CECO CECO Environmental Corporation

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): May 1, 2015

 

 

Career Education Corporation

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware		0-23245		36-3932190
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

231 N. Martingale Rd., Schaumburg, IL		60173
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (847) 781-3600

Not applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02.

Results of Operations and Financial Condition.

On May 6, 2015, Career Education Corporation (the “Company”) issued a press release describing the Company’s financial results for the quarter ended March 31, 2015. A copy of the press release is being furnished as Exhibit 99.1, and the information contained therein is incorporated herein by reference. Following the issuance of the press release, the Company will host a conference call and webcast on which its financial results for the quarter ended March 31, 2015 will be discussed. The presentation materials that will be used for the call and webcast have been posted on the Company’s website and are attached as Exhibit 99.2.

The information contained in Item 2.02 of this Form 8-K, including Exhibits 99.1 and 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and the information shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except as shall be expressly set forth by specific reference in such a filing.

 

Item 2.05.

Costs Associated With Exit or Disposal Activities.

The Company has made the strategic decision to focus its resources and attention on its universities – Colorado Technical University (CTU) and American InterContinental University (AIU) – where the Company has significant opportunity to continue to provide quality higher education to the adult student market. In connection with that decision, on May 1, 2015, the Board of Directors of the Company approved the teach out of the Company’s remaining 15 Sanford-Brown campuses and the pursuit of divestiture options for the Company’s three additional Career College campuses: Briarcliffe College, Brooks Institute and Missouri College. If a sale of the three additional Career College campuses is not successful, they will be taught out. As part of the process to wind down the Career Colleges reporting segment, the Company also announced that it will align its corporate overhead to support a more streamlined and focused operating entity. The Career Colleges segment contributed $172.8 million of revenue and approximately $73.8 million of operating losses for the year ended December 31, 2014. The campuses will remain open to offer current students the reasonable opportunity to complete their course of study. The majority of these campuses are expected to cease operations by 2017 with the remainder expected to cease operations in 2018. We expect to record approximately $40 to $50 million of restructuring charges related to these teach-out and divestiture initiatives. These costs primarily relate to severance charges (approximately $20 - $25 million) and costs associated with exiting lease obligations (approximately $20 - $25 million). These estimated charges are based on several assumptions, including timing of campus teach-outs, sales of campuses and implementation of support services realignment, and are subject to change. These charges will result in future cash expenditures through 2018 for the severance related charges and through 2023 for lease obligations as certain campuses have lease terms ranging beyond their anticipated teach-out completion date. The severance and related charges will primarily be recorded during the second quarter of 2015 and the lease charges will be recorded at the time each facility is vacated.

The Company issued a press release regarding these matters on May 6, 2015, a copy of which is attached as Exhibit 99.3.

Cautionary Statement Regarding Forward-Looking Statements

This current report on Form 8-K contains forward-looking statements, including statements about the expected timing and effects of the restructuring activities. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including, but not limited to, uncertainties regarding the timing and future costs associated with the Company’s restructuring activities and the factors described in the Company’s reports filed with the Securities and Exchange Commission from time to time. Except to the extent required by law, the Company disclaims any obligations to update any forward-looking statements.

 

Item 5.02.

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

In connection with the business and organizational realignment of the Company described in Item 2.05, effective May 6, 2015, Lysa Clemens’ officer title has been changed from Senior Vice President, Chief Career Schools Officer to Senior Vice President, Transitional Operations and Chief Transformation Officer, overseeing the teaching out of the Career College campuses and right-sizing of centralized support operations. No salary or other compensation changes were made in connection with Ms. Clemens’ change in title and responsibilities. However, on May 1, 2015, the Compensation Committee of the Board of Directors of the Company approved a letter agreement to be entered into with Ms. Clemens which provides for a waiver of non-compete restrictions in the event that the Company terminates her employment, other than for cause, prior to October 31, 2016. Non-solicitation restrictions and confidentiality obligations are not impacted by this waiver. The letter agreement also confirms (i) the extension to December 31, 2015 for certain relocation benefits provided by the Company to Ms. Clemens in connection with her June 2013 offer of employment, in a total amount not to exceed $120,000 less amounts previously reimbursed and not to include any tax assistance, and (ii) that Ms. Clemens will be not be required to reimburse the Company for these relocation costs if the Company terminates her employment, other than for misconduct.

 

Item 9.01.

Financial Statements and Exhibits.

(d) Exhibits.

