SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report: May 14, 2001
Commission file number 000-29820
ARGOSY EDUCATION GROUP, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-2855674
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Two First National Plaza
20 South Clark Street, 3rd Floor
Chicago, Illinois 60603
Telephone: (312) 899-9900
(Address, including zip code, and telephone
number, including area code, of principal executive offices)
The current report on form 8-K filed March 15, 2001 is hereby amended to add
Item. 7 below.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of a Businesses Acquired.
(1) Audited Annual Financial Statements of Western State University
of Southern California for the fiscal years ended June 30, 2000
and June 30, 1999.
(2) Audited Annual Financial Statements for John Marshall Law School
for the fiscal years ended August 31, 2000 and August 31, 1999.
(3) Unaudited interim Financial Statements of Western State
University of Southern California for the six months ended
December 31, 2000 and 1999.
(4) Unaudited interim Financial Statements for John Marshall Law
School for the six months ended February 28, 2001 and February
29, 2000.
(b) Pro forma Financial Statements
Page 1
(1) Audited Annual Financial Statements of Western State University of
Southern California for the fiscal years ended June 30, 2000 and
June 30, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Argosy Education Group, Inc.
Chicago, Illinois
We have audited the accompanying balance sheet of Western State University of
Southern California as of June 30, 2000 and 1999 and the related statements of
operations, shareholders' equity and cash flows for each of the two years in the
period ended June 30, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted the audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that the audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Western State University of
Southern California as of June 30, 2000 and 1999 and the results of their
operations and their cash flows for each of the two years in the period ended
June 30, 2000 in conformity with generally accepted accounting principles.
Oppenheim & Ostrick, CPA's
Culver City, California
May 8, 2001
Page 2
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
BALANCE SHEET
(Dollars in thousands)
June 30,
-------------------
2000 1999
------- -------
ASSETS
Current assets:
Cash $ 1,386 $ 1,181
Accounts receivable, net 240 173
Investments in equity & debt securities 800 831
Prepaid expenses and other current assets 45 107
Notes receivables, extended tuition credit
loans - current 32 31
Notes receivables, related party 26 26
------- -------
Total current assets 2,529 2,349
Notes receivable:
Extended tuition credit loans, long-term
portion, net 355 307
Property and equipment, net 8,160 8,439
Other assets:
Deposits and other non-current assets, net 373 371
------- -------
Total assets $11,417 $11,466
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 53 $ 0
Current maturities of long-term debt 615 600
Accounts payable, trade 329 404
Accrued expenses, salaries and fringe
benefits 578 596
Deferred tuition, revenue and fees 283 378
Tuition deposits and credits 27 22
Students and lenders refunds payable 31 49
------- -------
Total current liabilities 1,916 2,049
Long-term debt, net of current portion 8,869 8,347
Severance plan liability 93 223
Pension plan liability 0 225
------- -------
Total liabilities 10,878 10,844
------- -------
Shareholders' equity:
Common stock, authorized 500,000 shares of
no par value; issued and outstanding
184,140 shares each year 10 10
Additional paid-in capital 450 0
Purchase price in excess of predecessor
carryover basis (1,840) (1,840)
Retained earnings 1,919 2,452
------- -------
Total shareholders' equity 539 622
------- -------
Total liabilities and shareholders' equity $11,417 $11,466
======= =======
The accompanying notes are an
integral part of these financial statements
Page 3
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
STATEMENT OF OPERATIONS
(Dollars in thousands)
Years Ended June 30,
--------------------
2000 1999
------- ------
Net revenue $8,197 $9,085
------ ------
Operating expenses:
Cost of education 4,765 4,390
Selling expenses 804 1,120
General and administrative expenses 2,620 2,960
------ ------
Total operating expenses 8,189 8,470
------ ------
Income (loss) from operations 8 615
------ ------
Other income (expense):
Unrealized gain on trading securities 58 102
Interest expense (598) (607)
------ ------
Total other income (expense), net (540) (505)
------ ------
Income (loss) before provision for
income taxes (532) 110
Income tax provision on S corporation income 1 1
------ ------
Net income (loss) $ (533) $ 109
====== ======
The accompanying notes are an integral
part of these financial statements
Page 4
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
Common Stock, no par value Purchase Price
500,00 shares authorized In Excess of
-------------------------- Additional Predecessors Total
Shares Paid-in Carryover Retained Shareholders
Outstanding Amount Capital Basis Earnings Equity
------------ ------ --------- -------------- -------- ------------
Balance at June 30, 1998 184,140 $ 10 $ 0 $ (1,840) $ 2,343 $ 513
Net income 109 109
------------ ------ -------- -------------- -------- ------------
Balance at June 30, 1999 184,140 10 0 (1,840) 2,452 622
Additional capital
contribution 450 450
Net loss 0 0 0 0 (533) (533)
----------- ------ -------- -------------- ------- ------------
Balance at June 30, 2000 184,140 $ 10 $ 450 $ (1,840) $ 1,919 $ 539
=========== ====== ======== ============== ======= ============
The accompanying notes are an integral
part of these financial statements
Page 5
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
STATEMENT OF CASH FLOWS
(Dollars in thousands)
Years Ended June 30,
-------------------
2000 1999
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (533) $ 109
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 780 748
Amortization 5 4
Unrealized gain on trading securities (58) (102)
Changes in operating assets and liabilities:
Receivables,net (127) 55
Investment in equity and debt securities 31 (315)
Prepaid expenses 62 (65)
Deposits and other assets 0 75
Cash over draft 53 0
Accounts payable (75) (24)
Accrued expenses, salaries and fringe benefits (18) (102)
Deferred tuition, revenue and fees (95) (194)
Tuition deposits and credits 5 6
Student and lender refunds payable (18) 32
Severance plan liability (130) (86)
Pension plan liability (225) 8
------ ------
Net cash provided (used) by
operating activities (343) 149
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable 0 3
Related party purchase of property and equipment (501) (270)
------ ------
Net cash used in investing activities (501) (267)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributed by existing shareholders' 450 0
Payments of long-term debt (501) (690)
Proceeds from long-term debt 350 781
Borrowing from (payments to) related parties, (net) 750 0
------ ------
Net cash provided (used) by financing
activities 1,049 91
------ ------
Net increase (decrease) in cash 205 (27)
Cash, beginning of year 1,181 1,208
------ ------
Cash, end of year $1,386 $1,181
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for interest for the year $ 598 $ 607
====== ======
Cash paid for income taxes for the year $ 1 $ 1
====== ======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations of $0 and $500,000 during the years ended June 30,
2000 and 1999, respectively, were incurred when the Company entered into leases
for library books.
The accompanying notes are an integral
part of these financial statements
Page 6
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(1) Summary of Significant Accounting Policies:
Western State University of Southern California (the "Company"), a
corporation, operates a law school facility located in Fullerton,
California.
Concentration of Credit Risk:
The Company extends unsecured credit for tuition to significant
portion of the students who are in attendance at its schools. A
substantial portion of credit extended to students is repaid through
students' participation in various federally funded financial aid
programs under Title IV of the Higher Education Act of 1965, as
amended. The following table presents the amount and percentage of
the Company's cash receipts collected from Title IV Programs for the
years ending June 30, 2000 and 1999 (dollars in thousands):
June 30,
------------------
2000 1999
------- --------
Total Title IV Funding $ 5,404 $ 4,516
Total Cash Receipts $ 7,570 $ 7,170
Total Title IV funding as a percentage of
Total cash receipts 71% 63%
======= =======
Investment in Debt and Equity Securities:
The Company has marketable and debt securities which are classified
as trading securities. Any realized and unrealized gains and losses
flow through to the statement of operations. All marketable
securities are reported at fair market value on the balance sheet.
Property, Equipment and Related Depreciation:
Property and equipment are stated at cost. Depreciation of property
and equipment is provided for using the straight-line method over the
estimated useful lives of the assets.
Maintenance, repairs and minor renewals and betterments are expensed;
major improvements are capitalized. Purchases of library books are
capitalized on the aggregate. Subscriptions, updates, and other non-
permanent expenditures are charged to expense as incurred.
Page 7
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(1) Summary of Significant Accounting Policies (cont'd):
The estimated useful lives and cost basis of property and equipment
at June 30, 2000 and 1999, are as follows (dollars in thousands):
June 30,
--------------------------------
2000 1999 LIFE
------- ------- ----------
Buildings and improvements $ 8,131 $ 8,046 7-40 years
Library 4,022 3,650 10 years
Classroom, office furniture and computer
equipment 2,980 2,937 2-10 years
Land 579 579
15,712 15,212
Less accumulated depreciation 7,552 6,773
------- -------
$ 8,160 $ 8,439
======= =======
Revenue recognition:
Tuition and fees, which are billed to students on a semester basis
are recognized ratably over the period to which the tuition and fees
apply. Tuition and fee revenue for the summer semesters is recognized
50% in each of the fiscal years covered by the session.
