Career Education Corporation Reports Results for Second Quarter 2013

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Career Education Corporation Reports Results forSecond Quarter 2013

SCHAUMBURG, Ill.--(BUSINESS WIRE)-- Career Education Corporation (NAS: CECO) today reported total revenue of $294.8 million, and a net loss of $31.4 million, or -$0.47 per diluted share, for the second quarter of 2013 compared to total revenue of $365.9 million and net loss of $100.2 million, or -$1.52 per diluted share, for the second quarter of 2012.

"Our results are very much in line with our initial projections for the quarter. We are actively taking costs out of the business as we become more efficient and adjust the organization's size to serve a smaller overall student population," said Scott W. Steffey, president and CEO of Career Education. "I'm encouraged by the progress we've made across our domestic operations on improving our interactions with students, from the initial point of contact straight through to student outcomes, which gives me confidence that the actions we're taking will positively impact the direction of the Company.


"The University group continues to be a profitable business, and as we continue to make improvements, we expect enhanced performance. The International segment continues to perform very well, and we've made significant progress towards finalizing our action plan for the Career Schools group, along with any additional strategic decisions," Steffey said.

CONSOLIDATED RESULTS

Quarter Ended June 30, 2013

  • Total revenue was $294.8 million for the second quarter of 2013, a 19.4 percent decrease from $365.9 million for the second quarter of 2012.
  • Operating losses of $63.5 million and $105.3 million were recorded for the second quarters of 2013 and 2012, respectively. The operating margin was -21.5 percent for the second quarter of 2013 versus -28.8 percent for the second quarter of 2012. Operating loss for the quarter ended June 30, 2013 includes a $10.0 million ($0.10 per diluted share) charge related to the probable settlement of a legal matter and non-cash trade name impairment charges of $2.3 million ($0.02 per diluted share) related to the Le Cordon Bleu trade name and $1.7 million ($0.02 per diluted share) related to the Sanford-Brown trade name. The operating loss for the quarter ended June 30, 2012 included non-cash goodwill and asset impairment charges of $85.4 million ($1.24 per diluted share).
  • The loss from continuing operations for the second quarter of 2013 was $29.9 million, or -$0.45 per diluted share, versus the loss from continuing operations of $85.9 million, or -$1.30 per diluted share, for the second quarter of 2012.

Year to Date Ended June 30, 2013

  • Total revenue was $635.1 million for the year to date ended June 30, 2013, compared to $795.6 million for the year to date ended June 30, 2012.
  • Operating losses of $80.9 million and $57.0 million were recorded for the years to date ended June 30, 2013 and 2012, respectively. The operating margin decreased to -12.7 percent for the year to date ended June 30, 2013, from -7.2 percent for the year to date ended June 30, 2012.
  • The loss from continuing operations for the year to date ended June 30, 2013, was $43.9 million, or -$0.66 per diluted share, compared to the loss from continuing operations of $44.5 million, or -$0.67 per diluted share, for the year to date ended June 30, 2012.
  • In addition to the significant items for the quarter ended June 30, 2012 above, the operating results for the year to date ended June 30, 2012 include a $19.0 million ($0.19 per diluted share) insurance recovery related to the settlement of claims under certain insurance policies.

CONSOLIDATED CASH FLOWS AND FINANCIAL POSITION

Cash Flows

  • Net cash flows used in operating activities totaled $67.0 million for the year to date ended June 30, 2013, compared to net cash flows provided by operating activities of $16.6 million for the year to date ended June 30, 2012.
  • Capital expenditures decreased to $10.0 million during the year to date ended June 30, 2013, from $20.0 million during the year to date ended June 30, 2012. Capital expenditures represented 1.6 percent and 2.5 percent of total revenue of continuing and discontinued operations during the years to date ended June 30, 2013 and 2012, respectively.

Financial Position

  • As of June 30, 2013 and December 31, 2012, cash and cash equivalents and short-term investments totaled $241.8 million and $402.3 million, respectively. During the first quarter of 2013, the Company repaid the $80.0 million of outstanding borrowings under its Credit Agreement. Accordingly, restricted cash balances decreased to $12.0 million at June 30, 2013 from $97.9 million at December 31, 2012.

LEGAL AND REGULATORY MATTERS

  • During the second quarter of 2013, the Company reached a preliminary agreement regarding the monetary component of a settlement with the Attorney General of the State of New York relating to their investigation of whether the Company and certain of its schools have complied with certain New York state consumer protection, securities, finance and other laws, which is subject to negotiation of a final agreement including certain injunctive provisions. This resulted in the Company recording a $10.0 million ($0.10 per diluted share) pretax charge in the current year quarter.
  • In addition, during the second quarter of 2013, the Company agreed to proposed settlements for its ongoing securities litigation and shareholder derivative actions, which are subject to negotiation of final agreements and court approval. The Company expects that the costs to settle these matters will be covered under its insurance policies.