 

2

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Exhibit Number		Description of Exhibits
99.1		Press release of the Company dated May 6, 2015 reporting the Company’s financial results for the quarter ended March 31, 2015
99.2		Presentation materials used by the Company in connection with its May 6, 2015 earnings conference call and webcast
99.3		Press release of the Company dated May 6, 2015 regarding the Company’s strategic focus on its University Group

 

3

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

CAREER EDUCATION CORPORATION
By:		/s/ David Rawden
		David Rawden
		Interim Chief Financial Officer

Date: May 6, 2015

 

4

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Exhibit Index

 

Exhibit Number		Description of Exhibits
99.1		Press release of the Company dated May 6, 2015 reporting the Company’s financial results for the quarter ended March 31, 2015
99.2		Presentation materials used by the Company in connection with its May 6, 2015 earnings conference call and webcast
99.3		Press release of the Company dated May 6, 2015 regarding the Company’s strategic focus on its University Group

 

5

Exhibit 99.1

 

CAREER EDUCATION CORPORATION REPORTS

RESULTS FOR THE FIRST QUARTER 2015

First Quarter Results in Line with Our Expectations; University Group Operating Income Increases 7.6%

Schaumburg, Ill. (May 6, 2015) – Career Education Corporation (NASDAQ: CECO) today reported operating and financial results for the first quarter 2015. In a separate news release issued today, the company also disclosed its plan to teach-out or divest its remaining Career Colleges in order to focus resources on its University Group.

Business Highlights:

 

•

University Group operating income increased 7.6% year-over-year to $11.7 million for the quarter

 

•

For our continuing operations, lowered operating expenses by $13.2 million or 6.0% during the first quarter as compared to the prior year with 2015 operating expenses tracking in-line with the company’s expectations

 

•

On track against key objectives to generate modest total student enrollment growth within our University segments; to strengthen academic outcomes, to enhance regulatory compliance and simplify our business model; to reduce the organizational cost structure; and to successfully continue to complete the teach-out of our Transitional campuses

 

•

Adjusted EBITDA was $11.4 million for the University Group and Corporate for the first quarter of 2015, an improvement of $1.2 million as compared to the prior year quarter

 

•

Adjusted EBITDA for Career Colleges, Transitional Group and discontinued operations improved to ($23.2) million, compared to ($43.0) million in the same quarter last year, as a result of the completion of teach-outs and continued focus on reducing lease obligations

 

•

Company continues its sale process for Le Cordon Bleu and is engaged in discussions with numerous interested parties

 

•

Initiated strategy to divest and/or teach-out remaining Career Colleges and expects cumulative actions to be accretive to 2015 results excluding restructuring charges

Chairman and Interim CEO Ron McCray commented, “Our first quarter results were in line with our expectations as the progress of our turnaround continues to gain traction. The announcements we are making today regarding our Career Colleges will accelerate the company’s path to profitability. This process will also enable us to right-size the company’s corporate overhead expenses and sharpen our focus on costs within the University Group to be more in line with comparable leading education peers. At the same time, the way we are approaching the dissolution of our Career Colleges through a gradual teach-out or sale of institutions provides students with a reasonable opportunity to complete their programs of study.”

“Career Education has a bright future, with a strong University platform that positions us for long-term success. Further, our strong balance sheet will enable us to responsibly invest in initiatives that will result in positive outcomes for our University students and help us grow our University Group in the future,” McCray said.

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CEC ANNOUNCES 1Q15 RESULTS …PG 2

REVENUE

For the first quarter of 2015, total revenue was $182.3 million, an 8.0 percent decrease from $198.2 million for the first quarter of 2014. Total revenue for the University Group was $138.2 million for the first quarter of 2015, which was relatively flat compared to $139.5 million for the first quarter of 2014.

 

Revenue ($ in thousands)		Q1 2015 (3)				Q4 2014 (3)				Q3 2014				Q2 2014				Q1 2014
CTU		$	85,127			$	82,202			$	82,410			$	85,041			$	86,920
AIU			53,066				44,749				51,889				49,685				52,573
Total University Group			138,193				126,951				134,299				134,726				139,493
Career Colleges			39,772				41,613				40,799				42,589				47,832
Corporate and Other			39				40				52				38				100
Transitional Group (1)			4,298				5,603				7,675				8,819				10,729
Total (2)		$	182,302			$	174,207			$	182,825			$	186,172			$	198,154

 

(1)

Campuses included in the Transitional Group are in the process of being taught out and therefore no longer enroll new students or have ceased operations subsequent to December 31, 2014 and no longer qualify for discontinued operations treatment under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360 – Property, Plant & Equipment.

(2)

Excludes discontinued operations, which consists of the results of operations for campuses that have ceased operations prior to 2015, our Le Cordon Bleu campuses which are held for sale and campuses that were sold and are considered distinct operations under FASB ASC Topic 205 – Presentation of Financial Statements.

(3)

Fourth quarter of 2014 total revenue was negatively impacted by approximately $9.4 million due to the accounting for students who withdraw from one of our institutions prior to completion of their programs. This cumulative adjustment was recorded during the fourth quarter of 2014. First quarter of 2015 was negatively impacted by approximately $1.9 million related to this change in accounting.

TOTAL AND NEW STUDENT ENROLLMENTS

For the first quarter of 2015, total student enrollments for our University Group were 33,800, which was relatively flat year-over-year. Total student enrollments were impacted by the teach-out of two campuses within the University Group. Excluding these two campuses, total enrollments increased slightly as compared to the prior year quarter, marking the first time since 2010 that we have reported an increase for University total student enrollments. We continue to expect modest total student enrollment growth for the full year 2015. New student enrollments for the University Group were 10,130 compared to 10,720 in the first quarter of 2014. This decrease was primarily attributable to a change in the methodology used to calculate new student enrollments at AIU in 2014 related to cancelled student enrollments. Excluding the impact of this change, new student enrollments within the University Group were down only 1.2% during the first quarter as compared to the prior year quarter.