SAB 101 Revenue Recognition:
On December 3, 1999, the Securities and Exchange Commission released
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, to
provide guidance on the recognition, presentation, and disclosure of
revenue in financial statements. The SAB outlines basic criteria that
must be met before registrants may recognize revenue, including
persuasive evidence of the existence of an arrangements, the delivery
of products or services, a fixed and determinable sales price, and
reasonable assurance of collection. SAB 101 is effective beginning on
the fourth fiscal quarter of the first fiscal year beginning after
December 15, 1999. Prior to the release of SAB 101, the Company's
revenue recognition policy was in compliance with generally accepted
accounting principles. The adoption of SAB 101 will not have a
material effect on the Company's financial position or results of
operations.
Advertising expenses:
All advertising expenses are expensed as incurred and are included in
selling expenses in the accompanying statement of operations.
Advertising expense for the years ended June 30, 2000 and 1999
amounted to approximately $292,000 and $469,000, respectively.
Income taxes:
As of the year ended June 30, 1984, the shareholders of the Company
have elected and have obtained approval from the Internal Revenue
Service to operate with S corporation status for federal and
California income tax reporting purposes. Therefore, no provision for
federal income taxes is made in the accompanying statements as all
federal income is taxed at the shareholder level. The provision for
California franchise tax for the current year is calculated at the S
corporation rate of 1.5% of California taxable income or the $800
minimum franchise tax, if higher.
Page 8
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(1) Summary of Significant Accounting Policies (cont'd):
The excess of expenditures over revenue before provision for income
taxes and California taxable income are substantially the same with
the exception of unrealized gains on trading securities, pension and
severance plan expense, depreciation and amortization expense, bad
debt expense and vacation pay expenses. These timing differences
produced no material deferred income tax liabilities or assets.
As S corporation, in lieu of the Company's payment of federal and
state income taxes, the shareholders of the Company are required
individually to pay federal and state taxes on their proportionate
shares of the taxable income earned by the Company.
Comprehensive income:
Investment of the Company in marketable equity securities with the
intention to trade those securities is not affected by the provisions
of Statement of Financial Accounting standards No. 130, (SFAS No.
130), "Reporting Comprehensive Income". SFAS No. 130 establishes
standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all
changes in equity (net assets) during a period from non-owner
sources.
Use of estimates:
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
Adoption of New Accounting Standards:
The Company is not affected by the adoption of new accounting
standards - Accounting for Derivative Instruments and Hedging
Activities or Segment Reporting as the activities do not exist in its
operations. The same is true for transactions involving stock
compensation and start-up costs.
(2) Accounts Receivable:
The accounts receivable balance at June 30, 2000 and 1999 consists of
the following (dollars in thousands):
June 30,
--------------
2000 1999
----- -----
Accounts receivable, students $ 187 $ 219
Less, allowance for doubtful accounts (28) (70)
----- -----
Accounts receivable, students, net 159 149
Accounts receivable, student financial
assistance programs 17 14
Accounts receivable, employees 19 10
Accounts receivable, affiliate 17 0
Accounts receivable, other 28 0
----- -----
Total accounts receivable $ 240 $ 173
===== =====
Page 9
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 and 1999
(3) Extended Tuition Credit Loans:
The Company extends credit to students as an additional form of
financial aid. The principal portion of the loan is payable in monthly
installments, over ten years, commencing nine months after the student's
graduation or withdrawal. Interest accrues at either a fixed rate of six
percent or at a prime plus 1% adjusted annually, and is payable on a
monthly basis from the inception of the loan.
The Extended Tuition Credit Loan receivable balance at June 30, 2000 and
1999, consists of the following (Dollars in thousands):
June 30,
--------------
2000 1999
----- -----
Extended Tuition Credit Loans $ 429 $ 392
Less, allowance for doubtful accounts (42) (54)
----- -----
Total extended tuition credit loans (net) 387 338
Less, extended tuition credit loans, current
portion (32) (31)
----- -----
Extended tuition credit loans, long-term
portion, net $ 355 $ 307
===== =====
(4) Investments:
The Company has invested in marketable equity securities (primarily
common stock of U.S. corporations) and debt securities (consisting
primarily of medium and long-term debt obligations of California state
agencies and municipalities). The Company treated the above investments
as trading securities. The cost of the above securities had a cost basis
of approximately $682,000 and a market value of $799,000 as of June 30,
2000. The Company had unrealized holding gains of approximately $58,000,
and realized gains of $34,000 for the year ended June 30, 2000.
As of June 30, 1999, the cost of the marketable debt and equity
securities was approximately $700,000 with a market value of $802,000.
The Company had an unrealized holding gain of approximately $102,000.
There were no realized gains or losses during the year ended June 30,
1999.
All of the securities (the investments) were sold in February 2001 to
pay off S corporation shareholders totaling $877,604.
(5) Other Assets:
Other receivables at June 30, 2000 and 1999 of $233,090 and $218,358,
respectively, net of allowance for doubtful accounts is the Company's
twenty five percent (25%) participation in Federal Aid Funds by the U.S.
Department of Education. There is a UCC-1 filing on these receivables by
the U.S. Department of Education which provide a lien against such
receivables if the entire loan proceeds (100%) are not repaid by the
students.
Page 10
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(6) Goodwill:
Goodwill was reclassified from the prior balance sheet as a reduction of
shareholders' equity. The original transaction was being amortized over
forty years. The goodwill arose as a result of a related party
reorganization (same shareholders) in a down stream acquisition by the
subsidiary (the Company) who purchased the parent (holding) company,
Western State Enterprise, Inc.
The balance sheet caption reclassifying the goodwill is characterized as
purchase price in excess of predecessor's carryover basis, amounting to
$1,840,000 as a retroactive adjustment affecting amortization of
goodwill and restating prior year's retained earnings.
(7) Related Party Transactions:
The Company has from time to time advanced amounts to related parties,
management, or related party shareholders for various purposes. As of
June 30, 2000, approximately $26,000 due from a related party was paid
subsequent to the balance sheet date and there are no remaining related
party receivable or payable balances.
The Company records inter-company transactions with Thomas Jefferson
School of Law, a corporation related through common ownership. At June
30, 2000, $17,490 was due from Thomas Jefferson School of Law. The above
balance was paid subsequent to the balance sheet date. In 1999, there
were no balances due or payable. The Company in 1999 received
approximately $79,000 of income from technical and support services. In
fiscal year 2000, no services were provided. The Company in years ended
June 30, 2000 and 1999 had a severance plan accrued from prior years.
On June 30, 2000, the shareholders of the Company contributed an
aggregate of $450,000 of additional paid-in capital on a pro-rata basis
based on share ownership at the time, as an addition to shareholders'
equity of the corporation. In addition, three principal shareholders of
the Company loaned a total of $750,000 to the Company for working
capital purposes. The Company issued promissory notes to the
shareholders bearing interest of 10% per annum, with interest payable
quarterly. Principal and unpaid interest is payable in full on or before
September 1, 2001. These notes was paid off in full subsequent to the
balance sheet date.
Page 11
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(7) Related Party Transactions (cont'd):
Also, as a result of the related party transaction affecting the
goodwill adjustment that occurred June 27, 1983, land and building were
appraised and written up to fair market value and the increase was
recorded to common stock. Adjustments to record the write-up of the land
and building based on the original cost basis were as follows (dollars
in thousands):
Fair Market
Cost Value Adjustment
------- ----------- ----------
Land $ 579 $ 1,500 $ 921
Building (net of
accumulated depreciation) 2,633 4,400 1,767
Capital stock 10 2,533 2,523
Related party purchase price
in excess of predecessor's
cost basis 165
Accumulated depreciation for the prior years were overstated and
retained earnings was increased accordingly as of June 30, 1998 to
adjust the above transaction to the original cost of the building. No
income tax adjustments were estimated since the Company became an S
corporation on July 1, 1983.
Purchase price in excess of predecessor carryover basis as a result of a
transaction down streaming parent and wholly owned subsidiary (common
control) consists of (dollars in thousands):
Opening balance sheet, July 1, 1998 $ 1,675
Purchase price adjustments affecting
write-up of land and building involved
in the above business combination 165
-------
$ 1,840
=======
Retained earnings prior period adjustments regarding a related party
transaction under common control affecting the write-up of land,
buildings and purchased goodwill (dollars in thousands):
July 1, 1998 Retained earnings $ 1,872
Difference in cost basis of depreciation
6/30/84 through 6/30/98 471
-------
$ 2,343
=======
Page 12
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(8) Defined Benefit Pension Plan:
The Company has a defined benefit pension plan covering substantially
all of its employees who were employed as of June 30, 1994. The benefits
are based on years of service and the employee's compensation during the
last five years of employment. During the year ended June 30, 1994, the
Company amended the plan to cease all benefits accruals.
