NEC Reports Quarterly Loss of $6.4 Million

National Educational Corp., a provider of educational and vocational services, on Wednesday reported a second-quarter loss of $6.4 million, compared to a loss of $1.5 million for the same quarter last year.

NEC said the losses were expected and resulted from continuing problems at its Applied Learning subsidiary. It added, however, that it is “pleased with the progress” in resolving the subsidiary’s problems.

NEC paid a $5.3-million arbitration award to former President H. David Bright in the second quarter. The payment was offset, however, by an insurance payment of $5.5-million arising from the settlement last year of a class-action lawsuit brought by stockholders. The net result of the two transactions was a reduction in losses of about $100,000 for the company.

Excluding those one-time events, the company was able to generate enough of a positive cash flow during the quarter that its lenders released it from a requirement to raise $10 million in working capital in return for its commitment to reduce bank debt by $5 million. Vice President Jeff Brill said the positive cash flow should allow the company to reduce its debt to $57 million, from $62 million.

The loss for the quarter ending June 30 came on revenue of $88 million, down 8.3% from $96.6 million in the corresponding period a year earlier.

For the first six months of 1990, NEC lost $14.8 million on revenue of $173.4 million, compared to a loss of $5.5 million on revenue of $196.1 million last year.

NEC stock closed Wednesday at $4.75, down 62.5 cents, in trading on the New York Stock Exchange.

In March, NEC announced the settlement of the class-action lawsuit brought by a group of stockholders who alleged that the Irvine-based company misled them about its financial condition by withholding crucial financial information. The company had maintained that the lawsuit was without merit.

With those problems behind it, some analysts are predicting that NEC will return to profitability.

“I think they are in transition and that operations will improve,” said Arthur Rade, an analyst for Merrill Lynch Research in New York. He said he expects the company to post modest profits for the third quarter ending Sept. 30 and stronger profits after that.

“I think it’s the early phase of recovery and the changes that they have made are critical to long-term improvement,” Rade added.

But Seth Feinstein, vice president and senior analyst for the Newhard Cook division of Advest, a Los Angeles brokerage, said the vocational-training industry is slumping because of the nation’s low unemployment rates.

When jobs are relatively easy to find, fewer workers seek vocational training, he said. He added that the federal government has imposed tougher requirements on student loans as part of its effort to crack down on fraud in the program.

“It’s not that National Education is having problems that are particular to it. The industry stinks. If you look around, all the vocational schools are having disappointing results,” Feinstein said.

NEC Vice President Brill disagreed, saying that vocational education is “not a growth area right now,” but that revenue has remained fairly steady.

NATIONAL EDUCATION CORP. PERFORMANCE

In the second quarter ended June 30, National Education Corp. reported a loss of $6.4 million. It attributed the loss to continuing problems in its Applied Learning subsidiary.

Figures are in thousands except per share data.

2nd Qtr 2nd Qtr 6 Months 6 Months 1990 1989 1990 1989 Revenue $88,048 $96,583 $173,441 $196,106 Net income (loss) (6,380) (1,506) (14,811) 5,509 Per share (loss) ($0.22) ($0.05) ($0.50) $0.19

Source: National Education Corp.