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CEC ANNOUNCES 1Q15 RESULTS …PG 3

 

		Q1 2015				Q4 2014				Q3 2014				Q2 2014				Q1 2014
Total Student Enrollment
CTU (1)			20,300				20,400				19,800				19,800				20,600
AIU (1)			13,500				11,600				11,500				10,800				13,300
Total University Group			33,800				32,000				31,300				30,600				33,900
Career Colleges			8,600				8,500				10,000				8,600				10,700
Transitional Group			900				900				1,300				1,700				2,300
Total			43,300				41,400				42,600				40,900				46,900
		Q1 2015				Q4 2014				Q3 2014				Q2 2014				Q1 2014
New Student Enrollments
CTU			5,040				5,670				5,460				5,280				4,820
AIU (2)			5,090				3,370				3,300				2,010				5,900
Total University Group			10,130				9,040				8,760				7,290				10,720
Career Colleges			1,830				1,140				3,150				1,580				2,780
Transitional Group (3)			—				10				140				80				220
Total			11,960				10,190				12,050				8,950				13,720

 

(1)	A portion of the total student enrollment decrease for the University Group resulted from campus location teach-outs which negatively impacted the comparison of the current quarter versus the prior year quarter as a result of the wind down of operations at one location within each segment.

(2)	Beginning in the second quarter of 2014, AIU changed its methodology related to certain cancelled student enrollments. As a result, the decrease in the current quarter versus the prior year quarter was partially a result of this change in methodology.

(3)	Campuses within the Transitional Group no longer enroll new students; students who re-enter after 365 days are reported as new student enrollments.

OPERATING (LOSS) INCOME

For the first quarter of 2015, operating loss of $24.6 million increased 12.1 percent compared to an operating loss of $21.9 million in the prior year quarter primarily due to increased asset impairment charges of $5.9 million in the current year quarter versus the prior year quarter. Total University operating income increased to $11.7 million from $10.9 million in the prior year quarter, an increase of 7.6 percent. This increase was primarily driven by ongoing cost improvement initiatives.

 

		Q1 2015				Q4 2014				Q3 2014				Q2 2014				Q1 2014
Operating (Loss) Income ($ in thousands)
CTU		$	14,616			$	23,356			$	10,698			$	20,957			$	14,481
AIU			(2,887	)			(304	)			(4,194	)			(1,331	)			(3,583	)
Total University Group			11,729				23,052				6,504				19,626				10,898
Career Colleges (1)			(22,110	)			(13,650	)			(29,908	)			(16,273	)			(13,922	)
Corporate and Other (2)			(5,860	)			(7,048	)			2,528				(5,513	)			(11,136	)
Transitional Group			(8,360	)			(10,138	)			(10,856	)			(9,091	)			(7,789	)
Total (3)		$	(24,601	)		$	(7,784	)		$	(31,732	)		$	(11,251	)		$	(21,949	)

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CEC ANNOUNCES 1Q15 RESULTS …PG 4

 

(1)	Asset impairment charges of $6.0 million, $3.9 million and $12.8 million were recorded during the first quarter of 2015, fourth quarter of 2014 and third quarter of 2014, respectively.

(2)	Income related to a net insurance recovery of $8.6 million was recorded during the third quarter of 2014.

(3)

Excludes discontinued operations, which consists of the results of operations for campuses that have ceased operations prior to 2015, our LCB campuses which are held for sale and campuses that were sold and are considered distinct operations under FASB ASC Topic 205 – Presentation of Financial Statements.

ADJUSTED EBITDA

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 operations. (See tables below and the GAAP to non-GAAP reconciliation attached to this press release for further details.)

For the first quarter of 2015, adjusted EBITDA for the University Group and Corporate increased $1.2 million compared to the prior year quarter. Adjusted EBITDA for Career Colleges, Transitional Group and discontinued operations was ($23.2) million for the first quarter of 2015, compared to ($43.0) million in the prior year quarter. This favorability is a result of the completion of teach-out campus operations and continued focus on reducing lease obligations once a teach-out is complete.