The following table sets forth the Plan's funded status and the
actuarial present value of benefit obligations as June 30, 2000 and 1999
(dollars in thousands):
June 30,
------------------
2000 1999
------- -------
Accumulated benefit obligation, included
vested benefits $ 2,017 $ 1,731
======= =======
Projected benefit obligation for service
rendered to date $ 2,017 $ 1,731
Plan assets at fair value (808) (667)
------- -------
Projected benefit obligation for service
in excess of plan assets 1,209 1,064
Unrecognized net loss (939) (759)
Unrecognized net transition asset 4 5
------- -------
Accrued pension cost included in
current liabilities $ 274 $ 310
======= =======
The following table presents the components of net periodic pension
expense for the periods ended June 30, 2000 and 1999 (dollars in
thousands):
June 30,
----------------
2000 1999
------ ------
Net amortization and deferral $ 32 $ 12
Interest cost on projected benefit
obligation 130 138
Expected return on plan assets (33) (119)
------ ------
Net periodic pension cost 129 31
Settlement loss 60 233
------ ------
Total pension cost $ 189 $ 264
====== ======
For the years ended June 30, 2000 and 1999, actuarial assumptions used
to calculate net periodic pension cost included a weighted average
discount rate of 7.5 percent, no rate of increase in future compensation
and an expected long-term rate of return on plan assets of 5.0 percent
and 4.0 respectively. Similar assumptions were used for the calculation
of the projected benefit obligation at June 30, 2000 and 1999. Different
assumptions might have to be used if the plans were to terminate.
Page 13
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(9) Severance Plan:
The Company sponsors a severance plan covering all employees who
participated in the Company's prior pension plan which was terminated
effective July 1, 1979. The severance plan is a non-qualified deferred
compensation plan which provides the lessor of two percent of final
average earnings multiplied by a maximum of 10 years of service after
July 1, 1979, payable as a straight line annuity beginning at age 65, or
200 percent of the final year's earnings prior to age 65. The Company
recorded a one-time settlement gain of $164,429 during the year to
correct authorized calculations made in prior years. This resulted in
severance plan income of $124,901 for the year ended June 30, 2000. Plan
cost for the year ended June 30, 1999 was $53,758.
(10) Employee Savings Plan:
The Company sponsors an employee benefit plan qualifying under Internal
Revenue Code section 401(k) covering substantially all of its employees.
Eligible employees may contribute a portion of their pretax annual
compensation within specified limits. Employer contributions equal fifty
percent (50%) of the first six percent (6%) of employee contributions
and a supplemental contribution which is determined annually. Employer
contributions expense totaled $75,012 and $140,175 for the years ended
June 30, 2000 and 1999, respectively.
(11) Long-Term Debt:
Long-term debt at June 30, 2000 and 1999 comprised of the following
amounts (dollars in thousands):
June 30,
-------------------
2000 1999
------- -------
Line of credit, maximum $3,000,000,
secured by blanket lien on company
assets; principal due July 16, 2001,
plus interest payable monthly at the
bank's reference rate, less 1% (8.50%
at June 30, 2000). Line of credit paid
off subsequent to balance sheet date. $ 3,000 $ 2,650
Note payable, secured by first trust
deed, payable in equal monthly pay-
ments of $26,445 including interest
at 6.88%, maturing March 1, 2006. 3,707 3,766
Term note payable, secured by blanket
lien on company assets, payable in
monthly principal payments of $25,323
plus interest at LIBOR plus 200 basis
points reference rate (8.6488% at June
30, 2000), maturing June 3, 2003. Paid
off subsequent to balance sheet date. 1,582 0
Page 14
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(11) Long-term Debt (cont'd):
June 30,
-------------------
2000 1999
------- -------
Term note payable, secured by blanket
lien on Company assets, payable in
monthly principal payments of $7,150
plus interest at bank's reference rate
(8.25% at June 30, 2000), maturing
June 3, 2003 0 1,721
Notes payable, shareholders, principal
Payable in full on or before September
1, 2001 with interest at 10% payable
quarterly. Note was paid in full sub-
quent to the balance sheet date 750 0
Obligation under capital lease, secured
by library books, due in monthly install-
ments of $16,050, including interest at
9.64% maturing June 30, 2002 349 500
Obligation under capital lease, secured
by equipment; due in monthly install-
ments of $3,732, including interest at
9.33%, maturing July, 2001 57 95
Obligation under capital lease, secured
by equipment, due in monthly install-
ments of $4,439 including interest at
8.65% maturing December, 2000 36 84
Obligation under capital lease, secured
by library books, due in monthly install-
ments of $1,644 including interest at
13.73% maturing September, 2000 3 21
Obligation under capital lease, secured
by equipment, due in monthly install-
ments of $3,034 including interest at
10.31% maturing January, 2000 0 41
Obligation under capital lease, secured
by equipment, due in monthly install-
ments of $5,997 including interest at
8.41% maturing June, 2000 0 69
------- -------
$ 9,484 $ 8,947
Less-Current maturities 615 600
------- -------
$ 8,869 $ 8,347
======= =======
Page 15
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(11) Long-term Debt (cont'd):
Maturities of long-term debt (excluding capital leases) as of June 30,
2000 are as follows (dollars in thousands):
Years Ended
June 30,
-----------
2001 $ 368
2002 4,123
2003 1,047
2004 79
Thereafter 3,421
-------
Total $ 9,038
=======
The line of credit and term loan agreements with the Company are under
certain various restrictions and covenants relating to financial ratios
and other operational requirements.
(12) Commitments:
The Company leases certain equipment and vehicles under long-term
operating leases.
The Company also leases some of its computer equipment, telephone
equipment and library books under capital leases. The Company is
financing the acquisition of the assets through these leases and
accordingly, the assets and obligations are reflected in the Company's
balance sheet. The cost of the leased assets for the years ended June
30, 2000 and 1999 included in property, and equipment was $1,182,313 for
both years and the accumulated depreciation was $631,085 and $402,850,
respectively.
Future minimum lease payments required under capital and non-cancelable
operating leases as of June 30, 2000 are as follows (dollars in
thousands):
Period Ending Capital Operating
June 30, Leases Leases
------------- ------- ---------
2001 $ 278 $ 29
2002 209 25
2003 0 25
2004 0 9
Thereafter 0 1
----- ----
Total 487 $ 89
====
Amounts representing interest (41)
-----
Present value of net minimum
lease payments $ 446
=====
Page 16
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(12) Commitments (cont'd):
Property taxes and insurance are obligations of the Company. Total rental
and lease expense for the periods ended June 30, 2000 and 1999 was
$201,445 and $178,780, respectively. Rental expense for personal property
for the periods ended June 30, 2000 and 1999, totaled $100,200 and
$94,293 respectively. Equipment rental and lease access fees for on-line
legal research and other services which are one year contracts totaled
$101,245 and $84,487 for the periods ended June 30, 2000 and 1999,
respectively.
On March 1, 1999, the Company entered into a cost per copy agreement with
a vendor for the provision of photocopy services. Amounts paid by the
Company are for the availability of photocopy machines. The vendor is
responsible for all maintenance, property taxes and insurance on the
provided equipment as well as certain copy supplies. The agreement calls
for a monthly service payment for a minimum period of 60 months based on
a minimum copy volume. The Company currently pays $6,826 a month pursuant
to this agreement. For the four months ended June 30, 1999, the Company
paid approximately $ 6,000 per month totaling $24,000. The above
commitments is an addition to operating leases.
(13) Regulatory:
The Company and its U.S. schools are subject to extensive regulation by
federal and state governmental agencies and accrediting bodies. In
particular, the Higher Education Act of 1965, as amended (the "HEA") and
the regulations promulgated thereunder by the DOE subject the Company to
significant regulatory scrutiny on the basis of numerous standards that
the school must satisfy in order to participate in the various federal
student financial assistance programs under the Title IV Programs.
The standards employ a ratio methodology under which an institution need
only satisfy a single standard - the composite score standard. The ratio
methodology takes into account an institution's total financial resources
and provides a combined score of the measures of those resources along a
common scale (from negative 1.0 to positive 3.0). It allows a relative
strength in one measure to mitigate a relative weakness in another
measure.
