Career Education Corporation (NASDAQ: CECO) today reported total revenue of $434.1 million, and net income of $52.1 million, or $0.78 per diluted share, for the first quarter of 2012 compared to total revenue of $531.7 million and net income of $73.0 million, or $0.95 per diluted share, for the first quarter of 2011.

“I am proud of the progress we made in the first quarter. In addition, the recent decision by the Accrediting Council for Independent Colleges and Schools to remove our institutions from ‘show cause’ is another important step forward. It enables us to advance key elements of our long range strategic plan,” said Steven H. Lesnik, Chairman, President and CEO of Career Education Corporation.

CONSOLIDATED RESULTS

Quarter Ended March 31, 2012
  • Total revenue was $434.1 million for the first quarter of 2012, an 18.3 percent decrease from $531.7 million for the first quarter of 2011.
  • Operating income was $46.6 million for the first quarter of 2012, versus operating income of $108.9 million for the first quarter of 2011. The operating margin was 10.7 percent for the first quarter of 2012, as compared to an operating margin of 20.5 percent for the first quarter of 2011.
  • Income from continuing operations for the quarter ended March 31, 2012 was $46.4 million, or $0.69 per diluted share, compared to $70.6 million, or $0.92 per diluted share, for the quarter ended March 31, 2011. The effective tax rate was 0.9 percent and 36.3 percent for the quarters ended March 31, 2012 and 2011, respectively. The effective tax rate for the first quarter of 2012 reflects the higher relative level of operating income from non-U.S. institutions as part of anticipated annual consolidated results of operations.
  • Operating income for the first quarter of 2012 included a $19.0 million ($0.18 per diluted share) insurance recovery related to the settlement of claims under certain insurance policies. Operating income for the first quarter of 2011 included a $7.0 million ($0.06 per diluted share) insurance recovery related to previously settled legal matters.

CONSOLIDATED CASH FLOWS AND FINANCIAL POSITION

Cash Flows

• Net cash flows provided by operating activities totaled $17.4 million for the quarter ended March 31, 2012, compared to $59.7 million for the quarter ended March 31, 2011.

• Capital expenditures decreased to $12.3 million during the quarter ended March 31, 2012, from $23.8 million during the quarter ended March 31, 2011. Capital expenditures represented 2.8 percent and 4.4 percent of total revenue during the quarters ended March 31, 2012 and 2011, respectively.

Financial Position

• As of March 31, 2012 and December 31, 2011, cash and cash equivalents and short-term investments totaled $389.9 million and $441.2 million, respectively.

Stock Repurchase Program

During the quarter ended March 31, 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 March 31, 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 AND NEW STUDENT STARTS

Student Population

Total student population by reportable segment as of March 31, 2012 and 2011 was as follows:
   
As of March 31, % Change
2012   2011 2012 vs. 2011

Student Population
CTU 24,500 29,100 -16 %
AIU 18,900 22,500 -16 %
Health Education 22,900 31,300 -27 %
Culinary Arts 12,600 13,500 -7 %
Art & Design 9,000 11,900 -24 %
International 8,000 8,900 -10 %
Total Student Population 95,900 117,200 -18 %
 

New Student Starts

New student starts by reportable segment for the quarters ended March 31, 2012 and 2011 were as follows:
   

For the Quarters Ended

March 31,
% Change
2012   2011 2012 vs. 2011

New Student Starts
CTU (1) 5,820 7,440 -22 %
AIU (1) 6,640 8,660 -23 %
Health Education 5,490 9,140 -40 %
Culinary Arts 3,160 3,560 -11 %
Art & Design 1,240 2,240 -45 %
International 740 790 -6 %
Total New Student Starts 23,090 31,830 -27 %
 

(1)
  In 2011, CTU and AIU implemented the Student Orientation and Academic Readiness ("SOAR") program which identifies students who may not be prepared for the rigor of college studies. A student is not included as a new student start until successful completion of SOAR. New student start data will be comparable in the third quarter 2012.
 

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Friday, May 11, 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 32370546. 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 32370546.

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 approximately 95,000 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 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 gainful employment regulations), as well as regional accreditation standards and state regulatory requirements; our ability to obtain accrediting agency approvals for existing 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)
 
March 31, December 31,
2012 2011
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 229,388 $ 280,592
Short-term investments   160,469     160,607  
Total cash and cash equivalents and short-term investments 389,857 441,199
 
Student receivables, net 61,989 60,573
Receivables, other, net 19,689 2,914
Prepaid expenses 69,199 62,399
Inventories 9,830 11,356
Deferred income tax assets, net 10,940 10,940
Other current assets 16,205 17,769
Assets of discontinued operations   3,267     3,328  
Total current assets   580,976     610,478  
 
NON-CURRENT ASSETS:
Property and equipment, net 341,815 349,788
Goodwill 213,862 212,626
Intangible assets, net 76,671 77,186
Student receivables, net 8,677 9,297
Deferred income tax assets, net 9,524 9,522
Other assets, net 30,694 30,122
Assets of discontinued operations   17,041     17,101  
TOTAL ASSETS $ 1,279,260   $ 1,316,120  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 414 $ 844
Accounts payable 34,174 48,408
Accrued expenses:
Payroll and related benefits 40,883 41,853
Advertising and production costs 27,441 17,717
Earnout payments 3,887 5,735
Other 55,742 61,536
Deferred tuition revenue 122,496 144,947
Liabilities of discontinued operations   8,250     8,403  
Total current liabilities   293,287     329,443  
 