 

		Q1 2015				Q4 2014				Q3 2014				Q2 2014				Q1 2014
Adjusted EBITDA ($ in thousands)
University Group and Corporate:
Pre-tax loss from continuing operations		$	(24,990	)		$	(7,747	)		$	(31,651	)		$	(11,664	)		$	(21,442	)
Transitional Group operating loss			8,360				10,138				10,856				9,091				7,789
Career Colleges operating loss			22,110				13,650				29,908				16,273				13,922
Interest expense (income), net			2				(38	)			(120	)			(177	)			(25	)
Depreciation and amortization (1)			4,361				5,170				5,402				5,732				6,108
Stock-based compensation (1)			940				966				950				1,020				1,341
Legal settlements (1) (2)			—				—				—				(400	)			2,850
Asset impairments (1)			—				—				73				—				77
Unused space charges (1) (3)			556				(373	)			(368	)			(363	)			(380	)
Insurance recovery			—				—				(8,588	)			—				—
Cumulative adjustment related to revenue recognition (1)			93				1,354				—				—				—
Adjusted EBITDA—University Group and Corporate		$	11,432			$	23,120			$	6,462			$	19,512			$	10,240
Memo: Advertising Expenses		$	50,587			$	36,731			$	50,410			$	37,407			$	46,655
Career Colleges, Transitional Group and Discontinued Operations:
Pre-tax loss from discontinued operations		$	(102	)		$	(17,195	)		$	(15,201	)		$	(33,046	)		$	(36,481	)
Transitional Group operating loss			(8,360	)			(10,138	)			(10,856	)			(9,091	)			(7,789	)
Career Colleges operating loss			(22,110	)			(13,650	)			(29,908	)			(16,273	)			(13,922	)
Loss on sale of business (4)			—				—				—				311				—
Depreciation and amortization (4)			2,351				7,319				7,739				8,662				9,323
Legal settlements (4)			1,485				—				225				2,000				3,000
Asset impairments (4)			6,019				14,203				14,412				7,454				(10	)
Unused space charges (3) (4)			(2,424	)			(2,063	)			(3,343	)			920				2,873
Cumulative adjustment related to revenue recognition (4)			(67	)			1,029				—				—				—
Adjusted EBITDA—Career Colleges, Transitional and Discontinued Operations		$	(23,208	)		$	(20,495	)		$	(36,932	)		$	(39,063	)		$	(43,006	)
Consolidated Adjusted EBITDA		$	(11,776	)		$	2,625			$	(30,470	)		$	(19,551	)		$	(32,766	)

 

(1)	Quarterly amounts relate to the University Group and Corporate

 

(2)	Legal settlement amounts are net of insurance recoveries

 

(3)	Unused space charges include initial charge and subsequent accretion

 

(4)	Quarterly amounts relate to Career Colleges, Transitional Group and discontinued operations

 

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CEC ANNOUNCES 1Q15 RESULTS …PG 5

BALANCE SHEET AND CASH FLOW

Net cash used in operating activities improved to $20.2 million for the first quarter of 2015, compared to $35.4 million in the prior year quarter. The current quarter operating cash usage included cash payments of $13.5 million of real estate payments for lease obligations of vacated facilities, of which $8.9 million was paid to exit facilities which reduced future lease obligations by $19.4 million, as well as $4.9 million of cash payments for legal settlements and separation payments for the previous CEO. We continue to expect to end 2015 with over $190 million in total cash, cash equivalents, restricted cash and short-term and long-term investments.

Capital expenditures remained relatively flat at $3.4 million during the quarter ended March 31, 2015, and $3.5 million for the quarter ended March 31, 2014.

As of March 31, 2015 and March 31, 2014, cash, cash equivalents, restricted cash and short-term and long-term investments totaled $213.7 million and $331.7 million, respectively.

 

		Q1 2015				Q4 2014 (3)				Q3 2014				Q2 2014				Q1 2014
Cash and Cash Flow from Operations ($ in thousands)
Consolidated Cash, Cash Equivalents, Restricted Cash and Short-Term and Long-Term Investments (1)		$	213,739			$	247,002			$	258,274			$	281,991			$	331,741
Cash Flow from Operations (2)		$	(20,176	)		$	(17,479	)		$	(19,860	)		$	(45,865	)		$	(35,420	)

 

(1)	Consolidated cash, cash equivalents, restricted cash and short-term and long-term investment balances are quarter end balances and include both continuing and discontinued operations.

 

(2)	Cash flow from operations includes payments of legal settlements of $2.4 million, $1.3 million and $21.6 million during the first quarter of 2015, fourth quarter of 2014 and second quarter of 2014, respectively.

 

(3)	The fourth quarter of 2014 ending cash, cash equivalents, restricted cash and investment balance includes $10.0 million of restricted cash related to borrowings under the Credit Agreement. The $10.0 million of outstanding borrowings was repaid during the first quarter of 2015.

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Wednesday, May 6, 2015 at 5:00 p.m. Eastern time. Interested parties can access the live webcast of the conference call and the related presentation materials 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 39490822. 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 39490822.

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CEC ANNOUNCES 1Q15 RESULTS …PG 6

ABOUT CAREER EDUCATION CORPORATION

Career Education’s academic institutions offer a high-quality education to a diverse student population in a variety of disciplines through online, on-ground and hybrid learning programs. Our two universities – American InterContinental University (“AIU”) and Colorado Technical University (“CTU”) – provide degree programs through the master’s or doctoral level as well as associate and bachelor’s levels. Both universities predominantly serve students online with career-focused degree programs that meet the educational demands of today’s busy adults. AIU and CTU continue to show innovation in higher education, advancing new personalized learning technologies like their intellipath™ adaptive learning platform that allow students to more efficiently move toward earning a degree by receiving course credit for knowledge they can already demonstrate. Career Education is committed to providing high-quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.

