 2002
By: /s/ Jack L. Brozman
--------------------------------------
Jack L. Brozman, Chief Executive Officer
By: /s/ Paul R. Gardner
----------------------------------------
Paul R. Gardner, Chief Financial Officer
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