Announces Intention to Sell Education Station Business Unit
BALTIMORE, Oct. 27 /PRNewswire-FirstCall/ -- Educate, Inc.
(NASDAQ:EEEE), a pre-K through 12 education services company
delivering industry leading tutoring as well as high quality
supplemental education programs, today reported financial results
for the nine and three-month periods ended September 30, 2005 and
announced the intention to increase its focus on its consumer-based
business and sell the Education Station business which delivers
site-based No Child Left Behind services to public schools. It is
expected that management's decision to sell the Education Station
business will require that Education Station be reported as a
discontinued operation beginning in the fourth quarter of 2005.
Accordingly, certain financial highlights discussed in this release
are from pro forma continuing operations, excluding the Education
Station business as provided in attached pro forma statement and
tables. Business Highlights for the Quarter: * Announces plan to
sell Education Station business - projected 30% enrollment
increase. * 19 additional corporate territory acquisitions,
bringing year to date acquisitions to 52. * Hooked on Phonics
product unit announces nationwide expansion. * Catapult Learning
achieves 90% retention of contracts. Financial Highlights For The
Nine-Month Period Ended September 30, 2005 (pro forma results from
continuing operations, excluding other financing costs): * Pro
forma revenues from continuing operations increased 21% to $253.8
million. * Learning Center same territory revenue growth was 3%
during the period. * Pro forma operating income from continuing
operations, as adjusted, increased 13% to $43.4 million (an
increase of 47% on a fully consolidated basis and after including
certain non-cash stock compensation expenses incurred in 2004). *
Pro forma diluted earnings per share ("EPS") from continuing
operations, as adjusted, were $0.53, as compared to $0.49 in 2004
(or $0.46 per share, as compared to $0.12 per share in 2004, on a
fully consolidated basis and including certain non-cash stock
compensation and other financing costs). See Tables 3 and 4 for a
reconciliation of pro forma continuing operations EPS, operating
income and operating margins, each as adjusted. Financial
Highlights For The Quarter Ended September 30, 2005 (pro forma
results from continuing operations, excluding other financing
costs): * Pro forma revenues from continuing operations increased
27% to $78.5 million. * Learning Center same territory revenue
growth was 1% during the third quarter. * Pro forma operating
income from continuing operations, as adjusted, decreased 3% to
$9.5 million (a decrease of 18% on a fully consolidated basis and
including certain non-cash stock compensation expense in 2004). *
Pro forma EPS from continuing operations, as adjusted, were $0.11
as compared to $0.13 for the third quarter of 2004 (or $0.06 per
share, as compared to $0.02 per share in 2004, on a fully
consolidated basis and including certain non-cash stock
compensation and other financing costs incurred in 2004). See
Tables 3 and 4 for a reconciliation of pro forma continuing
operations EPS, operating income and operating margins, each as
adjusted. "Despite a challenging third quarter caused by a
disruption in consumer spending patterns, we continue to be very
well positioned for 2006 given the unusually large number of
territory acquisitions completed this year and the strong momentum
we see in our products platform under the Hooked on Phonics brand,"
stated Chris Hoehn-Saric, Educate, Inc. Chairman and Chief
Executive Officer. "Third quarter results included spending for the
integration of acquired territories into the company-owned network,
as well as funding of our Catapult Online and Ace It! NCLB
offerings. We remain confident that the growth from territory
acquisitions, expanded program offerings, a fully integrated Sylvan
Online and Catapult Online will generate 25% earnings per share
growth in 2006." Announcement of Intent to Sell Education Station
As a reflection of the continued emphasis on the consumer sector of
the business, management has decided to place the Education Station
business up for sale. Education Station provides site-based
supplemental services to students under the No Child Left Behind
program. Due to the availability of the Ace It! NCLB program in the
Learning Center network and the development of Catapult Online NCLB
offerings, management has decided to sell the curriculum and
agreements that have been built in Education Station over the past
three years of development. Although Education Station revenues
have grown dramatically over the past three years, the costs of
developing and operating this start-up enterprise have been
detrimental to consolidated operating performance. Sale of the
business unit should realize value from the Company's development
efforts while also allowing management to focus its attention on
the opportunities available in its consumer education services
based businesses. Existing Education Station contracts will be
served and management anticipates the completion of the sale within
the next year. It is currently expected that this commitment to
sell Education Station will require it to be treated as a
discontinued operation beginning in the fourth quarter of 2005.