A listing of individual campus locations and web links to Career Education’s institutions can be found at www.careered.com.

Except for the historical and present factual information contained herein, the matters set forth in this release, including statements identified by words such as “expect,” “believe,” “will,” “anticipate,” “continue,” “on track,” “position us” 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; negative trends in the real estate market which could impact the costs related to teaching out campuses and the success of our initiatives to reduce our real estate obligations; the success of our initiatives to divest our remaining Career College institutions and culinary arts campuses; rulemaking by the U.S. Department of Education or any state and increased focus by Congress, the President and governmental agencies on for-profit education institutions; 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 gainful employment and financial responsibility standards prescribed by the U.S. Department of Education), as well as national and regional accreditation standards and state regulatory requirements; the impact of management changes; our ability to successfully defend litigation and other claims brought against us; 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, 2014 and its subsequent filings with the Securities and Exchange Commission.

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CONTACT

 

Investors:

Alpha IR Group

Sam Gibbons or Chris Hodges

(312) 445-2870

CECO@alpha-ir.com

or

 

Media:

Career Education Corporation

Mark Spencer

Director, Corporate Communications

(847) 585-3802

Source: Career Education Corporation

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CAREER EDUCATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

		March 31, 2015				December 31, 2014
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, unrestricted		$	69,244			$	93,832
Restricted cash			13,938				22,938
Short-term investments			123,183				122,858
Total cash and cash equivalents, restricted cash and short-term investments			206,365				239,628
Student receivables, net			26,382				24,564
Receivables, other, net			18,938				18,925
Prepaid expenses			14,310				14,679
Inventories			3,066				3,305
Other current assets			1,983				2,384
Assets held for sale (1)			76,211				76,846
Assets of discontinued operations			255				473
Total current assets			347,510				380,804
NON-CURRENT ASSETS:
Property and equipment, net			65,076				73,083
Goodwill			87,356				87,356
Intangible assets, net			8,064				9,819
Student receivables, net			3,011				2,926
Other assets			17,703				18,571
Assets of discontinued operations			914				975
TOTAL ASSETS		$	529,634			$	573,534
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings		$	—			$	10,000
Accounts payable			28,677				21,968
Accrued expenses:
Payroll and related benefits			23,877				29,545
Advertising and production costs			21,757				13,162
Income taxes			1,579				1,633
Other			19,359				21,440
Deferred tuition revenue			34,036				37,572
Liabilities held for sale (1)			51,036				50,357
Liabilities of discontinued operations			13,073				15,506
Total current liabilities			193,394				201,183
NON-CURRENT LIABILITIES:
Deferred rent obligations			42,641				48,381
Other liabilities			16,662				19,178
Liabilities of discontinued operations			18,991				22,859
Total non-current liabilities			78,294				90,418
STOCKHOLDERS’ EQUITY:
Preferred stock			—				—
Common stock			826				823
Additional paid-in capital			607,643				606,531
Accumulated other comprehensive loss			(658	)			(853	)
Retained deficit			(134,284	)			(109,403	)
Cost of shares in treasury			(215,581	)			(215,165	)
Total stockholders’ equity			257,946				281,933
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	529,634			$	573,534

 

(1)

During the first quarter of 2015, the Company made the decision to sell one of its campuses which is currently reported within the Career Colleges segment. As a result of the decision to sell this campus, the assets and liabilities for this campus are classified as held for sale within continuing operations and are presented along with the LCB campuses as held for sale on our condensed consolidated balance sheet as of March 31, 2015.

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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 March 31,
		2015				% of Total Revenue				2014				% of Total Revenue
REVENUE:
Tuition and registration fees		$	181,401				99.5%			$	196,909				99.4%
Other			901				0.5%				1,245				0.6%
Total revenue			182,302								198,154
OPERATING EXPENSES:
Educational services and facilities			54,951				30.1%				61,638				31.1%
General and administrative			139,148				76.3%				148,446				74.9%
Depreciation and amortization			6,785				3.7%				9,945				5.0%
Asset impairment			6,019				3.3%				74				0.0%
Total operating expenses			206,903				113.5%				220,103				111.1%
Operating loss			(24,601	)			-13.5%				(21,949	)			-11.1%
OTHER (EXPENSE) INCOME:
Interest income			160				0.1%				106				0.1%
Interest expense			(162	)			-0.1%				(81	)			0.0%
Miscellaneous (expense) income			(387	)			-0.2%				482				0.2%
Total other (expense) income			(389	)			-0.2%				507				0.3%
PRETAX LOSS			(24,990	)			-13.7%				(21,442	)			-10.8%
(Benefit from) provision for income taxes			(211	)			-0.1%				220				0.1%
LOSS FROM CONTINUING OPERATIONS			(24,779	)			-13.6%				(21,662	)			-10.9%
Loss from discontinued operations, net of tax			(102	)			-0.1%				(36,481	)			-18.4%
NET LOSS			(24,881	)			-13.6%				(58,143	)			-29.3%
OTHER COMPREHENSIVE LOSS, net of tax:
Unrealized gains (losses) on investments			195								(28	)
COMPREHENSIVE LOSS		$	(24,686	)						$	(58,171	)
NET LOSS PER SHARE—DILUTED:
Loss from continuing operations		$	(0.37	)						$	(0.32	)
Loss from discontinued operations			(0.00	)							(0.55	)
Net loss per share		$	(0.37	)						$	(0.87	)
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING			67,534								66,994

