Career Education Corporation Reports Results for Third Quarter 2012

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Career Education Corporation Reports Results forThird Quarter 2012

Company announces campus closures and workforce reductions to align with new long-term strategy.

SCHAUMBURG, Ill.--(BUSINESS WIRE)-- Career Education Corporation (NAS: CECO) today reported total revenue of $332.8 million, and a net loss of $33.1 million, or -$0.50 per diluted share, for the third quarter of 2012 compared to total revenue of $428.4 million and net income of $10.6 million, or $0.14 per diluted share, for the third quarter of 2011.


"We are taking the difficult step of closing campuses and reducing our workforce because these measures are essential to advancing the turnaround of Career Education," Chairman, President and Chief Executive Officer Steven H. Lesnik said. "To move forward successfully, we must align the organization to the new market realities in private postsecondary education."

"As we rationally reduce the size and scope of the organization, we are ultimately positioning the Company to execute and embark upon our long-term strategic direction. Our strategy envisions a simplified and more nimble organization, fewer ground campuses, more differentiated brands serving distinct student populations and the leading student-centric, personalized learning technology in higher education. I am confident that this is the right strategic course for the Company and will ensure a leaner, stronger Career Education that continues to provide access to high-quality, career-focused postsecondary education long into the future."

CONSOLIDATED RESULTS

Quarter Ended September 30, 2012

  • Total revenue was $332.8 million for the third quarter of 2012, a 22.3 percent decrease from $428.4 million for the third quarter of 2011.
  • An operating loss of $48.2 million was reported for the third quarter of 2012, compared to operating income of $19.9 million for the third quarter of 2011. The operating margin was -14.5 percent for the third quarter of 2012 versus 4.6 percent for the third quarter of 2011.
  • The loss from continuing operations for the third quarter of 2012 was $30.8 million, or -$0.47 per diluted share, versus income from continuing operations of $14.1 million, or $0.19 per diluted share, for the third quarter of 2011.

Year to Date Ended September 30, 2012

  • Total revenue was $1,135.9 million for the year to date ended September 30, 2012, compared to $1,445.0 million for the year to date ended September 30, 2011.
  • The operating loss for the year to date ended September 30, 2012 was $109.7 million, versus operating income of $208.1 million for the year to date ended September 30, 2011. The operating margin decreased to -9.7 percent for the year to date ended September 30, 2012, from 14.4 percent for the year to date ended September 30, 2011.
  • The loss from continuing operations for the year to date ended September 30, 2012, was $78.3 million, or -$1.18 per diluted share, compared to income from continuing operations of $138.1 million, or $1.83 per diluted share, for the year to date ended September 30, 2011.

The Company believes it is useful to present non-GAAP financial measures, which exclude certain significant items, as a means to understand the performance of its core business. There are no significant items included for the third quarters ended 2012 or 2011. For the year to date ended September 30, 2012, on a non-GAAP basis, loss per diluted share from continuing operations was -$0.14, as compared to earnings per diluted share of $1.79 for the year to date ended September 30, 2011. (See table below and the GAAP to non-GAAP reconciliation attached to this press release for further details.)

The operating results for the years to date ended September 30, 2012 and 2011 include the following significant items:

   

Significant Items
(In Millions)

 

(Loss) Earnings
per Diluted
Share Impact

Year to Date Ended September 30, 2012
Goodwill and Intangible Asset Impairments$84.4$1.22
Asset Impairments1.30.01
Insurance Recoveries (19.0) (0.19)
TOTAL$66.7 $1.04 
 
Year to Date Ended September 30, 2011
Goodwill and Intangible Asset Impairments$2.7$0.02
Insurance Recoveries (7.0) (0.06)
TOTAL$(4.3)$(0.04)
 
  • During the year to date ended September 30, 2012, the Company recorded non-cash goodwill and intangible asset impairment charges of $84.4 million, of which $42.9 million was reflected within Health Education and $41.5 million within Art & Design. In addition, $1.2 million of non-cash asset impairment charges were recorded resulting from the decision made in the second quarter of 2012 to teach out four campuses, primarily within Health Education. The operating results for the year to date ended September 30, 2011 included $2.7 million of non-cash goodwill and intangible asset impairment charges primarily related to accreditation rights impairment.
  • During the year to date ended September 30, 2012, the Company recorded a $19.0 million insurance recovery related to the settlement of claims under certain insurance policies. During the year to date ended September 30, 2011, the Company recorded a $7.0 million insurance recovery related to previously settled legal matters.
  • Excluding the significant items in the table above, the operating loss was $43.0 million for the year to date ended September 30, 2012 and the operating income was $203.8 million for the year to date ended September 30, 2011. Operating margin was -3.8 percent and 14.1 percent for the years to date ended September 30, 2012 and 2011, respectively.

