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Career Education Corporation Reports Results For Second Quarter 2012

Stocks in this article: CECO

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 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”), 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)

     

June 30, 2012

December 31, 2011

(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 209,312 $ 280,592
Short-term investments   160,616     160,607  
Total cash and cash equivalents and short-term investments 369,928 441,199
 
Student receivables, net 55,582 60,573
Receivables, other, net 2,086 2,914
Prepaid expenses 73,242 62,399
Inventories 10,003 11,356
Deferred income tax assets, net 10,940 10,940
Other current assets 6,179 17,769
Assets of discontinued operations   3,282     3,328  
Total current assets   531,242     610,478  
 
NON-CURRENT ASSETS:
Property and equipment, net 327,260 349,788
Goodwill 130,885 212,626
Intangible assets, net 74,633 77,186
Student receivables, net 8,322 9,297
Deferred income tax assets, net 9,525 9,522
Other assets, net 40,242 30,122
Assets of discontinued operations   16,981     17,101  
TOTAL ASSETS $ 1,139,090   $ 1,316,120  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 399 $ 844
Accounts payable 38,380 48,408
Accrued expenses:
Payroll and related benefits 41,520 41,853
Advertising and production costs 23,680 17,717
Other 50,557 67,271
Deferred tuition revenue 104,557 144,947
Liabilities of discontinued operations   11,072     8,403  
Total current liabilities   270,165     329,443  
 
NON-CURRENT LIABILITIES:
Capital lease obligations, net of current maturities - 207
Deferred rent obligations 99,498 102,079
Other liabilities 36,847 40,365
Liabilities of discontinued operations   30,143     37,935  
Total non-current liabilities   166,488     180,586  
 
SHARE-BASED AWARDS SUBJECT TO REDEMPTION 104 110
 
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 817 820
Additional paid-in capital 597,586 590,965
Accumulated other comprehensive loss (9,552 ) (5,136 )
Retained earnings 327,456 375,607
Cost of shares in treasury   (213,974 )   (156,275 )
Total stockholders' equity   702,333     805,981  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,139,090   $ 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 June 30,
2012

% of Total Revenue

2011 (1)

% of Total Revenue

 
REVENUE:
Tuition and registration fees $ 362,868 98.3 % $ 469,683 96.9 %
Other   6,098   1.7 %   15,195   3.1 %
Total revenue   368,966     484,878  
 
OPERATING EXPENSES:
Educational services and facilities 145,848 39.5 % 158,012 32.6 %
General and administrative 225,617 61.1 % 224,605 46.3 %
Depreciation and amortization 20,020 5.4 % 20,274 4.2 %
Goodwill and asset impairment   85,578   23.2 %   2,676   0.6 %
Total operating expenses   477,063   129.3 %   405,567   83.6 %
Operating (loss) income   (108,097 ) -29.3 %   79,311   16.4 %
 
OTHER INCOME (EXPENSE):
Interest income 470 0.1 % 263 0.1 %
Interest expense (28 ) 0.0 % (39 ) 0.0 %
Miscellaneous expense   (77 ) 0.0 %   (31 ) 0.0 %
Total other income   365   0.1 %   193   0.0 %
 
PRETAX (LOSS) INCOME (107,732 ) -29.2 % 79,504 16.4 %
 
(Benefit from) provision for income taxes   (13,865 ) -3.8 %   26,085   5.4 %
 
(LOSS) INCOME FROM CONTINUING OPERATIONS (93,867 ) -25.4 % 53,419 11.0 %
 
(Loss) income from discontinued operations, net of tax   (6,367 ) -1.7 %   1,934   0.4 %
 
NET (LOSS) INCOME   (100,234 ) -27.2 %   55,353   11.4 %
 
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax:
Foreign currency translation adjustments (9,736 ) 3,249
Unrealized losses on investments   (108 )   (39 )
Total other comprehensive (loss) income   (9,844 )   3,210  
 
COMPREHENSIVE (LOSS) INCOME $ (110,078 ) $ 58,563  
 
NET (LOSS) INCOME PER SHARE - DILUTED:
(Loss) income from continuing operations $ (1.42 ) $ 0.71
(Loss) income from discontinued operations   (0.10 )   0.02  
Net (loss) income per share $ (1.52 ) $ 0.73  
 
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   66,034     75,533  
                         
(1)  

In November 2011, the Company sold its ownership interest in Istituto Marangoni. As a result, all prior period results have been recast to include Istituto Marangoni as a component of discontinued operations.