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CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

		For the Quarter Ended March 31,
		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(24,881	)		$	(58,143	)
Adjustments to reconcile net loss to net cash used in operating activities:
Asset impairment			6,019				67
Depreciation and amortization expense			6,712				15,431
Bad debt expense			4,275				5,852
Compensation expense related to share-based awards			940				1,341
Loss on disposition of property and equipment			3				26
Changes in operating assets and liabilities			(13,244	)			6
Net cash used in operating activities			(20,176	)			(35,420	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments			(15,259	)			(29,810	)
Sales of available-for-sale investments			14,754				14,320
Purchases of property and equipment			(3,369	)			(3,468	)
Net cash used in investing activities			(3,874	)			(18,958	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock			174				196
Payment on borrowings			(10,000	)			—
Change in restricted cash			9,000				(384	)
Net cash used in financing activities			(826	)			(188	)
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS:			288				10
NET DECREASE IN CASH AND CASH EQUIVALENTS			(24,588	)			(54,556	)
DISCONTINUED OPERATIONS CASH ACTIVITY INCLUDED ABOVE:
Add: Cash balance of discontinued operations, beginning of the period			—				475
Less: Cash balance of discontinued operations, end of the period			—				847
CASH AND CASH EQUIVALENTS, beginning of the period			93,832				318,468
CASH AND CASH EQUIVALENTS, end of the period		$	69,244			$	263,540

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CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED SELECTED SEGMENT INFORMATION

(In thousands, except percentages)

 

		For the Quarter Ended March 31,
		2015				2014
REVENUE:
CTU		$	85,127			$	86,920
AIU			53,066				52,573
Total University Group			138,193				139,493
Career Colleges			39,772				47,832
Corporate and Other			39				100
Subtotal			178,004				187,425
Transitional Group			4,298				10,729
Total		$	182,302			$	198,154
OPERATING (LOSS) INCOME:
CTU		$	14,616			$	14,481
AIU			(2,887	)			(3,583	)
Total University Group			11,729				10,898
Career Colleges			(22,110	)			(13,922	)
Corporate and Other			(5,860	)			(11,136	)
Subtotal			(16,241	)			(14,160	)
Transitional Group			(8,360	)			(7,789	)
Total		$	(24,601	)		$	(21,949	)
OPERATING (LOSS) MARGIN:
CTU			17.2%				16.7%
AIU			-5.4%				-6.8%
Total University Group			8.5%				7.8%
Career Colleges			-55.6%				-29.1%
Corporate and Other			NM				NM
Subtotal			-9.1%				-7.6%
Transitional Group			NM				NM
Total			-13.5%				-11.1%

 

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CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ITEMS ⁽¹⁾

(In thousands)

 

Adjusted EBITDA		Q1 2015				Q4 2014				Q3 2014				Q2 2014				Q1 2014
University Group and Corporate:
Pre-tax loss from continuing operations		$	(24,990	)		$	(7,747	)		$	(31,651	)		$	(11,664	)		$	(21,442	)
Transitional Group operating loss			8,360				10,138				10,856				9,091				7,789
Career Colleges operating loss			22,110				13,650				29,908				16,273				13,922
Interest expense (income), net			2				(38	)			(120	)			(177	)			(25	)
Depreciation and amortization (3)			4,361				5,170				5,402				5,732				6,108
Stock-based compensation (3)			940				966				950				1,020				1,341
Legal settlements (3) (5)			—				—				—				(400	)			2,850
Asset impairments (3)			—				—				73				—				77
Unused space charges (3) (6)			556				(373	)			(368	)			(363	)			(380	)
Insurance recovery			—				—				(8,588	)			—				—
Cumulative adjustment related to revenue recognition (3) (7)			93				1,354				—				—				—
Adjusted EBITDA – University Group and Corporate (2)		$	11,432			$	23,120			$	6,462			$	19,512			$	10,240
Memo: Advertising Expenses (3)		$	50,587			$	36,731			$	50,410			$	37,407			$	46,655
Career Colleges, Transitional Group and Discontinued Operations (4):
Pre-tax loss from discontinued operations		$	(102	)		$	(17,195	)		$	(15,201	)		$	(33,046	)		$	(36,481	)
Transitional Group operating loss			(8,360	)			(10,138	)			(10,856	)			(9,091	)			(7,789	)
Career Colleges operating loss			(22,110	)			(13,650	)			(29,908	)			(16,273	)			(13,922	)
Loss on sale of business (8)			—				—				—				311				—
Depreciation and amortization (8)			2,351				7,319				7,739				8,662				9,323
Legal settlements (8)			1,485				—				225				2,000				3,000
Asset impairments (8)			6,019				14,203				14,412				7,454				(10	)
Unused space charges (6) (8)			(2,424	)			(2,063	)			(3,343	)			920				2,873
Cumulative adjustment related to revenue recognition (7) (8)			(67	)			1,029				—				—				—
Adjusted EBITDA – Career Colleges, Transitional and Discontinued Operations (2)		$	(23,208	)		$	(20,495	)		$	(36,932	)		$	(39,063	)		$	(43,006	)
Consolidated Adjusted EBITDA		$	(11,776	)		$	2,625			$	(30,470	)		$	(19,551	)		$	(32,766	)