Business Overview: Nine-Month Results Pro forma revenues from
continuing operations for the nine-month period increased 21% over
the same period in 2004 to $253.8 million, driven primarily by
growth in the consumer (Learning Center) business segment,
specifically integrating and growing acquired territories as well
as expanding the distribution of the Hooked on Phonics library of
programs. Pro forma operating income from continuing operations, as
adjusted, for the nine-month period increased 13% to $43.4 million
as compared to the as adjusted amount for the same period in 2004.
Pro forma operating income from continuing operations, as adjusted,
excludes certain non-cash stock compensation in 2004. The Company
believes this non-GAAP financial measure allows for a better
comparison of operating results because the 2005 period had no
similar expenses. See Table 3 for a reconciliation of income from
continuing operations, as reported to pro forma operating income
from continuing operations, as adjusted. Growth in pro forma
revenues and pro forma operating income was primarily driven by the
expansion of the Learning Center network by 46 territories over the
past year, same territory revenue growth of 3%, acquisition and
integration of Hooked on Phonics in the consumer business, and the
acquisition of 67 franchise territories over the past year.
Quarterly Results Pro forma revenues from continuing operations for
the third quarter were $78.5 million, an increase of 27% over the
same period in 2004. Pro forma operating income from continuing
operations, as adjusted, was $9.5 million, a decrease of 3% from
pro forma operating income, as adjusted, for the three months ended
September 30, 2004. Consistent with the nine-month results, revenue
increases were driven by growth in the consumer (Learning Center)
business segment through acquisition and expansion of the existing
base of territories. The decrease in pro forma operating income
from continuing operations, as adjusted, was largely due to losses
related to Hurricane Katrina in the Gulf Coast area, costs related
to the rapid integration of Learning Center acquisitions and
development of new programs to meet market needs for convenient
educational services and programs. Learning Center segment revenues
were $66.4 million for the quarter, up 37% from the third quarter
of 2004. This growth was the result of acquiring underdeveloped
franchise territories and Hooked on Phonics together with expansion
of the Learning Center network. Same territory revenue growth was
1% in the third quarter of 2005. This growth was impacted by a
decline in revenues in September in the aftermath of Gulf Coast
hurricane damage and a disruption in general consumer spending
patterns. A total of 7 new franchise territories were opened
throughout the network during the quarter. The Company also
acquired 19 franchise territories during the quarter and continued
the integration for all company-owned territories acquired or
opened during 2005. The Company continues its strategy of improving
performance through addressing consumers' needs for convenience
with the addition of more centers in existing territories and
further adoption of Sylvan Online throughout the Learning Center
network. The Company was also successful in expanding the market
for its Hooked on Phonics education programs. Learning Center
operating profit for the quarter was $15.1 million, a 12% increase
over the same period in 2004. Operating profit growth was driven by
revenue growth partially mitigated by a 3% operating margin
decrease due to the shift in the network mix of franchise and
company-owned territories. Catapult Learning segment pro forma
revenues from continuing operations were $12.2 million during the
quarter, a 9% decrease compared with the same period in 2004. The
decline in revenue in this seasonally slow period was primarily due
to certain one-time summer school programs that were served in the
prior year. The Catapult operating loss for the quarter was
increased due to the impact of lost summer school business; losses
incurred on New Orleans and Alabama contracts directly resulting
from Hurricane Katrina and increased spending on marketing and
student recruitment for the fall NCLB enrollment cycle for the
online programs. Corporate expenses increased 10% to $4.3 million
during the third quarter of 2005 as compared to the same period in
2004 in response to needs to support the expanding business and to
operate as a public company. Non-operating expenses, primarily
interest, were $1.9 million for the quarter, an 11% decrease from
the third quarter of 2004. The decline in interest expense was
primarily due to lower levels of debt and lower borrowing costs
during the period as compared to the same period in 2004. Fourth
Quarter and Full Year 2005 Outlook: Fourth quarter operating
results will continue to be negatively impacted by service
interruption in both the Learning Center and Catapult Learning
segments resulting from the aftermath of Hurricane Katrina.