NON-CURRENT LIABILITIES:
Capital lease obligations, net of current maturities 107 207
Deferred rent obligations 101,139 102,079
Other liabilities 39,947 40,365
Liabilities of discontinued operations   35,597     37,935  
Total non-current liabilities   176,790     180,586  
 
SHARE-BASED AWARDS SUBJECT TO REDEMPTION 105 110
 
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 818 820
Additional paid-in capital 594,223 590,965
Accumulated other comprehensive income (loss) 292 (5,136 )
Retained earnings 427,688 375,607
Cost of shares in treasury   (213,943 )   (156,275 )
Total stockholders' equity   809,078     805,981  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,279,260   $ 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 March 31,
% of % of
Total Total
2012 Revenue

2011 (1)
Revenue
 
REVENUE:
Tuition and registration fees $ 423,618 97.6 % $ 509,454 95.8 %
Other   10,519   2.4 %   22,246   4.2 %
Total revenue   434,137     531,700  
 
OPERATING EXPENSES:
Educational services and facilities 152,685 35.2 % 165,631 31.2 %
General and administrative 214,632 49.4 % 237,061 44.6 %
Depreciation and amortization 20,106 4.6 % 20,133 3.8 %
Goodwill and asset impairment   83   0.0 %   -   0.0 %
Total operating expenses   387,506   89.3 %   422,825   79.5 %
Operating income   46,631   10.7 %   108,875   20.5 %
 
OTHER INCOME (EXPENSE):
Interest income 270 0.1 % 223 0.0 %
Interest expense (37 ) 0.0 % (37 ) 0.0 %
Miscellaneous income   -   0.0 %   1,816   0.3 %
Total other income   233   0.1 %   2,002   0.4 %
 
PRETAX INCOME 46,864 10.8 % 110,877 20.9 %
 
Provision for income taxes   431   0.1 %   40,282   7.6 %
 
INCOME FROM CONTINUING OPERATIONS 46,433 10.7 % 70,595 13.3 %
 
Income from discontinued operations, net of tax   5,643   1.3 %   2,440   0.5 %
 
NET INCOME   52,076   12.0 %   73,035   13.7 %
 
OTHER COMPREHENSIVE INCOME, net of tax:
Foreign currency translation adjustments 5,440 1.3 % 8,243 1.6 %
Unrealized (losses) gains on investments   (12 ) 0.0 %   85   0.0 %
Total other comprehensive income   5,428   1.3 %   8,328   1.6 %
 
COMPREHENSIVE INCOME $ 57,504   13.2 % $ 81,363   15.3 %
 
NET INCOME PER SHARE - DILUTED:
Income from continuing operations $ 0.69 $ 0.92
Income from discontinued operations   0.09     0.03  
Net income per share $ 0.78   $ 0.95  
 
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   66,960     76,753  
 
(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 Quarters Ended March 31,
2012 2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 52,076 $ 73,035
Adjustments to reconcile net income to net cash provided by operating activities:
Goodwill and asset impairment 83 -
Depreciation and amortization expense 20,106 20,366
Bad debt expense 9,390 17,151
Compensation expense related to share-based awards 2,780 4,200
Loss (gain) on disposition of property and equipment 32 (1,801 )
Changes in operating assets and liabilities   (67,115 )   (53,295 )
Net cash provided by operating activities   17,352     59,656  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments (40,300 ) (60,934 )
Sales of available-for-sale investments 40,438 60,774
Purchases of property and equipment (12,303 ) (23,792 )
Earnout payments (3,555 ) (4,235 )
Proceeds on the sale of assets - 6,259
Other   (12 )   85  
Net cash used in investing activities   (15,732 )   (21,843 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (56,431 ) (89,915 )
Issuance of common stock 477 1,292
Tax benefit associated with stock option exercises - 159
Payments of capital lease obligations   (547 )   (641 )
Net cash used in financing activities   (56,501 )   (89,105 )
 
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS:   3,677     1,071  
 
NET DECREASE IN CASH AND CASH EQUIVALENTS (51,204 ) (50,221 )
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 - 25,136
CASH AND CASH EQUIVALENTS, beginning of the period   280,592     260,644  
CASH AND CASH EQUIVALENTS, end of the period $ 229,388   $ 214,125  
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
   
For the Quarters Ended March 31,
2012

2011 (1)
 
REVENUE:
CTU $ 99,915 $ 118,065
AIU 88,940 104,274
Health Education 91,225 116,309
Culinary Arts 63,546 91,773
Art & Design 47,668 64,600
International 42,829 36,815
Corporate and Other   14     (136 )
Total $ 434,137   $ 531,700  
 
OPERATING INCOME (LOSS):
CTU $ 19,045 $ 36,288
AIU 14,661 27,617
Health Education (11,844 ) 11,630
Culinary Arts (8 ) 13,767
Art & Design (889 ) 10,395
International 13,125 9,755
Corporate and Other (2)   12,541     (577 )
Total $ 46,631   $ 108,875  
 
OPERATING MARGIN (LOSS):
CTU 19.1 % 30.7 %
AIU 16.5 % 26.5 %
Health Education -13.0 % 10.0 %
Culinary Arts 0.0 % 15.0 %
Art & Design -1.9 % 16.1 %
International   30.6 %   26.5 %
Total   10.7 %   20.5 %
 
(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)

The Company recorded a $19.0 million insurance recovery in the first quarter of 2012 related to the settlement of claims under certain insurance policies and recorded a $7.0 million insurance recovery related to previously settled legal matters in the first quarter of 2011.
 

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