Sylvan Learning Systems
While Sylvan's report could perhaps provide hours of fun and games at a forensic accountants party, it is an individual investor's nightmare. It includes an accounting change from the a sale of the company's K-12 segment that occurred on June 30, 2003, but that Sylvan asks investors to pretend occurred on Jan. 1, 2003 (in a perverse attempt to make the financials clearer); tax rates that actually did apply and tax rates that Sylvan says hypothetically should have applied; shares outstanding before the year's egregious dilution and shares that resulted from said egregious dilution; and the weighted average of the two.
As best I can tell, revenues from continuing operations climbed 41% to $472.8 million, but operating expenses rose only 37%, with the result that operating income rose 135%, to $33.6 million. Those results sound impressive (if not for the 9.3% share dilution), but at Friday's closing price, they would still yield a P/E of 170. Sylvan would therefore ask investors to bear in mind that, had the K-12 segment's sale not been excluded from the results, the company would have earned $1.05 per share -- for a more reasonable P/E of 29.
In the end, the report's complexity makes it hard to say whether Sylvan is a good buy. Perhaps investors are better advised to wait for the company to file its 10-K with the SEC, and see if that document is any clearer.
While waiting, investors might look at a few of the for-profit educational companies whose financials are a bit easier to read: Strayer Education
Want to uncover other bargains? Check out Tom Gardner's Hidden Gemsfor 30 days, free.
Motley Fool contributor Rich Smith owns no shares in any of the companies mentioned here.