Franchised learning centers in Louisiana and Mississippi have been
temporarily closed and significant Catapult Learning contract
revenues in New Orleans are being lost as a result of the delayed
2005/2006 school year. The total impact related to business
interruption from Hurricane Katrina is currently estimated to be a
reduction of $0.01 to $0.02 in pro forma EPS from continuing
operations, as adjusted for the fourth quarter and a reduction of
$0.02 to $0.03 for the full year 2005. The Company is currently
pursuing business interruption insurance claims, but the timing and
extent of insurance recovery is unknown at this point. Accordingly,
no recovery is assumed in the fourth quarter and full year outlook.
It is expected that management's decision to sell the Education
Station business will require that Education Station be treated as
a discontinued operation. Therefore the fourth quarter and full
year outlook exclude the Education Station site-based NCLB business
results. The Company's current expectations for continuing
operating performance for the fourth quarter and fiscal year 2005
are as follows: * The Company anticipates total pro forma revenues
to be between $76 and $84 million for the fourth quarter and
between $330 and $338 million for the full year. * Pro forma
operating income from continuing operations, as adjusted, is
expected to be between $6 and $7 million for the fourth quarter and
between $49 and $50 million for the full year. * Pro forma diluted
earnings per share, as adjusted, is expected to be between $0.05
and $0.07 per share for the fourth quarter and between $0.58 and
$0.60 per share for the full year. Learning Center Outlook: * Total
revenues are expected to be between $54 and $59 million for the
fourth quarter and between $244 and $249 million for the full year
2005. * Revenue growth is expected to result from the combination
of same territory revenue growth (currently projected to be 3% for
the full year 2005), opening additional territories and acquisition
of territories from franchisees. During the fourth quarter, the
Company expects to add 5 to 10 new territories in the system and
acquire 5 to 10 territories from franchisees. * Operating margins
for the fourth quarter are expected to be approximately 15% and
full year margins are expected to be approximately 22%. These
expected margins include Sylvan Online and Hooked on Phonics
results as well as the effect of acquiring additional territories
from franchisees. Since the operating income from the acquired
territories is similar to the royalty income from franchisees in
the year of acquisition, but the revenue increases substantially,
Sylvan Learning Center margins decline by approximately 1% for
every 15 territories acquired. Catapult Learning Outlook: * Total
revenues are expected to be between $22 and $25 million for the
fourth quarter of 2005 and between $86 and $89 million for the full
year 2005. * Pro forma operating margins are expected to be between
9% and 10% for the fourth quarter, and approximately 14% for the
full year 2005. Corporate Services Outlook: * Corporate expenses
are expected to be between $4.5 million and $5 million for the
fourth quarter and between $16 and $17 million for the full year
2005. * Non-operating expenses before other financing costs,
primarily interest, are expected to be approximately $2.1 million
for the fourth quarter of 2005 and approximately $7.6 million for
the full year. * The Company's effective income tax rate is
expected to be 38%. This rate is subject to change based on the
ultimate source of the Company's revenue and income; however, the
2005 cash tax rates are expected to be less than 20%, primarily as
a result of goodwill amortization deductions reported in income tax
returns. * Fully diluted shares outstanding are expected to be in
the 44.1 to 44.2 million range for 2005. Educate management will
host a conference call to review these results at 10:00 AM (EST)
today, October 27, 2005. Interested parties may listen to the
webcast by accessing http://www.educate-inc.com/ and clicking on
Investor Relations on the Internet or by dialing 1-800-818-5264
(International 1-913- 981-4910) access code 4841543. The call will
also be available through replay on the Educate website through
November 4, 2005. About Educate, Inc. Educate, Inc. (NASDAQ:EEEE)
is a leading pre-K-12 education services company delivering
education services and products to students and their families. It
has a portfolio of highly acclaimed brands including Sylvan
Learning Centers, North America's largest and most trusted network
of tutoring centers, providing supplemental, remedial and
enrichment instruction; Hooked on Phonics, delivering highly
regarded early reading, math and study skills programs; and
Catapult Learning, a leading provider of educational services to
public and non-public schools. More information on Educate, Inc.
can be found at http://www.educate-inc.com/. Forward-looking
Statements This release includes information that could constitute
forward-looking statements made pursuant to the safe harbor
provision of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve risks and uncertainties.