If an institution achieves a composite score of at least 1.5, it is
financially responsible without further oversight. If an institution
achieves a composite score from 1.0 to 1.4, it is in the "zone", is
subject to additional monitoring, and may continue to participate as a
financially responsible institution for up to three years. Additional
monitoring may require the school to (1) notify the DOE, within 10 days
of certain changes, such as an adverse accrediting action; (2) file its
financial statements earlier than the six month requirement following the
close of the fiscal year and (3) subject the school to a cash monitoring
payment method. If an institution achieves a composite score below 1.0,
it fails to meet the financial responsibility standards unless it
qualifies under the provisions of an alternative standard (i.e. letter of
credit equal to 50% of the
Page 17
WESTERN STATE UNIVERSITY OF
SOUTHERN CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(13) Regulatory (cont'd):
Title IV program funds expended from the prior fiscal year or equal to
at least 10% of the Title IV program funds expended from the prior
fiscal year and provisional certification status). The institution may
also be placed on the cash monitoring payment method or the
reimbursement payment method.
The Company applied these new regulations to its financial statement for
the years ended June 30, 2000 and 1999. As of June 30, 2000, the Company
has met the above standards by qualifying under the "Zone Alternative"
available under the Department of Education's rules and regulations.
Qualifications under the zone alternative requires the Company to follow
certain operational and reporting guidelines in the future, in order to
continue to qualify for participation in the program.
(14) Subsequent Events - Sale of the Company:
Argosy Education Group, Inc. (the buyer), purchased all the common stock
of the Company (the selling shareholders) in March 2001. The purchase
price consist of (dollars in thousands):
Base price $13,000
Sellers credit for pension plan obligation (400)
-------
12,600
Other transaction costs 29
-------
Total adjusted purchase price $12,629
=======
The transaction will be recorded under the purchase method of
accounting. The purchase price will be allocated as follows (dollars in
thousands):
Fair market value of assets acquired
and liabilities assumed $ 5,074
Goodwill 4,172
-------
Equity purchase price 9,246
Debt paid at closing 3,383
-------
$12,629
=======
An escrow was opened with a deposit of $6,860,277 pursuant to an escrow
agreement. The transaction is subject upon approval from the American
Bar Association, the United States Department of Education, and the
Western Association of Schools and Colleges.
As a result of the above acquisition, tax status of the Company changed
from an S corporation to a C corporation on March 01, 2001.
(2) Audited Annual Financial Statements for the fiscal years ended
August 31, 2000 and August 31, 1999.
December 15, 2000
Independent Auditors' Report
To the Board of Trustees
We have audited the accompanying statements of financial position of as of
August 31, 2000 and 1999 and the related statements of activities and net
assets, and cash flows for the years then ended. These financial statements are
the responsibility of the School's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of as of August 31, 2000 and 1999
and the results of its activities and net assets and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Holland Shipes Vann, P.C.
1
John Marshall Law School
Statements of Financial Position
For The Years Ended,
August 31 August 31
2000 1999
----------- -----------
Assets
Current
Cash and cash equivalents $ 76,437 $ 111,037
Student escrow account 17,860 7,789
Receivables
Students (gross) 360,133 461,116
Allowance for doubtful accounts (308,000) (450,000)
Other 5,598 20,482
Bookstore inventories 21,174 22,686
Prepaid expenses 3,652 -
---------------------------
176,854 173,110
---------------------------
Property and Equipment
Property and equipment 3,746,383 3,298,194
Accumulated depreciation (1,483,009) (1,182,148)
---------------------------
2,263,374 2,116,046
---------------------------
Other Assets
Deposits 1,080 75,297
Loan costs, less accumulated amortization
of $26,004 at August 31, 2000 and
25,596 at August 31, 1999 14,003 14,411
---------------------------
15,083 89,708
---------------------------
Total Assets $ 2,455,311 $ 2,378,864
===========================
Liabilities and Net Assets
Current
Notes payable $ 692,715 $ 975,684
Current portion of capitalized lease obligation 152,215 110,156
Accounts payable 116,944 159,548
Accrued payroll and related expenses 2,700 300
Accrued expenses 143,106 345,502
Deposits on sale 194,234 18,590
Equity investments in affiliates 33,559 29,258
Student escrow 17,860 7,789
Due to management company 2,982,527 500,000
---------------------------
4,335,860 2,146,827
---------------------------
Capitalized lease obligation, less current portion 239,167 391,382
---------------------------
Unrestricted Net Assets (Liabilities) (2,119,716) (159,345)
---------------------------
Total Liabilities and Net Assets $ 2,455,311 $ 2,378,864
===========================
See accompanying notes to financial statements.
2
John Marshall Law School
Statements of Activities and Net Assets
For the Years Ended,
August 31 August 31
2000 1999
----------- ----------
Revenue
Tuition and other student charges $ 1,607,426 $2,119,535
Rental income 56,620 651,619
Financial aid (5,371) --
----------- ----------
1,658,675 2,771,154
Operating Expenses
Cost of education
Instruction 781,466 859,604
Program expenses 19,929 23,051
Library and curriculum 541,509 266,407
Student services 129,209 21,897
Bookstore 62,972 88,185
Plant and equipment 546,477 801,004
----------- ----------
2,081,562 2,060,148
----------- ----------
Selling 146,262 718
----------- ----------
General and administrative expenses
Administration 280,997 112,741
General and administrative 640,406 1,481,052
Management fees 339,827 --
----------- ----------
1,261,230 1,593,793
----------- ----------
Total operating expenses $ 3,489,054 $3,654,659
----------- ----------
Loss from operations (1,830,379) (883,505)
----------- ----------
Nonoperating revenue (expenses)
Interest income 34,243 8,906
Private gifts and donations - 512,793
Recognized loss on investment securities - (351,799)
Loss on sale of investment securities - (22,349)
Gain (losses) of affiliates 6,216 (13,158)
Loss on disposal of property and equipment - (25,368)
Interest expense (170,451) (162,902)
----------- ----------
(129,992) (53,877)
Net decrease in unrestricted net assets (1,960,371) (937,382)
Net Assets (Liabilities) at Beginning of Year (159,345) 778,037
Net Assets (Liabilities) at End of Year $(2,119,716) $ (159,345)
=========== ==========
See accompanying notes to financial statements.
3
John Marshall Law School
Statements of Cash Flow
For The Years Ended,
August 31 August 31
2000 1999
----------- ---------
Cash flows from operating activities
Net decrease in unrestricted net assets (liabilities) $(1,960,371) $(937,382)
Net assets to net cash used in operating activities:
Depreciation and amortization 301,269 270,425
(Decrease) increase in allowance for doubtful accounts (142,000) 440,000
Loss on sale of investment securities - 22,349
Loss on disposal of property and equipment - 25,368
Recognized loss on investment securities - 351,799
(Gain) loss on earnings of affiliates (6,216) 13,158
Non-cash net contribution of investment securities - (434,504)
Changes in assets and liabilities:
Inventories 1,512 17,345
Receivables 115,867 (184,674)
Prepaid expenses (3,652) 61,418
Deposits 74,217 -
Accounts payable (42,604) 11,181
Accrued payroll and related expenses 2,400 300
Accrued expenses (202,396) (288,297)
----------- ---------
Net cash used in operating activities (1,861,974) (631,514)
----------- ---------
Cash flows from investing activities
Net proceeds from equity investments 10,517 16,100
Deposits on sale of building 175,644 18,590
Proceeds from sale of investment securities - 60,356
Acquisition of property and equipment (448,189) (248,929)
----------- ---------
Net cash used in investing activities (262,028) (153,883)
----------- ---------
Cash flows from financing activities
Net increase in due to management company 2,482,527 500,000
Proceeds from borrowing - 462,540
Principal payments on debt and capitalized leases (393,125) (339,550)
----------- ---------
Net cash provided by financing activities 2,089,402 622,990
----------- ---------
Net decrease in cash and cash equivalents (34,600) (162,407)
----------- ---------
Cash and cash equivalents at beginning of year 111,037 273,444
----------- ---------
Cash and cash equivalents at end of year $ 76,437 $ 111,037
=========== =========
See accompanying notes to financial statements.
4
John Marshall Law School
Notes to Financial Statements
1. Summary of John Marshall Law School (the School) was incorporated
Significant under the laws of the State of Georgia on July 27, 1933.
Accounting The School is a state accredited school of higher
Policies education. The School issues a degree in law to students
upon satisfactory completion of its required courses.
SAB 101 Revenue In December 1999, the Securities and Exchange Commission
Recognition (SEC) issued Staff Accounting Bulletin 101 ("SAB 101").
SAB 101 requires deferral of certain revenue items over
the period that the related service is provided. Adoption
of SAB 101 is required by the Company's fourth quarter of
fiscal 2001. The SEC has recently issued interpretive
guidance on the implementation of this bulletin, and the
Company is completing an evaluation of its effects. SAB
101 requires the deferral of certain fees and other
charges over the period of service (student enrollment);
however, based on preliminary analysis, the Company does
not expect SAB 101 to have a significant effect on its
consolidated results of operations, financial position
and cash flow.
Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Financial The School reports information regarding its financial
Statement position and activities according to three classes of net
Presentation assets: unrestricted net assets, temporarily restricted
net assets, and permanently restricted net assets. At
August 31, 2000 and 1999, the School did not have any
temporarily or permanently restricted net assets.
Certain amounts reflected in the 1999 financial
statements have been reclassified to conform to the 2000
presentation.
Contributions Contributions received are recorded as unrestricted,
temporarily restricted or permanently restricted support
depending on the existence or nature of any donor
restrictions.
5
John Marshall Law School
Notes to Financial Statements
Bookstore Bookstore inventories, consisting of course books, are stated
Inventories at the lower of cost or market, determined on a first-in,
first-out (FIFO) basis.
Property and Property and equipment are stated at cost and are being
Equipment depreciated using accelerated and straight-line methods over
the estimated useful lives of the assets. Depreciation
expense totaled $300,861 and $263,991 for the years ended
August 31, 2000 and August 31, 1999.
Amortization of computers and technical equipment held under
capital leases is included in depreciation expense.
Accumulated amortization thereon totaled $588,156 and
$453,950 for the years ended August 31, 2000 and August 31,
1999.
Property and equipment recorded at August 31, 2000 and 1999
is summarized as follows:
2000 1999
-------------------------
Land $ 220,000 $ 220,000
Buildings and improvements 1,380,460 1,361,281
Computers and technical equipment
Owned 94,531 55,600
Leased 671,032 671,032
Library resources 945,685 657,069
Furniture and fixtures 434,675 333,212
-------------------------
3,746,383 3,298,194
Less: Accumulated depreciation (1,483,009) (1,182,148)
-------------------------
$ 2,263,374 $ 2,116,046
=========================
Loan Costs Loan costs are being amortized ratably over the life of the
loans to which they Relate. Amortization expense totaled $408
and $6,434 for the years ended August 31, 2000 and August 31,
1999.
6
John Marshall Law School
Notes to Financial Statements
Income Taxes The School is a not-for-profit organization that is exempt
from income taxes under Section 501(c)(3) of the Internal
Revenue Code. The School has also been classified as an
entity that is not a private foundation within the meaning of
Section 509(a) and qualifies for deductible contributions as
provided in Section 170(b)(1)(A)(iv).
Cash and Cash The School considers all highly liquid instruments available
Equivalents for current use with an initial maturity of three months or
less to be cash equivalents.
Concentration The School maintains its cash in bank deposit accounts which
of Credit at times may exceed federally insured limits. The School has
Risk not experienced any losses in such accounts and believes it
is not exposed to any significant credit risk on cash. Other
financial instruments that potentially subject the School to
concentration of credit risk are its student tuition
receivables.
2. Student The student escrow account consists of student funds from
Escrow various loan programs, temporarily held in escrow, to be
Account applies to the cost of future tuition expenses.
3. Investment Included in non-operating revenue and expense for 1999 are
Securities recognized losses on investment securities totaling $351,799
whose decline in value was considered to be permanent.
Realized losses from sales of investment securities total
$22,349 in 1999. Shares of the investment securities owned by
the School at August 31, 1999, which are considered to be
worthless secure a note payable discussed in Note 7.
4. Related Party The School sold its 1422 West Peachtree building on August
Transactions 19, 1998, to ConLaw, LLC. The School entered into an
agreement with ConLaw, LLC to lease back the building and
received a 25% interest in ConLaw, LLC. The lease term is
from August 19, 1998 to August 18, 2013, with current rent
payments of $44,739 per month. During the term of the lease
agreement, the School will receive 25% of the excess cash
flow, if any, of ConLaw, LLC.
5. Management The School is being managed by Argosy Education Group, Inc.
Contract (Agrosy) under a ten-year management contract expiring August
31, 2009. Management fees are 20% of net revenues of the
School and totaled $339.
Argosy has advanced funds to the School to use for working
capital purposes. Part of the advances are under a $600,000
demand line of credit, with a variable interest rate of prime
plus 1%, expiring August 2003, with interest only payments
due monthly, secured by all assets. Advances under the line
totaled $500,000 at August 31, 2000. Accrued interest on the
line totaled $42,500 at August 31, 2000. Additionally, Argosy
made non-interest bearing advances to the School totaling
$2,482,527 at August 31, 2000.
7
John Marshall Law School
Notes to Financial Statements
The School also has entered into an option agreement with
Agrosy to purchase the assets of the School. The purchase
price will be equal to the School's net cash flow for the
twelve months prior to the date that Agrosy delivers notice
of intent to exercise its option, multiplied by five less the
amount of assumed liabilities, with a minimum purchase price
of $100,000. As of the date, Agrosy has not delivered its
intent to purchase.
6. Salary During 1994, the School implemented a Section 403(b) employee
Reduction salary reduction savings plan for its eligible employees.
Plan Employer contributions are at the discretion of the Board of
Trustees. The School did not make a contribution to the plan
for the years ended August 31, 2000 and 1999.
7. Notes Payable Notes payable at August 31, 2000 and 1999 are summarized as
follows:
2000 1999
------------------------------------------------------------------------------
Note payable to bank under $500,000
Working capital line of credit, 12.50%
Interest rate, maturing December 1999,
interest payments due quarterly; secured
by 1,000,000 shares Wastemasters, Inc.,
stock, plus assignment of accounts
receivable, inventory, furniture, fixtures
and equipment, personal guaranty of
Dean Robert J.D'Agostino - $185,347
8.25% note payable to bank, maturing October
2000, with a balloon payment of approximately
$692,000; secured by first priority security
deed on building, assignment of rents and
first priority security interest in all
fixtures and personal property at
1430 West Peachtree $692,715 790,337
------------------------
$692,715 975,684
========================
The School is currently is currently in default under the
terms of its note payable which matured October 2000.
However, the note is to be assumed under the terms of the
litigation settlement discussed in Note 11.
8
John Marshall Law School
Notes to Financial Statements
8. Capitalized The School leases certain equipment under a lease agreement
Lease accounted for as capitalized lease obligation. The following
Obligation schedule reflects the future minimum lease payments under the
capitalized lease, together with the present value of net
minimum lease payments as of August 31, 2000:
Year Ending August 31,
----------------------------------------------------------------
2001 $ 180,000
2002 180,000
2003 74,932
---------
434,932
Less amount representing interest (43,550)
---------
Present value of net minimum lease payments $ 391,382
=========
9. Operating The School leases its facility from ConLaw, LLC, a
Lease related entity, under a noncancelable operating lease
agreement. Future minimum lease payments as of August 31,
2000 are as follows:
Year Ending August 31,
----------------------------------------------------------------
2001 $ 536,868
2002 536,868
2003 536,868
2004 536,868
2005 536,868
Thereafter 4,294,944
----------------------------------------------------------------
$6,979,284
===========
Rental expense under this agreement totaled $531,903 for the
year ended August 31, 2000.
10. American Bar Under a Georgia Supreme Court mandate, all Georgia law
Association schools must be ABA certified by January 1, 1998, in order
(ABA) for their students to sit for the Georgia Bar Examination.
Certification The School has obtained an extension from the Georgia
Supreme Court until August 31, 2003 to comply. A formal plan
outlining the procedures necessary to obtain certification
has been adopted by the School. The School applied for
certification with the ABA in 2000 and was denied. The
School may reapply beginning June 2001 and intends to
reapply at a future date to obtain certification in advance
of the court mandated date of August 31, 2003.
9
John Marshall Law School
Notes to Financial Statements
11. Litigation At August 31, 2000, the School was the defendant in a lawsuit
Settlement regarding ownership of its 1430 West Peachtree building. On
November, 10, 2000, the lawsuit was settled in favor of the
plaintiff. Under the settlement agreement, the plaintiff
executed and subsequently paid a $250,000 promissory note to
the school. The plaintiff also is to assume the note payable
on the property in the amount of $692,715 at August 31, 2000.
The settlement of the lawsuit has not been reflected in the
accompanying financial statements.
The School had previously entered into an agreement to sell
its 1430 West Peachtree building during 1999, which was
contingent upon the School resolving the lawsuit referred to
above and obtaining clear title to the property. Since all of
the requirements for recording a sale were not completed, the
School has accounted for the transaction utilizing the
deposit method. Payments made on behalf of the School have
been recorded as a liability. Such payments totaled $194,234
and $18,590 for the years ended August 31, 2000 and August
31, 1999. As a part of the settlement referred to above, the
School will transfer a 20% interest in ConLaw, LLC to this
purchaser,
12. Supplemental The School made interest payments of $127,951 and $162,902
Cash Flow for the years ended August 31, 2000 and August 31, 1999. The
Information School received $434,504 in non-cash contributions of
investment securities during 1999.