 

 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts and percentages)
           
 
For the Years to Date Ended June 30,
2012

% of Total Revenue

2011 (1)

% of Total Revenue

 
REVENUE:
Tuition and registration fees $ 786,486 97.9 % $ 979,137 96.3 %
Other   16,617   2.1 %   37,441   3.7 %
Total revenue   803,103     1,016,578  
 
OPERATING EXPENSES:
Educational services and facilities 298,533 37.2 % 323,643 31.8 %
General and administrative 440,249 54.8 % 461,666 45.4 %
Depreciation and amortization 40,126 5.0 % 40,407 4.0 %
Goodwill and asset impairment   85,661   10.7 %   2,676   0.3 %
Total operating expenses   864,569   107.7 %   828,392   81.5 %
Operating (loss) income   (61,466 ) -7.7 %   188,186   18.5 %
 
OTHER INCOME (EXPENSE):
Interest income 740 0.1 % 486 0.0 %
Interest expense (65 ) 0.0 % (76 ) 0.0 %
Miscellaneous (expense) income   (77 ) 0.0 %   1,785   0.2 %
Total other income   598   0.1 %   2,195   0.2 %
 
PRETAX (LOSS) INCOME (60,868 ) -7.6 % 190,381 18.7 %
 
(Benefit from) provision for income taxes   (13,434 ) -1.7 %   66,367   6.5 %
 
(LOSS) INCOME FROM CONTINUING OPERATIONS (47,434 ) -5.9 % 124,014 12.2 %
 
(Loss) income from discontinued operations, net of tax   (724 ) -0.1 %   4,374   0.4 %
 
NET (LOSS) INCOME   (48,158 ) -6.0 %   128,388   12.6 %
 
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax:
Foreign currency translation adjustments (4,296 ) 11,492
Unrealized (losses) gains on investments   (120 )   46  
Total other comprehensive (loss) income   (4,416 )   11,538  
 
COMPREHENSIVE (LOSS) INCOME $ (52,574 ) $ 139,926  
 
NET (LOSS) INCOME PER SHARE - DILUTED:
(Loss) income from continuing operations $ (0.71 ) $ 1.63
(Loss) income from discontinued operations   (0.01 )   0.06  
Net (loss) income per share $ (0.72 ) $ 1.69  
 
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   66,439     76,174  
                         
(1)  

In November 2011, the Company sold its ownership interest in Istituto Marangoni. As a result, all prior period results have been recast to include Istituto Marangoni as a component of discontinued operations.

 

 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
 

For the Years to Date Ended June 30,

2012   2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (48,158 ) $ 128,388
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Goodwill and asset impairment 85,661 2,676
Depreciation and amortization expense 40,126 40,873
Bad debt expense 17,779 26,834
Compensation expense related to share-based awards 5,735 8,488
Loss (gain) on disposition of property and equipment 287 (1,777 )
Changes in operating assets and liabilities   (84,853 )   (90,730 )
Net cash provided by operating activities   16,577     114,752  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments (108,198 ) (110,162 )
Sales of available-for-sale investments 108,188 109,894
Purchases of property and equipment (19,990 ) (47,886 )
Earnout payments (5,818 ) (8,509 )
Proceeds on the sale of assets - 6,259
Business acquisition, net of acquired cash (2,873 ) -
Other   (120 )   46  
Net cash used in investing activities   (28,811 )   (50,358 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (56,431 ) (129,879 )
Issuance of common stock 883 3,025
Tax benefit associated with stock option exercises - 322
Payments of assumed loans upon business acquisition (318 ) -
Payments of capital lease obligations   (641 )   (744 )
Net cash used in financing activities   (56,507 )   (127,276 )
 