Although the Company believes that the expectations reflected in
such forward-looking statements are based on reasonable
assumptions, the Company's actual results could differ materially
from those described in the forward-looking statements. The
following factors might cause such a difference: the development
and expansion of the Sylvan Learning Center franchise system;
changes in the relationships among Sylvan Learning Center and its
franchisees; the Company's ability to effectively manage business
growth; increased competition from other educational service
providers; changes in laws and government policies and programs;
changes in the acceptance of the Company's services by
institutional customers and consumers; changes in customer
relationships; the seasonality of operating results; global
economic conditions, including interest and currency rate
fluctuations, and inflation rates. Additional information regarding
these and other risk factors and uncertainties are set forth from
time to time in the Company's filings with the Securities and
Exchange Commission, available for viewing on the Company's website
http://www.educate-inc.com/. (To access this information on the
Company's website, click on "Investor Relations" and then "SEC
Filings".) All forward-looking statements are based on information
available to the Company on the date of this Release. 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. Educate Inc. & Subsidiaries
Consolidated Detailed Statements of Income Three and Nine Months
Ended September 30, 2005 Three Months Ended September 30, (Dollar
amounts in thousands, except per share data) 2005 2004 $Variance
%Variance Revenues Franchise Services $10,514 $10,453 $61 1%
Company-Owned centers 48,995 32,059 16,936 53% European 6,866 6,099
767 13% Total Learning Center 66,375 48,611 17,764 37% School
Services and Special Needs 12,045 13,246 (1,201) -9% NCLB 485 504
(19) -4% Total Catapult Learning 12,530 13,750 (1,220) -9% Total
Revenues 78,905 62,361 16,544 27% Expenses Learning Centers 51,300
35,163 16,137 46% Catapult Learning 17,130 15,738 1,392 9% Total
Segment Operating Costs 68,430 50,901 17,529 34% Corporate Expenses
4,201 3,560 641 18% Non-Cash stock compensation expense 51 303
(252) -83% Operating Income 6,223 7,597 (1,374) -18% Non-Operating
Items Interest expense, net (2,054) (2,115) 61 -3% Other financing
costs - (275) 275 -100% Foreign exchange gains (losses) and other
non-operating 133 226 (93) -41% Total Non-Operating (1,921) (2,164)
243 -11% Income Before Income Taxes 4,302 5,433 (1,131) -21% Income
Tax Expense (1,635) (3,496) 1,861 -53% Income From Continuing
Operations 2,667 1,937 730 38% Loss from discontinued operations,
net of tax - (1,117) 1,117 -100% Gain from disposal of discontinued
operations, net of tax - 83 (83) -100% Net Income $2,667 $903
$1,764 195% Weighted Average Shares - Diluted (1) 44,166 39,308
4,858 12% Diluted Earnings Per Share (1) $0.06 $0.02 $0.04 200%
Diluted Earnings Per Share From Continuing Operations (1) $0.06
$0.05 $0.01 20% Diluted Earnings Per Share From Continuing
Operations, as adjusted (1),(2) $0.06 $0.09 $(0.03) -33% Segment
Operating Margin Learning Center 23% 28% -5% Catapult Learning -37%
-14% -23% Nine Months Ended September 30, (Dollar amounts in
thousands, except per share data) 2005 2004 $Variance %Variance
Revenues Franchise Services $37,344 $34,898 $2,446 7% Company-Owned
centers 129,292 86,647 42,645 49% European 23,208 20,367 2,841 14%
Total Learning Center 189,844 141,912 47,932 34% School Services
and Special Needs 62,283 68,023 (5,740) -8% NCLB 28,085 21,872
6,213 28% Total Catapult Learning 90,368 89,895 473 1% Total
Revenues 280,212 231,807 48,405 21% Expenses Learning Centers
144,446 104,151 40,295 39% Catapult Learning 84,347 81,451 2,896 4%
