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 March 31, 2004 | Commission File No. 0-16992 |
CONCORDE CAREER COLLEGES, INC.
(exact name of registrant as specified in its charter)
| Delaware | 43-1440321 | |
| (State of other jurisdiction of Incorporation or Organization) |
(I. R. S. Employer Identification Number) | |
| 5800 Foxridge, Suite 500 Mission, Kansas |
66202 | |
| (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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of April 19, 2004 Concorde Career Colleges, Inc. had 5,989,659 shares of Common Stock outstanding.
CONCORDE CAREER COLLEGES, INC.
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 2004
INDEX
1
PART I — FINANCIAL INFORMATION
CONCORDE CAREER COLLEGES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004
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 Concorde Career Colleges, Inc. (“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; changes in management strategies and the ability of management to implement those strategies. Readers should take these factors into account in evaluating any such forward-looking comments.
Notes to Financial Statements
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. The condensed consolidated balance sheet of the Company as of December 31, 2003 has been derived from the audited consolidated balance sheet of the Company as of that date. 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 2003 Annual Report on Form 10-K that was filed by the Company with the Commission on March 15, 2004 (the “2003 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 II, Item 1 - “Legal Proceedings”.
Note 2:
Diluted earnings per share is computed by deducting interest from convertible debt, net of tax and imputed preferred dividends from net income (loss) if dilutive. This amount is then divided by the weighted average number of common shares outstanding during the year after giving effect for common stock equivalents (if dilutive) arising from stock options and for warrants and preferred stock assumed converted to common stock.
Note 3:
On February 27, 2003 the Board of Directors 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 22, 2003. 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 of Directors.
2
The Company has additional incentive stock option plans (the “2002 Option Plan,” “2000 Option Plan” and the “1998 Option Plan”) which authorized 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 terms of the option plan. As of March 31, 2004, an aggregate 159,800 shares remain available to be granted pursuant to the 1998, 2000, 2002 and 2003 option plans.
On February 27, 2003 the Board of Directors 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 Employee Plan is similar to the previous Employee Stock Purchase Plan that 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:
| (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 has stock-based employee compensation plans. 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. Stock-based employee compensation cost is not 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 Standard (SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
| Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| Net income as reported |
$ | 1,304,000 | $ | 1,535,000 | ||
| Total stock-based employee compensation cost determined under the fair value based method, net of income taxes |
197,000 | 137,000 | ||||
| Pro forma net income |
$ | 1,107,000 | $ | 1,398,000 | ||
| Income per share |
||||||
| Basic – as reported |
$ | .22 | $ | .26 | ||
| Basic – pro forma |
$ | .19 | $ | .24 | ||
| Diluted – as reported |
$ | .20 | $ | .25 | ||
| Diluted – pro forma |
$ | .17 | $ | .22 | ||
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3
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 16,617,000 | $ | 17,250,000 | ||||
| Short term investments |
3,052,000 | 2,563,000 | ||||||
| Receivables |
||||||||
| Accounts and notes receivable |
27,573,000 | 24,247,000 | ||||||
| Allowance for uncollectible accounts |
(1,863,000 | ) | (1,652,000 | ) | ||||
| Net receivables |
25,710,000 | 22,595,000 | ||||||
| Deferred income taxes |
833,000 | 833,000 | ||||||
| Supplies and prepaid expenses |
2,467,000 | 2,400,000 | ||||||
| Total current assets |
48,679,000 | 45,641,000 | ||||||
| Fixed Assets, Net |
6,779,000 | 4,928,000 | ||||||
| Other Assets: |
||||||||
| Long-term notes receivable |
1,204,000 | 1,327,000 | ||||||
| Allowance for uncollectible notes |
(358,000 | ) | (348,000 | ) | ||||
| Goodwill |
954,000 | 954,000 | ||||||