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS:   (2,539 )   2,221  
 
NET DECREASE IN CASH AND CASH EQUIVALENTS (71,280 ) (60,661 )
DISCONTINUED OPERATIONS CASH ACTIVITY INCLUDED ABOVE:
Add: Cash balance of discontinued operations, beginning of the period - 28,838
Less: Cash balance of discontinued operations, end of the period - 19,908
CASH AND CASH EQUIVALENTS, beginning of the period   280,592     260,644  
CASH AND CASH EQUIVALENTS, end of the period $ 209,312   $ 208,913  
 
 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
       
For the Quarters Ended June 30,
2012

2011 (1)

 
REVENUE:
CTU $ 94,859 $ 112,061
AIU 78,841 98,031
Health Education 75,751 109,825
Culinary Arts 58,301 83,259
Art & Design 40,054 56,676
International 21,140 25,151
Corporate and Other   20     (125 )
Total $ 368,966   $ 484,878  
 
OPERATING (LOSS) INCOME:
CTU $ 11,515 $ 33,973
AIU 6,878 26,337
Health Education (2) (67,253 ) 3,381
Culinary Arts (4,441 ) 13,174
Art & Design (3) (46,971 ) 7,675
International (2,406 ) 2,038
Corporate and Other   (5,419 )   (7,267 )
Total $ (108,097 ) $ 79,311  
 
OPERATING MARGIN (LOSS):
CTU 12.1 % 30.3 %
AIU 8.7 % 26.9 %
Health Education -88.8 % 3.1 %
Culinary Arts -7.6 % 15.8 %
Art & Design -117.3 % 13.5 %
International   -11.4 %   8.1 %
Total   -29.3 %   16.4 %
                     
(1)  

In November 2011, the Company sold its ownership interest in Istituto Marangoni. As a result, all prior period results have been recast to include Istituto Marangoni as a component of discontinued operations.

 
(2)

Second quarter 2012 includes a $41.9 million non-cash goodwill impairment charge, a $1.1 million non-cash asset impairment charge associated with the decision to teach out three campuses and a $1.0 million non-cash trade name impairment charge. The prior year quarter results include a $2.0 million non-cash charge related to the impairment of certain accreditation rights.

 
(3)

Second quarter 2012 includes a $41.5 million non-cash goodwill impairment charge. The prior year quarter results include a $0.5 million non-cash charge related to the impairment of accreditation rights.

 

 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
       
For the Years to Date Ended June 30,
2012

2011 (1)

 
REVENUE:
CTU $ 194,774 $ 230,126
AIU 167,781 202,305
Health Education 166,976 226,134
Culinary Arts 121,847 175,032
Art & Design 87,722 121,276
International 63,969 61,966
Corporate and Other   34     (261 )
Total $ 803,103   $ 1,016,578  
 
OPERATING (LOSS) INCOME:
CTU $ 30,560 $ 70,261
AIU 21,539 53,954
Health Education (2) (79,097 ) 15,011
Culinary Arts (4,449 ) 26,941
Art & Design (3) (47,860 ) 18,070
International 10,719 11,793
Corporate and Other (4)   7,122     (7,844 )
Total $ (61,466 ) $ 188,186  
 
OPERATING MARGIN (LOSS):
CTU 15.7 % 30.5 %
AIU 12.8 % 26.7 %
Health Education -47.4 % 6.6 %
Culinary Arts -3.7 % 15.4 %
Art & Design -54.6 % 14.9 %
International   16.8 %   19.0 %
Total   -7.7 %   18.5 %
                     
(1)  

In November 2011, the Company sold its ownership interest in Istituto Marangoni. As a result, all prior period results have been recast to include Istituto Marangoni as a component of discontinued operations.