STUDENT POPULATION AND NEW STUDENT STARTS

  

Student Population

Total student population by reportable segment as of June 30, 2013 and 2012 was as follows:

 
As of June 30,% Change
2013 20122013 vs. 2012

Student Population

CTU20,50022,600-9%
AIU11,60014,500-20%
Total University Schools32,10037,100-13%
Health Education7,80010,200-24%
Culinary Arts7,70012,000-36%
Design & Technology4,7006,600-29%
Total Career Schools20,20028,800-30%
International2,4002,700-11%
Subtotal54,70068,600-20%
Transitional Schools2,9008,300-65%
Total Student Population57,60076,900-25%
 

New Student Starts

New student starts by reportable segment for the quarters ended June 30, 2013 and 2012 were as follows:

 

For the Quarter Ended
June 30,

% Change
201320122013 vs. 2012

New Student Starts

CTU (1)4,4105,800-24%
AIU (1)2,1103,050-31%
Total University Schools6,5208,850-26%
Health Education1,5401,4705%
Culinary Arts2,2602,410-6%
Design & Technology540610-11%
Total Career Schools4,3404,490-3%
International370510-27%
Subtotal11,23013,850-19%
Transitional Schools (2)301,090NM
Total New Student Starts11,26014,940-25%
 
  
(1)

During 2012 and 2013, CTU and AIU had established certain programs to enable students to assess their readiness to commit to enrolling in college-level courses. Excluding the impact of these readiness programs, new student starts for CTU and AIU are 15% and 8% lower in the second quarter of 2013 as compared to 2012, respectively.

 
(2)

Campuses within the Transitional Schools segment no longer enroll new students; students who re-enter after 365 days are reported as new student starts.

 

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Thursday, August 8, 2013 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 35251022. 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 35251022.

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 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 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 ("SBI" and "SBC", respectively). 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: declines in enrollment; our ability to implement our strategic initiatives and effective cost reduction strategies; 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 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, 2012 and its subsequent filings with the Securities and Exchange Commission.

CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
  
June 30,December 31,

2013(1)

2012(1)

 
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, unrestricted$165,921$240,559
Restricted cash11,96697,878
Short-term investments 63,947  63,876 
Total cash and cash equivalents and short-term investments241,834402,313
 
Student receivables, net53,51868,798
Receivables, other, net40,4533,837
Prepaid expenses96,43644,297
Inventories7,6908,471
Deferred income tax assets, net7,1297,095
Other current assets7,2454,422
Assets of discontinued operations 3,705  4,328 
Total current assets 458,010  543,561 
 
NON-CURRENT ASSETS:
Property and equipment, net246,008277,302
Goodwill132,389133,025
Intangible assets, net56,89561,670
Student receivables, net6,0296,832
Deferred income tax assets, net47,93647,707
Other assets, net28,14933,280
Assets of discontinued operations 18,772  19,326 
TOTAL ASSETS$994,188 $1,122,703 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of capital lease obligations$-$80,211
Accounts payable31,86338,416
Accrued expenses:
Payroll and related benefits46,41446,586
Advertising and production costs22,63020,963
Other83,48344,585
Deferred tuition revenue80,945111,896
Liabilities of discontinued operations 13,522  10,058 
Total current liabilities 278,857  352,715 
 
NON-CURRENT LIABILITIES:
Deferred rent obligations91,41595,073
Other liabilities29,33129,799
Liabilities of discontinued operations 24,844  33,326 
Total non-current liabilities 145,590  158,198 
 
 
STOCKHOLDERS' EQUITY:
Preferred stock--
Common stock818816
Additional paid-in capital600,796596,826
Accumulated other comprehensive loss(3,712)(4,785)
Retained earnings186,328232,921
Cost of shares in treasury (214,489) (213,988)
Total stockholders' equity 569,741  611,790 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$994,188 $1,122,703 
      
 
(1)

During the 2013 quarters ended June 30 and March 31, the Company completed the teach-out of SBI Landover and SBC Hazelwood, respectively. As a result, all current and prior period results for these campuses are reflected as components of discontinued operations.

 

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CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts and percentages)
     
 
For the Quarter Ended June 30,(1)

% of Total

% of Total

2013

Revenue

2012

Revenue

 
REVENUE:
Tuition and registration fees$289,24198.1%$359,87198.3%
Other 5,606 1.9% 6,078 1.7%
Total revenue 294,847  365,949 
 
OPERATING EXPENSES:
Educational services and facilities121,35341.2%143,12039.1%
General and administrative214,17072.6%223,20061.0%