13. Subsequent John Marshall's assets were purchased by Argosy on March 1,
Event 2001. Argosy exercised its option to purchase all of the
operating assets and assumed all the liabilities of John
Marshall for $0.1 million in cash and net advances of $0.7
million contributed to John Marshall before the acquisition.
10
(3) Interim Financial Statements for Western State University of California as
of December 31, 2000 and June 30, 2000 and for the six months ended December 31,
2000 and 1999.
WESTERN STATE UNIVERSITY OF SOUTHERN CALIFORNIA
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
December 31, 2000 June 30, 2000
----------------- -------------
(audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 19 $ 1,386
Short-term investments 861 -
Receivables, net 3,094 240
Prepaid expenses and other current assets 127 903
----------------- -------------
Total current assets 4,101 2,529
PROPERTY AND EQUIPMENT, net 8,004 8,160
OTHER ASSETS 716 728
----------------- -------------
TOTAL ASSETS $ 12,821 $ 11,417
================= =============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,962 $ 615
Accounts payable 349 382
Accrued payroll and other related liabilities 496 578
Accrued expenses 73 31
Deferred revenue and student deposits 3,055 310
----------------- -------------
Total current liabilities 7,935 1,916
----------------- -------------
LONG-TERM DEBT, less current maturities 4,946 8,869
OTHER LIABILITIES 106 93
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY:
Capital Stock (500,000 shares authorized of no
par value common stock, 184,140 shares issued and outstanding
10 10
Purchase price in excess of predecessor (1,840) (1,840)
Additional paid-in capital 450 450
Retained earnings 1,214 1,919
----------------- -------------
Total stockholders' equity (166) 539
----------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,821 $ 11,417
================= =============
WESTERN STATE UNIVERSITY OF SOUTHERN CALIFORNIA
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Amounts in thousands)
(Unaudited)
Six Months Ended
December 31, December 31,
------------ ------------
2000 1999
---- ----
Revenues:
Tuition and fees, net $ 3,727 $ 4,305
Other 8 207
------------ ------------
Total revenues, net 3,735 4,512
------------ ------------
Operating expenses:
Cost of education 2,484 2,420
Selling expenses 298 515
General and administrative expenses 1,321 1,485
------------ ------------
Total operating expenses 4,103 4,420
------------ ------------
Income from operations (368) 92
Other income (expense):
Interest expense (369) (297)
Other income (expense) (1) -
------------ ------------
Total other income (expense), net (370) (297)
------------ ------------
Income before provision for income taxes (738) (205)
Income taxes:
Total provision for income taxes - -
------------ ------------
Net income $ (738) $ (205)
============ ============
WESTERN STATE UNIVERSITY
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
December 31, December 31,
------------ ------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ (738) $ (205)
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 403 441
Deferred tuition and fee revenue 2,754 3,123
Changes in operating assets and liabilities (2,909) (3,462)
------------ ------------
Net cash used by operating activities (490) (103)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (188) (183)
------------ ------------
Net cash used in investing activities (188) (183)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (575) (756)
------------ ------------
Net cash (used in) provided by financing activities (575) (756)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,253) (1,042)
CASH AND CASH EQUIVALENTS, beginning of period 2,133 2,013
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 880 $ 971
============ ============
WESTERN STATE UNIVERSITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, (although the balance sheet at June 30, 2000, is condensed from
the audited balance sheet at that date) pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with 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 not misleading. In the opinion
of Management, the financial statements contain all adjustments of a normal
recurring nature necessary to present fairly the financial position as of
December 31, 2000 and the results of the operations and cash flows for the six
months ended December 31, 2000 and 1999.
NOTE 2--MARKETABLE SECURITIES
The Company determines the appropriate classification of securities at the time
of purchase and reevaluates such securities at each balance sheet date. At
December 31, 2000, all marketable securities were classified as "available for
sale" and, therefore, were carried at fair value, with the difference between
cost and fair value, net of tax, reported as a component of shareholders'
equity. At December 31, 2000, this difference was an unrealized loss of $.07
million. This difference was due to the effect of changes in market interest
rates on the fair value of these securities.
Note 3: ACQUISITION
On March 1, 2001, Argosy completed its acquisition of Western State pursuant to
the terms of the Stock Purchase Agreement dated as of November 14, 2000, between
Argosy and Western State. The Company purchased all of the outstanding common
stock of Western State for approximately $13.0 million. Consideration for the
purchase consisted of $8.6 million in cash and the assumption of $3.9 million in
debt, and certain other deductions as provided for in the purchase agreement.
The proposed transaction was approved by accrediting and regulatory entities,
including the Western Association of Schools and Colleges, the American Bar
Association and the U.S. Department of Education which was received. In entering
into the agreement, the Company placed $6.9 million (including interest income
earned) into escrow to be distributed at closing.
(4) Interim Financial Statements for John Marshall Law School as of February 28,
2001 and August 31, 2000 and for the six months ended February 28, 2001 and
February 29, 2000.
JOHN MARSHALL LAW SCHOOL
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
February 28, 2001 August 31, 2000
----------------- ---------------
(audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 102 $ 94
Receivables, net 382 58
Note receivable 400 -
Prepaid expenses and other current assets 77 25
----------------- ---------------
Total current assets 961 177
PROPERTY AND EQUIPMENT, net 768 2,263
OTHER ASSETS (14) 15
----------------- ---------------
TOTAL ASSETS $ 1,715 $ 2,455
================= ===============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt - 152
Current maturities of long-term lease obligations $ 153 $ 691
Accounts payable 109 116
Accrued payroll and other related liabilities 55 3
Accrued expenses 299 196
Advances from Argosy Education Group 4,151 2,983
Deferred revenue and student deposits 266 194
----------------- ---------------
Total current liabilities 5,033 4,335
----------------- ---------------
Capital Lease Obligations, less current maturities 239 239
COMMITMENTS & CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Retained earnings (3,557) (2,119)
----------------- ---------------
Total stockholders' equity (3,557) (2,119)
----------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,715 $ 2,455
================= ===============
JOHN MARSHALL LAW SCHOOL
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Six Months Ended
February 28, February 29,
------------ ------------
2001 2000
---- ----
Revenues:
Tuition and fees, net $ 886 $ 879
Other 26 67
------------ ------------
Total revenues, net 912 946
------------ ------------
Operating expenses:
Cost of education 1,241 1,196
Selling expenses 127 79
General and administrative expenses 658 579
------------ ------------
Total operating expenses 2,026 1,854
------------ ------------
Income from operations (1,114) (908)
Other income (expense):
Interest income 8 9
Interest expense (37) (41)
Other income (expense) - -
------------ ------------
Total other income (expense), net (29) (32)
------------ ------------
Loss before provision for income taxes (1,143) (940)
Income taxes:
Total provision for income taxes - -
------------ ------------
Net income $ (1,143) $ (940)
============ ============
JOHN MARSHALL LAW SCHOOL
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
February 28, February 29,
------------ ------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ (1,143) $ (940)
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 136 162
Receivables, net (724) (79)
Prepaid expenses and other current assets (49) (4)
Accounts payable (8) 52
Accrued payroll and related expenses 53 -
Accrued expenses (37) (283)
Student deposits 248 257
Other liabilities - 31
------------ ------------
Net cash provided by operating activities (1,524) (804)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (18) (340)
Proceeds from sale of property and equipment 1,092 -
------------ ------------
Net cash used in investing activities 1,074 (340)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliates 1,168 1,356
Payments of long-term debt (692) (985)
Proceeds from long term debt - 790
------------ ------------
Net cash (used in) provided by financing activities 476 1,161
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 26 17
CASH AND CASH EQUIVALENTS, beginning of period 76 111
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 102 $ 128
============ ============
JOHN MARSHALL LAW SCHOOL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, (although the balance sheet at August 31, 2000, is condensed from
the audited balance sheet at that date) pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with 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 not misleading. In the opinion
of Management, the financial statements contain all adjustments of a normal
recurring nature necessary to present fairly the financial position as of
February 28, 2001 and the results of the operations and cash flows for the six
months ended February 28, 2001 and February 29, 2000.
NOTE 2-RELATED PARTY
As of, and prior to the acquisition, Argosy maintained a long-term management
arrangement with John Marshall Law School ("John Marshall") of Atlanta, Georgia,
beginning in September 1999. The arrangement included a management agreement,
with a 10-year option to purchase John Marshall exercisable at the Argosy's
discretion and a line of credit of $0.6 million between the Argosy and John
Marshall. As of, February 28, 2001 the Argosy had advanced $0.5 million under
the line of credit and approximately $ 3.1 million in operating cash under the
management agreement. These advances, net of John Marshall operating losses
operations, are included in other long term assets. As provided for under the
agreement, Argosy received a management fee based upon John Marshall's net
revenue.