| Intangible, net |
184,000 | 184,000 | ||||||
| Total other assets |
1,984,000 | 2,117,000 | ||||||
| $ | 57,442,000 | $ | 52,686,000 | |||||
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)
| March 31, 2004 |
December 31, 2003 |
|||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: |
||||||||
| Deferred revenues |
$ | 28,038,000 | $ | 25,540,000 | ||||
| Accrued salaries and wages |
2,012,000 | 1,889,000 | ||||||
| Accounts payable |
2,720,000 | 2,883,000 | ||||||
| Accrued liabilities |
1,542,000 | 1,279,000 | ||||||
| Accrued income taxes payable |
665,000 | 4,000 | ||||||
| Total current liabilities |
34,977,000 | 31,595,000 | ||||||
| Deferred Income Taxes |
428,000 | 428,000 | ||||||
| Stockholders’ Equity |
||||||||
| Common stock, ($.10 par value, 19,400,000 shares authorized) 6,279,182 shares issued and 5,988,109 shares outstanding at March 31, 2004 and 6,254,140 shares issued and 5,963,030 shares outstanding at December 31, 2003 |
628,000 | 625,000 | ||||||
| Capital in excess of par |
14,303,000 | 14,236,000 | ||||||
| Retained Earnings |
8,258,000 | 6,954,000 | ||||||
| Less treasury stock, 291,073 shares in 2004 and 291,110 in 2003, at cost |
(1,152,000 | ) | (1,152,000 | ) | ||||
| Total stockholders’ equity |
22,037,000 | 20,663,000 | ||||||
| $ | 57,442,000 | $ | 52,686,000 | |||||
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)
| Three Months Ended March, 31 | ||||||
| 2004 |
2003 | |||||
| Net Revenue |
$ | 20,375,000 | $ | 17,359,000 | ||
| Costs and Expenses: |
||||||
| Instruction costs and services |
6,456,000 | 5,258,000 | ||||
| Selling and promotional |
2,653,000 | 2,122,000 | ||||
| General and administrative |
8,395,000 | 6,984,000 | ||||
| Provision for uncollectible accounts |
779,000 | 515,000 | ||||
| Total Expenses |
18,283,000 | 14,879,000 | ||||
| Operating Income |
2,092,000 | 2,480,000 | ||||
| Interest and Other Non-Operating Income |
46,000 | 44,000 | ||||
| Interest Expense |
24,000 | |||||
| Income Before Provision For Income Taxes |
2,138,000 | 2,500,000 | ||||
| Provision For Income Taxes |
834,000 | 965,000 | ||||
| Net Income |
$ | 1,304,000 | $ | 1,535,000 | ||
| Weighted Average Shares Outstanding: |
||||||
| Basic |
5,983,000 | 5,846,000 | ||||
| Diluted |
6,365,000 | 6,241,000 | ||||
| Net Income Per Share: |
||||||
| Basic |
$ | .22 | $ | .26 | ||
| Diluted |
$ | .20 | $ | .25 | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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6
CONCORDE CAREER COLLEGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash Flows – Operating Activities: |
||||||||
| Net Income |
$ | 1,304,000 | $ | 1,535,000 | ||||
| Adjustment to reconcile net income to net cash provided by operating activities — |
||||||||
| Depreciation and amortization |
451,000 | 346,000 | ||||||
| Provision for uncollectible accounts |
779,000 | 515,000 | ||||||
| Change in assets and liabilities — |
||||||||
| (Increase) in receivables, net |
(3,978,000 | ) | (4,412,000 | ) | ||||
| Increase in deferred revenue |
2,498,000 | 3,603,000 | ||||||
| Increase in income taxes payable |
661,000 | 733,000 | ||||||
| Increase in accounts payable, accrued expenses and other |
127,000 | 1,038,000 | ||||||
| Total adjustments |
538,000 | 1,823,000 | ||||||
| Net operating activities |
1,842,000 | 3,358,000 | ||||||
| Cash Flows-Investing Activities: |
||||||||
| Purchase of short term investments |
(489,000 | ) | (7,000 | ) | ||||
| Capital expenditures |
(2,056,000 | ) | (850,000 | ) | ||||
| Net investing activities |
(2,545,000 | ) | (857,000 | ) | ||||
| Cash Flows-Financing Activities: |
||||||||
| Treasury stock purchased |
(35,000 | ) | ||||||
| Dividends paid |
(218,000 | ) | ||||||
| Stock purchase plan |
28,000 | 30,000 | ||||||
| Stock options exercised |
42,000 | 6,000 | ||||||
| Net financing activities |
70,000 | (217,000 | ) | |||||
| Net Decrease in Cash and Cash Equivalents |
(633,000 | ) | 2,284,000 | |||||
| Cash and Cash Equivalents at Beginning of Period |
17,250,000 | 9,777,000 | ||||||
| Cash and Cash Equivalents at End of Period |
$ | 16,617,000 | $ | 12,061,000 | ||||
| Supplemental Disclosures of Cash Flow Information |
||||||||
| Cash Paid During the Period For: |
||||||||
| Interest |
$ | — | $ | 39,000 | ||||
| Income taxes |
173,000 | 233,000 | ||||||
| Conversion of subordinated debt to common stock through exercise of warrants |
3,500,000 | |||||||
| Accounts receivable for reimbursement of amounts expended on leasehold improvements |
(217,000 | ) | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.