Total Segment Operating Costs 228,793 185,602 43,191 23% Corporate
Expenses 11,628 10,726 902 8% Non-Cash stock compensation expense
348 8,704 (8,356) -96% Operating Income 39,443 26,775 12,668 47%
Non-Operating Items Interest expense, net (5,655) (8,024) 2,369
-30% Other financing costs (1,506) (5,117) 3,611 -71% Foreign
exchange gains (losses) and other non-operating 199 389 (190) -49%
Total Non-Operating (6,962) (12,752) 5,790 -45% Income Before
Income Taxes 32,481 14,023 18,458 132% Income Tax Expense (12,343)
(6,760) (5,583) 83% Income From Continuing Operations 20,138 7,263
12,875 177% Loss from discontinued operations, net of tax - (2,838)
2,838 -100% Gain from disposal of discontinued operations, net of
tax - 83 (83) -100% Net Income $20,138 $4,508 $15,630 347% Weighted
Average Shares - Diluted (1) 44,067 38,436 5,631 15% Diluted
Earnings Per Share (1) $0.46 $0.12 $0.34 283% Diluted Earnings Per
Share From Continuing Operations (1) $0.46 $0.19 $0.27 142% Diluted
Earnings Per Share From Continuing Operations, as adjusted (1),(2)
$0.48 $0.45 $0.03 50% Segment Operating Margin Learning Center 24%
27% -3% Catapult Learning 7% 9% -2% (1) All share and per share
amounts have been adjusted to give retroactive effect to a 1.00 for
1.25 reverse stock split effected on September 20, 2004. (2)
Diluted earnings per share from continuing operations, as adjusted,
exclude the net of tax effect of non-recurring non-cash stock
compensation expense and other financing costs for the three and
nine month periods ended September 30, 2004 and 2005. Management
believes this non-GAAP financial measure allows for a better
comparison of earnings per share (EPS) for the periods presented.
See table 2 for reconciliation of income from continuing
operations, as reported, to income from continuing operations, as
adjusted, and the diluted per share amounts. Three Three Nine Nine
Months Months Months MonthS Ended Ended Ended Ended September 30,
September 30, September 30, September 30, Business Metrics 2005
2004 2005 2004 Learning Center Same Territory Revenue Growth (3) 1%
2% 3% 3% September 30, December 31, September 30, Number of 2005
2004 2004 Territories Franchise 723 738 744 Company-owned 163 111
96 Total 886 849 840 September 30, December 31, September 30,
Number of Sylvan 2005 2004 2004 Learning Centers Franchise 877 896
896 Company-owned 234 163 149 Total 1,111 1,059 1,045 September 30,
December 31, Balance Sheet Data: 2005 2004 Cash and cash
equivalents $12,702 $14,592 Working capital (1,574) 10,802 Total
assets 429,198 381,382 Long term debt 140,895 120,411 (3) "Same
Territory" amounts, include the results of territories for the
identical months for each period presented in the comparison,
commencing with the 13th full month the territory has been
operating. Same territory growth is presented as the aggregate
growth for franchised and company-owned territories during the
period. A territory reflects the geographically-specified area
where an operator controls rights to provision of services under
the Sylvan franchise agreement. Consolidated Summarized Statements
of Income Three Months Ended September 30, (Dollar amounts in
thousands) 2005 2004 $Variance %Variance Revenues Company-Owned
Centers $54,470 $36,965 $17,505 47% Franchise Services 11,905
11,646 259 2% Total Learning Center 66,375 48,611 17,764 37% Total
Catapult Learning 12,530 13,750 (1,220) -9% Total Revenues 78,905
62,361 16,544 27% Expenses Instructional and franchise operations
costs 58,710 43,761 14,949 34% Marketing and Advertising 7,940
5,542 2,398 43% Depreciation and amortization 2,185 2,025 160 8%
General and Administrative expenses 3,796 3,133 663 21% Non-cash
stock compensation expense 51 303 (252) -83% Total costs and
expenses 72,682 54,764 17,918 33% Operating Income 6,223 7,597