Note 3: ACQUISITION
John Marshall's assets were purchased by Argosy on March 1, 2001. Argosy
exercised its option to purchase all of the operating assets and assumed all the
liabilities of John Marshall of John Marshall Law School for $0.1 million in
cash and net advances of $0.7 million contributed to John Marshall before the
acquisition.
b) Unaudited Pro Forma Financial Statements
Introduction to pro forma condensed consolidated financial data.
The following Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the six months ended February 28, 2001 and the fiscal year ended
August 31, 2000, present unaudited pro forma operating results for Argosy
Education Group ("Argosy") as if the acquisitions of Western State University of
Southern California ("Western State") and John Marshall Law School ("John
Marshall") had occurred as of the beginning of the periods presented. The
following Unaudited Pro Forma Condensed Consolidated Balance Sheet presents the
unaudited pro forma financial condition of Argosy as if the Pro Forma
Transactions had occurred as of February 28, 2001 for John Marshall and December
31, 2000 for Western State.
The excess of the purchase price of Western State over the net identifiable
assets and liabilities of Western State is reported as goodwill. The carrying
values of Western State's net assets are assumed to equal their fair values for
purposes of these unaudited pro forma condensed consolidated financial
statements unless indicated otherwise in the Notes to Unaudited Pro Forma
Condensed Consolidated Financial Data. These values are subject to revision
primarily relating to changes in estimates for pension and severance plan
liabilities.
The excess of net identifiable assets for John Marshall resulted in negative
goodwill which was allocated as a reduction of the fair market value of fixed
assets.
The unaudited pro forma condensed consolidated financial data does not reflect
any synergies expected to be realized after the Western State and John Marshall
acquisitions (because their realization cannot be assured). The accompanying
notes to Unaudited Pro Forma Condensed Consolidated Financial Data describe
other adjustments related to the John Marshall and Western State acquisitions.
THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA IS PRESENTED FOR
INFORMATIONAL PURPOSED ONLY AND IS NOT NECESSARILY INDICATIVE OF THE OPERATING
RESULTS OR FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE WESTERN STATE AND
JOHN MARSHALL ACQUISITIONS AND OTHER TRANSACTIONS DESCRIBED HEREIN BEEN
CONSUMMATED AT THE DATES INDICATED, NOR IS IT NECESSARILY INDICATIVE OF THE
FUTURE OPERATING RESULTS OR FINANCIAL POSITION OF THE COMPANY FOLLOWING THE
WESTERN STATE AND JOHN MARSHALL ACQUISITIONS.
The unaudited pro forma condensed consolidated financial data should be read in
conjunction with each of the consolidated financial statements of Argosy and
Western State and John Marshall and the related notes thereto contained in (i)
Argosy's Annual Report on Form 10-K/A for the year ended August 31, 2000, (ii)
Argosy's Quarterly Report on Form 10-Q for the quarter ended February 28, 2001,
(iii) Western State's audited financial statements for the years ended June 30,
2000 and 1999 which are included herein, (iv) John Marshall's audited financial
statements for the years ended August 31, 2000 and 1999 which are included
herein, (v) Western State's interim financial statements for the six months
ended December 31, 2000 and 1999, which are included herein, and (vi) John
Marshall's interim financial statements for the six months ended February 28,
2001 and February 29, 2000, which are included herein.
Argosy Education Group, Inc. and Subsidiaries
Proforma Income Statement
For the year ended August 31, 2000,
(Unaudited)
(in thousands)
Pro forma Pro forma
Western adjustments adjustments
John State John Western Operating Pro forma
Argosy Marshall (1) Marshall State Adjustments Totals
--------- --------- ------- ----------- ----------- ----------- ---------
Net Revenue $ 44,058 1,659 8,197 - - - 53,914
Operating expenses:
Cost of education 20,746 2,082 4,765 - - - 27,593
Selling expenses 3,837 146 804 - - - 4,787
General and administrative expenses 15,107 1,261 2,620 (6)(a) (85)(b) (330)(c) 18,567
--------- --------- ------- ---------- ----------- ---------- ---------
Total operating expenses 39,690 3,489 8,189 (6) (85) (330) 50,947
--------- --------- ------- ---------- ----------- ---------- ---------
Income from operations 4,368 (1,830) 8 6 85 330 2,967
Other income (expense): -
Losses attributable to John Marshall (1,925) - - - - 1,925 (c) -
Interest income 854 34 - - - - 888
Interest expense (300) (170) (598) - 393 (d) - (675)
Other income (expense) (73) 6 58 - - (295)(c) (304)
--------- --------- ------- ---------- ----------- ---------- ---------
Total other income (expense), net (1,444) (130) (540) - 393 1,630 (91)
--------- --------- ------- ---------- ----------- ---------- ---------
Income before provision for income
taxes 2,924 (1,960) (532) 6 478 1,960 2,876
Income taxes 1,263 - 1 2 (f) (22)(f) - 1,244
--------- --------- ------- ---------- ----------- ---------- ---------
Net income $ 1,661 $ (1,960) $ (533) 4 $ 500 $ 1,960 $ 1,632
========= ========= ======= ========== =========== ========== =========
Earnings per share
Basic $ 0.25 $ 0.25
========= =========
Weighted average shares outstanding -
basic 6,529 6,529
========= =========
Diluted $ 0.25 $ 0.25
========= =========
Weighted average shares outstanding -
diluted 6,530 6,530
========= =========
(1) Includes income statement for the year ended June 30, 2000.
Argosy Education Group, Inc. and Subsidiaries
Proforma Income Statement
For the six months ended February 28, 2001
(Unaudited)
(in thousands)
Pro forma Pro forma
Western adjustments adjustments
John State John Western Operating Pro forma
Argosy Marshall (1) Marshall State Adjustments Totals
--------- --------- ------- ----------- ----------- ----------- ---------
Net Revenue $ 25,832 912 3,735 - - - 30,479
Operating expenses:
Cost of education 11,284 1,241 2,484 - - - 15,009
Selling expenses 2,736 127 298 - - - 3,161
General and administrative expenses 9,546 658 1,322 (3)(a) (43)(b) (184)(c) 11,296
--------- --------- ------- ----------- ----------- ---------- ---------
Total operating expenses 23,566 2,026 4,104 (3) (43) (184) 29,466
--------- --------- ------- ----------- ----------- ---------- ---------
Income from operations 2,266 (1,114) (369) 3 43 184 1,013
Other income (expense):
Losses attributable to John Marshall (872) - - - - 872 (c) -
Interest income 392 8 - - - - 400
Interest expense (151) (37) (369) - 129 (d) 37 (e) (391)
Other expense (8) - - - - 50 (e) 42
--------- --------- ------- ----------- ----------- ---------- ---------
Total other income (expense), net (639) (29) (369) - 129 959 51
--------- --------- ------- ----------- ----------- ---------- ---------
Income before provision for income
taxes 1,627 (1,143) (738) 3 172 1,143 1,064
Income taxes 975 0 1 (f) (226)(f) - 750
--------- --------- ------- ----------- ----------- ---------- ---------
Net income $ 652 $ (1,143) $ (738) $ 2 $ 398 $ 1,143 $ 314
========= ========= ======= =========== =========== ========= =========
Earnings per share
Basic $ 0.10 $ 0.05
========= =========
Weighted average shares outstanding -
basic 6,479 6,479
========= =========
Diluted $ 0.10 $ 0.05
========= =========
Weighted average shares outstanding -
diluted 6,488 6,488
========= =========
(1) Includes income statement for the six months ended December 31, 2000.