CAMPUS CLOSURES AND WORKFORCE REDUCTIONS

A key component to the Company's long-term strategy is to invest in a smaller number of institutions that have the strongest likelihood of delivering strong student outcomes, operational efficiency and strength in their market. As a result, the decision was made to close twenty-three campuses. These campuses are expected to contribute approximately $124.3 million of revenue and approximately $62.0 million of operating loss for the year ending December 31, 2012. The campuses will remain open to offer current students the ability to complete their course of study. The majority of these campuses are expected to cease operations no later than the first quarter of 2014. Along with these closures, the Company made the decision to eliminate approximately 900 positions across the organization as it reorganizes its campus and corporate functions to better align with the current student population and common operating structures across our ground campuses, most notably within our Career Schools. The position eliminations are expected to be completed by January 2013, with annual savings estimated at $45-$55 million. The fourth quarter operating results will include a pretax severance charge of approximately $7.0 million as a result of this decision.

CONSOLIDATED CASH FLOWS AND FINANCIAL POSITION

Cash Flows

Net cash flows provided by operating activities totaled $32.5 million for the year to date ended September 30, 2012, compared to $209.4 million for the year to date ended September 30, 2011.

Capital expenditures decreased to $29.5 million during the year to date ended September 30, 2012, from $67.4 million during the year to date ended September 30, 2011. Capital expenditures represented 2.6 percent and 4.6 percent of total revenue of continuing and discontinued operations during the years to date ended September 30, 2012 and 2011, respectively.

Financial Position

As of September 30, 2012 and December 31, 2011, cash and cash equivalents and short-term investments totaled $373.3 million and $441.2 million, respectively.

U.S. Credit Agreement

The Company's $185 million U.S. Credit Agreement expired on October 31, 2012. The Company's discussions surrounding the level and terms of a replacement facility are ongoing.

Stock Repurchase Program

During the third quarter of 2012, the Company did not repurchase any shares of its common stock. Year to date through September 30, 2012, the Company repurchased 6.1 million shares of its common stock for approximately $56.4 million at an average price of $9.29 per share.

As of September 30, 2012, approximately $183.3 million was available under the Company's authorized stock repurchase program to repurchase outstanding shares of its common stock. Stock repurchases under this program may be made on the open market or in privately negotiated transactions from time to time, depending on various factors, including market conditions and corporate and regulatory requirements.

Student Population

Total student population by reportable segment as of September 30, 2012 and 2011, was as follows:

 As of September 30, % Change
2012 20112012 vs. 2011
Student Population
CTU22,60025,100-10%
AIU14,90017,100-13%
Health Education16,70028,100-41%
Culinary Arts11,20015,400-27%
Art & Design7,40010,300-28%
International8,8008,4005%
Total Student Population81,600104,400-22%
 

New Student Starts

New student starts by reportable segment for the quarters ended September 30, 2012 and 2011, were as follows:

 
For the Quarters Ended September 30,
   % Change
201220112012 vs. 2011
New Student Starts
CTU5,2506,510-19%
AIU3,7004,590-19%
Health Education (1)4,8207,710-37%
Culinary Arts (1)3,9205,480-28%
Art & Design1,2001,870-36%
International4,7504,4407%
Total New Student Starts23,64030,600-23%
  
 

(1)

The third quarter 2012 had one additional new student start as compared to the previous year quarter.

Excluding this timing impact, the change in new student starts for Health Education and Culinary Arts

would have been -53% and -36%, respectively.

 

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Friday, November 9, 2012 at 10:00 a.m. Eastern time. Interested parties can access the live webcast of the conference call at www.careered.com in the Investor Relations section of the website. Participants can also listen to the conference call by dialing 800-580-9478 (domestic) or 630-691-2769 (international) and citing code 33496355. Please log-in or dial-in at least 10 minutes prior to the start time to ensure a connection. An archived version of the webcast will be accessible for 90 days at www.careered.com in the Investor Relations section of the website. A replay of the call will also be available for seven days by calling 888-843-7419 (domestic) or 630-652-3042 (international) and citing code 33496355.