(1,374) -18% Total Non-Operating (1,921) (2,164) 243 -11% Income
Before Income Taxes 4,302 5,433 (1,131) -21% Income Tax Expense
(1,635) (3,496) 1,861 -53% Income from Continuing Operations 2,667
1,937 730 38% Loss from discontinued operations, net of tax -
(1,117) 1,117 -100% Gain from disposal of discontinued operations,
net of tax - 83 (83) N/A Net Income $2,667 $903 $1,764 195% Table 1
Three Months Ended September 30, (Dollar amounts in thousands) 2005
2004 $Variance %Variance Income from Continuing Operations, as
reported $2,667 $1,937 $730 38% Add: Income tax expense 1,635 3,496
(1,861) -54% Add: total non-operating expense 1,921 2,164 (242)
-11% Operating Income, as reported 6,223 7,597 (1,373) -18% Add:
Non-cash stock compensation expense (non-recurring)(4) - 234 (234)
-100% Operating Income, as adjusted $6,223 $7,830 $(1,607) -21%
Table 2 Three Months Ended September 30, (Dollar amounts in
thousands, except per share data) 2005 2004 $Variance %Variance
Income from Continuing Operations, as reported $2,667 $1,937 $730
38% Add: Other financing costs - 275 (275) -100% Add: Non-cash
stock compensation expense (non-recurring)(4) - 234 (234) -100% Tax
impact of items added back above and adjustment to 38% effective
tax rate on income from continuing operations - 1,238 (1,238) -100%
Income from Continuing Operations, as adjusted $2,667 $3,684
$(1,017) -28% Weighted Average Shares Diluted (1) 44,166 39,308
4,858 12% Diluted Earnings per share from Continuing Operations, -
as adjusted (1),(2) $0.06 $0.09 $(0.03) -36% Nine Months Ended
September 30, (Dollar amounts in thousands) 2005 2004 $Variance
%Variance Revenues Company-Owned Centers $148,373 $103,588 $44,785
43% Franchise Services 41,471 38,324 3,147 8% Total Learning Center
189,844 141,912 47,932 34% Total Catapult Learning 90,368 89,895
473 1% Total Revenues 280,212 231,807 48,405 21% Expenses
Instructional and franchise operations costs 199,105 161,995 37,110
23% Marketing and Advertising 24,682 19,148 5,534 29% Depreciation
and amortization 6,221 5,669 552 10% General and Administrative
expenses 10,413 9,516 897 9% Non-cash stock compensation expense
348 8,704 (8,356) -96% Total costs and expenses 240,769 205,032
35,737 17% Operating Income 39,443 26,775 12,668 47% Total
Non-Operating (6,962) (12,752) 5,790 -45% Income Before Income
Taxes 32,481 14,023 18,458 132% Income Tax Expense (12,343) (6,760)
(5,583) 83% Income from Continuing Operations 20,138 7,263 12,875
177% Loss from discontinued operations, net of tax - (2,838) 2,838
-100% Gain from disposal of discontinued operations, net of tax -
83 (83) N/A Net Income $20,138 $4,508 $15,630 347% Table 1 Nine
Months Ended September 30, (Dollar amounts in thousands) 2005 2004
$Variance %Variance Income from Continuing Operations, as reported
$20,138 $7,263 $12,875 177% Add: Income tax expense 12,343 6,760
5,583 83% Add: total non-operating expense 6,962 12,752 (5,790)
-45% Operating Income, as reported 39,443 26,775 12,668 47% Add:
Non-cash stock compensation expense (non-recurring)(4) - 8,548
(8,548) -100% Operating Income, as adjusted $39,443 $35,322 $4,121
12% Table 2 Nine Months Ended September 30, (Dollar amounts in
thousands, except per share data) 2005 2004 $Variance %Variance
Income from Continuing Operations, as reported $20,138 $7,263
$12,875 177% Add: Other financing costs 1,506 5,117 (3,611) -71%
Add: Non-cash stock compensation expense (non-recurring)(4) - 8,548
(8,548) -100% Tax impact of items added back above and adjustment
to 38% effective tax rate on income from continuing operations
(572) (3,761) 3,189 -85% Income from Continuing Operations, as
adjusted $21,072 $17,167 $3,905 23% Weighted Average Shares Diluted
(1) 44,067 38,436 5,631 15% Diluted Earnings per share from
Continuing Operations, as adjusted (1),(2) $0.48 $0.45 $0.03 7% (4)