Argosy Education Group, Inc. and Subsidiaries
Proforma Balance Sheet
as of February 28, 2001
(Unaudited)
(in thousands)
Pro forma Pro forma
Western adjustments adjustments
John State John Western Pro forma
Argosy Marshall (1) Marshall State Totals
-------- -------- ------- ----------- ----------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 6,516 $ 102 $ 19 $ (100)(p) $ (1,768)(p) $ 4,769
Short-term investments 4,337 - 861 - - 5,198
Accounts receivable, net 3,249 382 3,094 - - 6,725
Due from related entity - 400 - - - 400
Prepaid taxes - - - - - -
Prepaid expenses 376 77 127 (6)(r) (164)(r) 410
Deferred tax assets 770 - - - 533 (g) 1,303
-------- --------- ------- ----------- ----------- ----------
Total current assets 15,248 961 4,101 (106) (1,399) 18,805
-------- --------- ------- ----------- ----------- ----------
Property and equipment 11,413 2,191 16,023 (1,468)(h) 306 (h) 28,465
Accumulated depreciation (4,463) (1,423) (8,019) 1,423 (h) 8,019 (h) (4,463)
-------- --------- ------- ----------- ----------- ----------
6,950 768 8,004 (45) 8,325 24,002
-------- --------- ------- ----------- ----------- ----------
Other Assets:
Western State investment 6,944 - - - (6,944)(q) -
Deposits and other assets 160 (14) 364 279 (i) - 789
Note receivable - - 352 - - 352
Deferred tax assets 2,350 - - - - 2,350
Advances to John Marshall 722 - - (722)(j) - -
Intangibles, net 6,488 - - - 2,048 (k) 8,536
-------- --------- ------- ----------- ----------- ----------
Total other assets 16,664 (14) 716 (443) (4,896) 12,027
-------- --------- ------- ----------- ----------- ----------
Total Assets $ 38,862 $ 1,715 $12,821 $ (594) $ 2,030 $ 54,834
======== ========= ======= =========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities on long-term debt $ 751 $ 153 $ 3,962 $ - $ (3,382)(l) $ 1,484
Accounts payable 1,523 109 349 - - 1,981
Accrued payroll and related expenses 1,062 55 232 - - 1,349
Pension plan liability - - 264 - 599 (m) 863
Accrued expenses 724 299 73 - 801 (n) 1,897
Advances from Argosy Education Group - 4,151 - (4,151)(j) - -
Deferred revenue 4,912 266 3,055 - - 8,233
-------- --------- ------- ----------- ----------- ----------
Total current liabilities 8,972 5,033 7,935 (4,151) (1,982) 15,807
-------- --------- ------- ----------- ----------- ----------
Long-term debt, less current
maturities 2,428 239 4,946 - - 7,613
Deferred rent 802 - - - - 802
Other liabilities - - 106 - - 106
Deferred Income taxes - - - - 3,846 (g) 3,846
Commitments and contingencies
Shareholders' equity:
Common stock 70 - 10 - (10)(o) 70
Additional paid-in capital 25,131 - 450 - (450)(o) 25,131
Treasury stock (2,131) - - - - (2,131)
Stock Warrants 860 - - - - 860
Purchase price in excess of
predecessor (720) - (1,840) - 1,840 (o) (720)
Accumulated other comprehensive
income 200 - - - - 200
Retained earnings 3,250 (3,557) 1,214 3,557 (o) (1,214)(o) 3,250
-------- --------- ------- ----------- ----------- ----------
Total shareholders' equity 26,660 (3,557) (166) 3,557 166 26,660
-------- --------- ------- ----------- ----------- ----------
Total liabilities and shareholders'
equity $ 38,862 $ 1,715 $12,821 $ (594) $ 2,030 $ 54,834
======== ========= ======= =========== =========== ==========
(1) Includes balance sheet for Western State as of December 31, 2000.
PRO FORMA ADJUSTMENTS
(a) Record the reduction of depreciation expense for John Marshall for the six
months ended February 28, 2001 and the year ended August 31, 2001 in the
amount of $ 3,000 and $6,000, respectively. This adjustment is a result of
the reduction of the fair market value of fixed assets due to the
allocation of negative goodwill.
(b) To adjust for amortization of goodwill using an estimated useful life of 15
years, and also to adjust for a reduction in depreciation expense related
to adjusting fixed assets to fair market value as of the date of
acquisition and using the remaining useful lives. Goodwill amortization for
Western State for the six months ended December 31, 2000 and the year ended
June 30, 2000, was $ 0.07 million and $0.14 million, respectively. A
reduction in depreciation expense for Western State for the six months
ended December 31, 2000 and the year ended June 30, 2000, was $ 0.1 million
and $0.2 million, respectively.
(c) To adjust expenses for management fee income for services provided by
Argosy to John Marshall, eliminate the losses attributable John Marshall
accounted for using the equity method of accounting during the periods
presented in the consolidated financial statements of Argosy, and
reclassification of other charges related to Argosy's investment in John
Marshall properly recorded by Argosy in its August 31, 2000 audited
financial statements.
(d) Reflects a pro forma adjustment to interest expense to adjust interest
expense for indebtedness paid down in the acquisition of Western State. The
indebtedness paid as part of purchase price included payment of the
outstanding line of credit with a maximum of $3.0 million at rate of 10.5%
at February 28, 2001 and 8.5% at June 30, 2000. Additionally, the purchase
price included the payment of a term note payable bearing an interest rate
of 8.6% at June 30, 2000 and 6.9% at February 28, 2001, with an outstanding
balance of $1.4 million.
(e) To record intercompany adjustments to eliminate intercompany interest and
other miscellaneous items between John Marshall and Argosy.
(f) To record pro forma income tax effect of for Western State for the year
ended June 30, 2000 and the six months ended December 31, 2000, and the
income tax effect of pro forma adjustments for Western State and John
Marshall. Western State was an S Corporation prior to the acquisition, and
as a result, no tax provision was recorded for the historical periods.
(g) Records deferred tax impact for book and tax basis differences.
(h) Records fair value adjustments for the fixed assets for Western State and
John Marshall.
(i) Records fair value adjustment of John Marshall's investment in ConLaw, LLC.
(j) To eliminate intercompany advances between Argosy and John Marshall.
(k) Reflects the pro forma purchase price allocation to goodwill for the excess
of the purchase price over the net assets and direct costs of the
transaction, primarily professional fees.
(l) To record repayment of debt as part of purchase price which included
payment of the outstanding line of credit with a maximum of $2.0 million.
Additionally, the purchase price which included the payment of a term note
payable with an outstanding balance of $1.4 million.
(m) Records unfunded pension liability at December 31, 2000. The company
intends to terminate the pension plan in the year subsequent to the
acquisition.
(n) Records accrued liabilities for purchase price hold back contingency of
$0.5 million, severance plan accrual of $0.1 million, and $0.3 million of
current severance payments and the accrual of other professional fees
directly related to the acquisition.
(o) Records elimination of Western State's and John Marshall's equity accounts.
(p) Records cash payments made for acquisitions Western State and John
Marshall.
(q) To eliminate amounts paid by Argosy into an escrow account for the
acquisition which were allocated to the purchase price.
(r) To reclassify amounts paid by Argosy for acquisition costs that were
incurred prior to the acquisition properly classified as goodwill.
DETERMINATION OF ALLOCATION OF PURCHASE PRICE
The acquisition of Western State was made through a purchase of the common
stock of the Western State on March 1, 2001. The purchase price was $13.3
million. The company paid $9.4 million in cash and assumed debt and other
liabilities of $3.9 million. The acquisition of Western State will be
accounted for as a purchase. The preliminary allocation of the pro forma
purchase price by Argosy is as follows (subject to possible accrual
adjustments). The allocation of purchase price to be included in the
Company's audited financial statements for the year 2001 will be based on
the balance sheet of Western State as of March 1, 2001, and therefore is
subject to change.
Pro Forma Purchase Price at December 31, 2000 (in thousands):
Fair Value of Net Assets Purchased and Assumed
Cash $ 19
Short Term investments 861
Accounts Receivable 3,094
Other Assets 127
Deferred Tax assets 533
Fixed Assets 16,330
Note receivable 364
Deposits 352
Goodwill 2,048
Current liabilities-assumed (5,419)
Long term debt (5,052)
Long term deferred tax assets (3,847)
---------
Pro forma Cash Purchase Price $ 9,410
=========
The acquisition of John Marshall was made through a purchase of the assets
of John Marshall on March 1, 2001. The Company exercised its option to purchase
all of the operating assets and assumed the liabilities of John Marshall Law
School for cash of $0.1 million and net advances of $0.7 million contributed to
John Marshall before the acquisition.
As of September 1, 1999 the Company entered into an agreement to manage the
John Marshall. The agreement was for 10 years and included an option to purchase
John Marshall which was exercisable at the Company's discretion. In addition, a
line of credit of $0.6 million was established between the Company and John
Marshall. As of February 28, 2001, the Company advanced $0.5 million under the
line of credit and approximately $3.1 million to fund operations.
Pro Forma Purchase Price (in thousands):
Fair Value of Net Assets Purchased and Assumed
Cash $ 103
Accounts Receivable 383
Other Assets 341
Fixed Assets 723
Note receivable 400
Current liabilities-assumed (883)
Long term debt (239)
---------
Pro forma Cash Purchase Price $ 828
=========
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARGOSY EDUCATION GROUP, INC.
May 14, 2001 /s/ Charles T. Gradowski
-----------------------------------------
Charles T. Gradowski
Chief Financial Officer