 
(2)

Year to date 2012 includes a $41.9 million non-cash goodwill impairment charge, a $1.1 million non-cash asset impairment charge associated with the decision to teach out three campuses and a $1.0 million non-cash trade name impairment charge. 2011 results include a $2.0 million non-cash charge related to the impairment of certain accreditation rights.

 
(3)

Year to date 2012 includes a $41.5 million non-cash goodwill impairment charge. 2011 results include a $0.5 million non-cash charge related to the impairment of accreditation rights.

 
(4)

Year to date 2012 includes a $19.0 million insurance recovery related to the settlement of claims under certain insurance policies. Year to date 2011 includes a $7.0 million insurance recovery related to previously settled legal matters.

 

 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ITEMS (1)
(In millions, except share and per share amounts)
         
For the Quarters Ended June 30,
2012 2011

Operating (Loss) Income

(Loss) Earnings per Diluted Share (2)

Operating Income

(Loss) Earnings per Diluted Share (2)

 
As Reported $ (108.1 ) $ (1.42 ) $ 79.3 $ 0.71
Reconciling Items:
Goodwill and Intangible Asset Impairments (3) 84.4 1.23 2.7 0.02
Asset Impairments (4)   1.2     0.01     -     -  
Adjusted to Exclude Significant Items $ (22.5 ) $ (0.18 ) $ 82.0   $ 0.73  
 
Diluted Weighted Average Shares Outstanding   66,034     75,533  
 
For the Years to Date Ended June 30,
2012 2011

Operating (Loss) Income

(Loss) Earnings per Diluted Share (2)

Operating Income

(Loss) Earnings per Diluted Share (2)

 
As Reported $ (61.5 ) $ (0.71 ) $ 188.2 $ 1.63
Reconciling Items:
Goodwill and Intangible Asset Impairments (3) 84.4

1.22

2.7 0.02
Asset Impairments (4) 1.3 0.01 - -
Insurance Recoveries (5)   (19.0 )   (0.19 )   (7.0 )   (0.06 )
Adjusted to Exclude Significant Items $ 5.2   $ 0.33   $ 183.9   $ 1.59  
 
Diluted Weighted Average Shares Outstanding   66,439     76,174  
                 
(1)   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. As a general matter, the Company uses non-GAAP financial measures in conjunction with results presented in accordance with GAAP to help analyze the performance of its core business, assist with preparing the annual operating plan, and measure performance for some forms of compensation. In addition, the Company believes that non-GAAP financial information is used by analysts and others in the investment community to analyze the Company's historical results and to provide estimates of future performance and that failure to report non-GAAP measures could result in a misplaced perception that the Company's results have underperformed or exceeded expectations.
 

Non-GAAP financial measures when viewed in a reconciliation to corresponding GAAP financial measures, provides an additional way of viewing the Company's results of operations and the factors and trends affecting the Company's business. Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding financial results presented in accordance with GAAP.

 
(2) (Loss) earnings per diluted share is based on (loss) income from continuing operations and assumes a 35% tax rate for each deductible item.
 
(3)

Second quarter 2012 includes non-cash goodwill and intangible asset impairment charges totaling $84.4 million, of which $74.5 million is non-deductible for income tax purposes, applicable to Health Education ($42.9) and Art & Design ($41.5). Second quarter 2011 includes a $2.7 million non-cash impairment charge primarily related to accreditation rights.

 
(4)

Second quarter 2012 includes non-cash asset impairment charges of $1.2 million associated with the decision to teach out three Health Education campuses ($1.1) and one AIU campus ($0.1).

 
(5)

Year to dated ended June 30, 2012 includes a $19.0 million insurance recovery related to the settlement of claims under certain insurance policies. Year to date ended June 30, 2011 includes a $7.0 million insurance recovery related to previously settled legal matters.





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