 

(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 operations. 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 operations, 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.

We believe adjusted EBITDA allows us to compare our current operating results with corresponding historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by items we do not consider reflective of underlying operating performance. We also present adjusted EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of performance. In evaluating adjusted EBITDA, investors should be aware that in the future we may incur expenses similar to the adjustments presented above. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by expenses that are unusual, non-routine or non-recurring. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for net income (loss), operating income (loss), or any other performance measure derived in accordance and reported under GAAP or as an alternative to cash flow from operating activities or as a measure of our liquidity.

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Non-GAAP financial measures, when viewed in a reconciliation to corresponding GAAP financial measures, provide 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)

Management assesses results of operations for the University Group and Corporate separately from Career Colleges and the Transitional Group. As a result, management views adjusted EBITDA from the University Group and Corporate separately from the remainder of the organization, to assess results and make decisions. Accordingly, the Career Colleges and Transitional Group operating losses are added back to pre-tax loss from continuing operations and subtracted from pre-tax loss from discontinued operations.

 

(3)	Quarterly amounts relate to the University Group and Corporate.

 

(4)	The Company announced the Culinary Arts segment as held for sale during the fourth quarter of 2014 and it is therefore now reported within discontinued operations. Quarterly adjusted EBITDA amounts for Culinary Arts include:

 

		Q1 2015				Q4 2014				Q3 2014				Q2 2014				Q1 2014
Pre-tax income (loss)		$	250			$	(15,927	)		$	(12,602	)		$	(19,771	)		$	(18,021	)
Depreciation and amortization			—				4,504				4,282				4,310				4,268
Legal settlements			775				—				—				2,000				3,000
Asset impairments			—				10,320				1,523				7,400				—
Unused space charges			(377	)			65				213				(467	)			(178	)
Cumulative adjustment related to revenue recognition			54				514				—				—				—
Total		$	702			$	(524	)		$	(6,584	)		$	(6,528	)		$	(10,931	)

 

(5)	Legal settlement amounts are net of insurance recoveries.

 

(6)	Unused space charges represent the net present value of remaining lease obligations less an estimated amount for sublease income as well as the subsequent accretion of these charges.

 

(7)	Revenue recognition adjustment relates to the accounting for students who withdraw from one of our institutions prior to completion of their program. This adjustment now reflects revenue earned on a cash-basis of accounting beginning in the fourth quarter of 2014 for these students.

 

(8)	Quarterly amounts relate to Career Colleges, the Transitional Group and discontinued operations.

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Exhibit 99.3

 

CAREER EDUCATION CORPORATION ANNOUNCES STRATEGY TO FOCUS RESOURCES ON ITS

UNIVERSITY GROUP

All Career Colleges to be Taught Out or Divested; Excluding Restructuring Charges, Impact Expected to be

Accretive to 2015 Results

Schaumburg, Ill. (May 6, 2015) – Career Education Corporation (NASDAQ: CECO) announced today that it has made the strategic decision to focus its resources and attention on its universities – Colorado Technical University (CTU) and American InterContinental University (AIU) – where the company has significant opportunities to continue to provide quality higher education to the adult student market.

In conjunction with this announcement, the company is teaching out its Sanford-Brown institutions and pursuing strategies to divest or teach-out the remaining institutions within the Career Colleges group. As part of the process to focus its resources on the University Group, the company also announced that it will align its corporate overhead to support a more streamlined and focused operation, and to make the University Group more efficient and effective in serving its students.

“We believe in the strength of the academic programs at our Career Colleges, but the unfortunate reality is that a more difficult higher education marketplace and challenging regulatory environment have handicapped our ability to turn these institutions around quickly and operate these programs effectively long-term. Declining student enrollment and financial losses at our Career College campuses, combined with the ‘Gainful Employment’ regulations issued last year factored into our decision,” said Ron McCray, Chairman and Interim CEO. “In making this decision, we have chosen a path of gradual discontinuation, or teach-outs, rather than closing schools immediately. We are committed to both the academic and personal success of the students enrolled in our programs. Teach-outs minimize potential negative impacts on faculty, students and staff members.”