The non-cash stock compensation expense added back includes the
one-time charges associated with stock compensation granted in 2004
that vested immediately. Excluded from the add-back are recurring
expenses that are recognized over a specified vesting period. Pro
forma Consolidated Statements of Income (5) Three Months Ended
September 30, (Dollar amounts in thousands, except per share data)
2005 2004 $Variance %Variance Revenues Franchise Services $10,514
$10,453 $61 1% Company-Owned centers 48,995 32,059 16,936 53%
European 6,866 6,099 767 13% Total Learning Center 66,375 48,611
17,764 37% Total Catapult Learning 12,165 13,342 (1,177) -9% Total
Revenues 78,540 61,953 16,587 27% Expenses Learning Centers 51,300
35,163 16,137 46% Catapult Learning 13,473 13,325 148 1% Total
Segment Operating Costs 64,773 48,488 16,285 34% Corporate Expenses
4,201 3,560 641 18% Non-Cash stock compensation expense 51 303
(252) -83% Pro forma Operating Income 9,515 9,602 (87) -1%
Non-Operating Items Interest expense, net (2,054) (2,115) 61 -3%
Other financing costs - (275) 275 -100% Foreign exchange gains
(losses) and other non-operating 133 226 (93) -41% Total
Non-Operating (1,921) (2,164) 243 -11% Pro forma Income Before
Income Taxes 7,594 7,438 156 2% Income Tax Expense (2,886) (4,258)
1,372 -33% Pro forma Income From Continuing Operations 4,708 3,180
1,528 48% Loss from discontinued operations (Connections Academy),
net of tax - (1,117) 1,117 -100% Loss from discontinued operations
(Education Station), net of tax (2,041) (1,243) (798) 64% Gain from
disposal of discontinued operations, net of tax - 83 (83) -100% Pro
forma Net Income $2,667 $903 $1,764 196% Weighted Average Shares -
Diluted (1) 44,166 39,308 4,858 12% Diluted Earnings Per Share
(1),(5) $0.06 $0.02 $0.04 200% Diluted Earnings Per Share From
Continuing Operations (1),(5) $0.11 $0.08 $0.03 38% Diluted
Earnings Per Share From Continuing Operations, as adjusted
(1),(2),(5) $0.11 $0.13 $(0.02) -15% Segment Operating Margin
Learning Center 23% 28% -5% Catapult Learning -11% 0% -11% Table 3
Three Months Ended September 30, (Dollar amounts in thousands) 2005
2004 $Variance %Variance Income from Continuing Operations, as
reported $2,667 $1,937 $730 38% Add: Loss from Education Station
3,292 2,005 1,287 64% Less: income tax benefit (1,251) (762) (489)
64% Pro forma Income from Continuing Operations 4,708 3,180 1,528
48% Add: Income tax expense 2,886 4,258 (1,372) -33% Add: total
non-operating expense 1,921 2,164 (242) -11% Pro forma Operating
Income 9,515 9,602 (86) -1% Add: Non-cash stock compensation
expense (non-recurring)(4) - 234 (234) -100% Pro forma Operating
Income, as adjusted $9,515 $9,835 $(320) -3% Table 4 Three Months
Ended September 30, (Dollar amounts in thousands, except per share
data) 2005 2004 $Variance %Variance Income from Continuing
Operations, as reported $2,667 $1,937 $730 38% Add: Loss from
Education Station 3,292 2,005 1,287 64% Less: income tax benefit
(1,251) (762) (489) 64% Pro forma Income from Continuing Operations
4,708 3,180 1,528 48% Add: Other financing costs - 275 (275) -100%
Add: Non-cash stock compensation expense (non-recurring)(4) - 234
(234) -100% Tax impact of items added back above and adjustment to
38% effective tax rate on income from continuing operations - 1,238
(1,238) -100% Pro forma Income from Continuing Operations, as
adjusted $4,708 $4,927 $(219) -4% Weighted Average Shares Diluted
(1) 44,166 39,308 4,858 12% Diluted Earnings per share from
Continuing Operations, - as adjusted (1),(2),(5) $0.11 $0.13
$(0.02) -15% Nine Months Ended September 30, (Dollar amounts in
thousands, except per share data) 2005 2004 $Variance %Variance
Revenues Franchise Services $37,344 $34,898 $2,446 7% Company-Owned