ABOUT CAREER EDUCATION CORPORATION

The colleges, schools and universities that are part of the Career Education Corporation ("CEC") family offer high-quality education to a diverse student population of more than 80,000 students across the world in a variety of career-oriented disciplines through online, on-ground and hybrid learning program offerings. The more than 90 campuses that serve these students are located throughout the United States and in France, the United Kingdom and Monaco, and offer doctoral, master's, bachelor's and associate degrees and diploma and certificate programs.

CEC is an industry leader whose institutions are recognized globally. Those institutions include, among others, American InterContinental University ("AIU"); Brooks Institute; Colorado Technical University ("CTU"); Harrington College of Design; INSEEC Group ("INSEEC") Schools; International University of Monaco ("IUM"); International Academy of Design & Technology ("IADT"); Le Cordon Bleu North America ("LCB"); and Sanford-Brown Institutes and Colleges. Through its schools, CEC is committed to providing high-quality education, enabling students to graduate and pursue rewarding career opportunities.

For more information, see CEC's website at www.careered.com. The website includes a detailed listing of individual campus locations and web links to CEC's colleges, schools, and universities.

Except for the historical and present factual information contained herein, the matters set forth in this release, including statements identified by words such as "anticipate," "believe," "plan," "expect," "intend," "project," "will," "potential" and similar expressions, are forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on information currently available to us and are subject to various assumptions, risks, uncertainties and other factors that could cause our results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update or revise such factors or any of the forward-looking statements contained herein to reflect future events, developments or changed circumstances, or for any other reason. These risks and uncertainties, the outcomes of which could materially and adversely affect our financial condition and operations, include, but are not limited to, the following: changes in enrollment, student mix and average registered credits taken by students; our ability to implement effective cost reduction strategies; our ability to obtain a replacement credit facility on acceptable terms; our continued compliance with and eligibility to participate in Title IV Programs under the Higher Education Act of 1965, as amended, and the regulations thereunder (including the "90-10 Rule" and financial responsibility standards prescribed by the U.S. Department of Education), as well as national and regional accreditation standards and state regulatory requirements; our ability to obtain accrediting agency approvals for existing, changed or new programs and to successfully defend litigation and other claims brought against us; rulemaking by the U.S. Department of Education and increased focus by the U.S. Congress and governmental agencies on for-profit education institutions; and changes in the overall U.S. or global economy. Further information about these and other relevant risks and uncertainties may be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and its subsequent filings with the Securities and Exchange Commission.

  
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
September 30,

2012

December 31,
2011

(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$242,828$280,592
Short-term investments 130,495  160,607 
Total cash and cash equivalents and short-term investments373,323441,199
 
Student receivables, net65,02160,573
Student receivables held for sale1,019-
Receivables, other, net1,6722,914
Prepaid expenses75,18362,399
Inventories9,15711,356
Deferred income tax assets, net10,94010,940
Other current assets5,21417,769
Assets of discontinued operations 3,441  3,328 
Total current assets 544,970  610,478 
 
NON-CURRENT ASSETS:
Property and equipment, net317,484349,788
Goodwill131,862212,626
Intangible assets, net74,03277,186
Student receivables, net8,0169,297
Deferred income tax assets, net9,4529,522
Other assets, net42,29330,122
Assets of discontinued operations 16,920  17,101 
TOTAL ASSETS$1,145,029 $1,316,120 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations$306$844
Accounts payable53,23748,408
Accrued expenses:
Payroll and related benefits39,35941,853
Advertising and production costs20,99317,717
Other48,54267,271
Deferred tuition revenue135,483144,947
Liabilities of discontinued operations 12,843  8,403 
Total current liabilities 310,763  329,443 
 
NON-CURRENT LIABILITIES:
Capital lease obligations, net of current maturities-207
Deferred rent obligations97,766102,079
Other liabilities35,89440,365
Liabilities of discontinued operations 28,842  37,935 
Total non-current liabilities 162,502  180,586 
 
SHARE-BASED AWARDS SUBJECT TO REDEMPTION99110
 
STOCKHOLDERS' EQUITY:
Preferred stock--
Common stock816820
Additional paid-in capital599,534590,965
Accumulated other comprehensive loss(9,015)(5,136)
Retained earnings294,315375,607
Cost of shares in treasury (213,985) (156,275)
Total stockholders' equity 671,665  805,981 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,145,029 $1,316,120 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts and percentages)
     
 
For the Quarters Ended September 30,
2012

% of
Total
Revenue

 

2011(1)

 

% of
Total
Revenue

 
REVENUE:
Tuition and registration fees$326,46498.1%$417,42097.4%
Other 6,293 1.9 Read Full Story

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