Teach outs will begin immediately at the 14 Sanford-Brown College and Institute campuses, as well as Sanford-Brown online. These gradual discontinuations of operations – which can take 18 months or more, depending on the lengths of programs offered at a particular campus – afford students a reasonable opportunity to complete their programs of study.

Additionally, the company has already begun efforts to sell Briarcliffe College, Brooks Institute and Missouri College. The company has a signed definitive agreement to sell Brooks Institute, which is pending accreditor and regulatory approval. Discussions with interested parties continue for Briarcliffe College and Missouri College. Institutions that are not sold will be taught-out.

As previously announced, the company reached an agreement with Columbia College Chicago to provide an ongoing educational pathway for students at Harrington College of Design in Chicago. The agreement, pending accreditor and regulatory approval, affords certain Harrington students the opportunity to complete their programs of study at Columbia, while others will continue their education with Harrington but at designated classroom and office space provided by Columbia College Chicago.

Also previously announced, the Le Cordon Bleu Colleges of Culinary Arts in North America continue to be marketed for sale. Career Education is engaged in discussions with numerous interested parties and the process remains ongoing.

As part of these changes, Lysa Clemens, Senior Vice President and Chief Career Schools Officer, today becomes Senior Vice President, Transitional Operations and Chief Transformation Officer, overseeing the teaching-out of campuses and right-sizing of centralized support operations. As Career Education has successfully accomplished in previous campus teach-outs, the company intends to serve students well, while managing costs through the gradual process of closing.

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The Company expects to record approximately $40 million to $50 million of restructuring charges related to these teach-out and divestiture initiatives. These estimated charges are based on several assumptions, including timing of campus teach-outs, sales of campuses and implementation of support services realignment, and are subject to change. These costs primarily relate to severance charges (approximately $20 million - $25 million) and costs associated with exiting lease obligations (approximately $20 million - $25 million) and will result in future cash expenditures through 2018 for severance related charges and through 2023 for lease obligations at certain campuses which have lease terms ranging beyond their anticipated teach-out completion date. The severance and related charges will primarily be recorded during the second quarter of 2015 and the lease charges will be recorded at the time each facility is vacated. The majority of the teach-outs are expected to be complete by 2017 and any remaining teach-outs are expected to be complete by 2018. Excluding restructuring charges, these initiatives are expected to be accretive to 2015 earnings. Specific timing and impacts of these actions on Career Education’s cash balance are currently being approximated, but the company does not anticipate any impact on its ability to maintain compliance with its Credit Agreement.

“The future direction and core offering of Career Education will be driven by degree-oriented, higher education offered through our regionally accredited universities, where we maintain a core competitive advantage in terms of their academic platforms, brand awareness and intellipath™ adaptive learning technology. We will continue to invest in academic technologies, new program development and building relationships with employers needing qualified employees. We will emerge as a stronger company, with a competitive margin profile, a strong balance sheet, and a leadership position in private sector higher education,” McCray said.

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Wednesday, May 6, 2015 at 5 p.m. Eastern time to discuss its first quarter results and answer questions from the institutional investment community. Interested parties can access the live webcast of the conference call and the related presentation materials 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 39490822. 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 39490822.

ABOUT CAREER EDUCATION CORPORATION

Career Education’s academic institutions offer a high-quality education to a diverse student population in a variety of disciplines through online, on-ground and hybrid learning programs. Our two universities – American InterContinental University (“AIU”) and Colorado Technical University (“CTU”) – provide degree programs through the master’s or doctoral level as well as associate and bachelor’s levels. Both universities predominantly serve students online with career-focused degree programs that meet the educational demands of today’s busy adults. AIU and CTU continue to show innovation in higher education, advancing new personalized learning technologies like their intellipath™ adaptive learning platform that allow students to more efficiently move toward earning a degree by receiving course credit for knowledge they can already demonstrate. Career Education is committed to providing high-quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.

A listing of individual campus locations and web links to Career Education’s institutions can be found at www.careered.com.

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Except for the historical and present factual information contained herein, the matters set forth in this release, including statements identified by words such as “expect,” “believe,” “will,” “anticipate,” “intend,” “continued” 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; negative trends in the real estate market which could impact the costs related to teaching out campuses and the success of our initiatives to reduce our real estate obligations; the success of our initiatives to divest our remaining Career College institutions and culinary arts campuses; rulemaking by the U.S. Department of Education or any state and increased focus by Congress, the President and governmental agencies on for-profit education institutions; 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 gainful employment and financial responsibility standards prescribed by the U.S. Department of Education), as well as national and regional accreditation standards and state regulatory requirements; the impact of management changes; our ability to successfully defend litigation and other claims brought against us; 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, 2014 and its subsequent filings with the Securities and Exchange Commission.

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CONTACT

Investors:

Alpha IR Group

Sam Gibbons or Chris Hodges

(312) 445-2870

CECO@alpha-ir.com

or

Media:

Career Education Corporation

Mark Spencer

Director, Corporate Communications

(847) 585-3802

Source: Career Education Corporation