centers 129,292 86,647 42,645 49% European 23,208 20,367 2,841 14%
Total Learning Center 189,844 141,912 47,932 34% Total Catapult
Learning 63,926 68,435 (4,509) -7% Total Revenues 253,770 210,347
43,423 21% Expenses Learning Centers 144,446 104,151 40,295 39%
Catapult Learning 53,912 57,003 (3,091) -5% Total Segment Operating
Costs 198,358 161,154 37,204 23% Corporate Expenses 11,628 10,726
902 8% Non-Cash stock compensation expense 348 8,704 (8,356) -96%
Pro forma Operating Income 43,436 29,763 13,673 46% Non-Operating
Items Interest expense, net (5,655) (8,024) 2,369 -30% Other
financing costs (1,506) (5,117) 3,611 -71% Foreign exchange gains
(losses) and other non-operating 199 389 (190) -49% Total
Non-Operating (6,962) (12,752) 5,790 -45% Pro forma Income Before
Income Taxes 36,474 17,011 19,463 114% Income Tax Expense (13,860)
(7,896) (5,964) 76% Pro forma Income From Continuing Operations
22,614 9,115 13,499 148% Loss from discontinued operations
(Connections Academy), net of tax - (2,838) 2,838 -100% Loss from
discontinued operations (Education Station), net of tax (2,476)
(1,852) (624) 34% Gain from disposal of discontinued operations,
net of tax - 83 (83) -100% Pro forma Net Income $20,138 $4,508
$15,630 347% Weighted Average Shares - Diluted (1) 44,067 38,436
5,631 15% Diluted Earnings Per Share (1),(5) $0.46 $0.12 $0.34 283%
Diluted Earnings Per Share From Continuing Operations (1),(5) $0.51
$0.24 $0.28 117% Diluted Earnings Per Share From Continuing
Operations, as adjusted (1),(2),(5) $0.53 $0.49 $0.04 8% Segment
Operating Margin Learning Center 24% 27% -3% Catapult Learning 16%
17% -1% Table 3 Nine Months Ended September 30, (Dollar amounts in
thousands) 2005 2004 $Variance %Variance Income from Continuing
Operations, as reported $20,138 $7,263 $12,875 177% Add: Loss from
Education Station 3,993 2,988 1,005 34% Less: income tax benefit
(1,517) (1,135) (382) 34% Pro forma Income from Continuing
Operations 22,614 9,115 13,499 148% Add: Income tax expense 13,860
7,896 5,964 76% Add: total non-operating expense 6,962 12,752
(5,790) -45% Pro forma Operating Income 43,436 29,763 13,673 46%
Add: Non-cash stock compensation expense (non-recurring)(4) - 8,548
(8,548) -100% Pro forma Operating Income, as adjusted $43,436
$38,310 $5,126 13% Table 4 Nine Months Ended September 30, (Dollar
amounts in thousands, except per share data) 2005 2004 $Variance
%Variance Income from Continuing Operations, as reported $20,138
$7,263 $12,875 177% Add: Loss from Education Station 3,993 2,988
1,005 34% Less: income tax benefit (1,517) (1,135) (382) 34% Pro
forma Income from Continuing Operations 22,614 9,115 13,499 148%
Add: Other financing costs 1,506 5,117 (3,611) -71% Add: Non-cash
stock compensation expense (non-recurring)(4) - 8,548 (8,548) -100%
Tax impact of items added back above and adjustment to 38%
effective tax rate on income from continuing operations (572)
(3,761) 3,189 -85% Pro forma Income from Continuing Operations, as
adjusted $23,548 $19,019 $4,529 24% Weighted Average Shares Diluted
(1) 44,067 38,436 5,631 15% Diluted Earnings per share from
Continuing Operations, as adjusted (1),(2),(5) $0.53 $0.49 $0.04 8%
(5) The Pro Forma Consolidated Statements of Income and diluted
earnings per share present the results of operations of Educate,
Inc. reflecting the reporting of Education Station as discontinued
operations for all periods presented. The operations of Education
Station, which was designated as held for sale in October 2005 is
expected to be reported as discontinued operations within the
consolidated financial statements of Educate, Inc. beginning in the
fourth quarter of 2005. DATASOURCE: Educate, Inc. CONTACT: Tim
Lordan of Educate, Inc., +1-410-843-8000 Web site:
http://www.educate-inc.com/
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