Company Also Announces Extension of Credit
Agreement with its Lender
Career Education Corporation (NASDAQ: CECO) today announced that
it will begin a gradual process of discontinuing the operations of
its Le Cordon Bleu North America colleges of culinary arts. Le
Cordon Bleu will no longer enroll new students after the January
2016 student cohort begins classes. The Company also announced that
it has extended its credit agreement with its lender.
TEACH-OUT OF LE CORDON BLEU
Career Education had previously been engaged in advanced
negotiations with a potential buyer interested in acquiring all of
the Company’s Le Cordon Bleu campuses. These discussions, and
discussions with alternative parties, did not ultimately lead to an
agreement the Company felt was suitable to complete a transfer of
ownership that would protect student, faculty and stockholder
interests. The decision to teach out the Le Cordon Bleu campuses is
aligned with the Company’s strategic decision to divest or
teach-out the remaining institutions of its former Career Colleges
segment, which was previously announced in May 2015. As part of a
“teach-out,” students making reasonable academic progress will have
the opportunity to complete their program. All Le Cordon Bleu
campuses are projected to remain open until September 2017.
“New federal regulations make it difficult to project the future
for career schools that have higher operating costs, such as
culinary schools that require expensive commercial kitchens and
ongoing food costs,” said Todd Nelson, president and CEO of Career
Education. “Despite our best efforts to find a new caretaker for
these well-renowned culinary colleges, we could not reach an
agreement that we believe was in the best interests of both our
students and our stockholders. As discussions progressed, we
continued to evaluate the decision taking into consideration
factors including the economics between a sale and teach-out,
impacts to students and stockholders and execution risk. By moving
forward with a teach-out process we are better able to protect
student interests and also retain all of the rights that we
currently have to the Le Cordon Bleu brand. We will continue with
our plan to refocus Career Education’s resources on predominantly
online university education as we endeavor to provide students
attending schools in ‘teach-out’ with appropriate resources to
complete their program of study.”
Le Cordon Bleu North America offers hands-on educational
programs in culinary arts, as well as patisserie and baking, to
students at 16 campuses located in cities across the United States.
It contributed $128.2 million and $172.6 million of revenue and
($43.5) million and ($66.6) million of operating losses for the
nine months ended September 30, 2015 and for the year ended
December 31, 2014, respectively. As a result of the decision to
teach-out the Le Cordon Bleu campuses, the results of operations
for these campuses will now be reported within continuing
operations.
The Company expects to record approximately $52 million to $64
million of restructuring charges related to the teach-out of the Le
Cordon Bleu campuses. These estimated charges are based on several
assumptions, including the timing of campus teach-outs, amount of
estimated sublease income related to our real estate lease
obligations and estimated severance charges based upon timing of
staff departures and are subject to change. These costs primarily
relate to severance and retention charges (approximately $12
million - $14 million); costs associated with exiting lease
obligations, net of estimated sublease income (approximately $35
million - $40 million); and non-cash long-term asset impairment
charges (approximately $5 million - $10 million). The impairment
charges and severance and related charges will primarily be
recorded during the fourth quarter of 2015 and the lease charges
will be recorded at the time each facility is vacated, which is
expected to be during 2017. These amounts will result in actual
cash outlay through 2017 for severance related charges and, for
lease obligations, from the teach-out date through varying dates
based on each respective lease end date, with the latest lease
expiring during 2022.
The Company has previously provided certain estimates regarding
its future cash and investments balances, operating margins and
adjusted EBITDA for its Transitional Group reporting segment and
discontinued operations. These estimates assumed a completed sale
of the Le Cordon Bleu campuses, among other things, and therefore
the decision to teach out Le Cordon Bleu impacts the information
previously provided and it should no longer be relied upon. The
Company continues to expect to maintain cash, cash equivalents,
restricted cash and investments balances of approximately $190
million in 2015 excluding the timing impact of outstanding checks,
deposits and other transfers. The Company continues to expect those
balances to decrease in 2016 as compared to 2015, although the Le
Cordon Bleu teach-out decision has a favorable impact to previous
2016 expectations primarily due to the previous expectation of a
payment to the buyer upon the completion of a sale. The long-term
cash impact of a teach-out decision versus a sale decision depends
on our ability to minimize the impacts of the future lease
obligations discussed above. The Company intends to provide updated
information, to the extent deemed appropriate, at the time of its
announcement of the Company’s financial results for the year ended
December 31, 2015.
AMENDED CREDIT AGREEMENT
The Company also announced today that it has executed an
amendment to its agreement with its lender, BMO Harris Bank, which
extends the terms of the Credit Agreement to December 31, 2018 and
revises certain covenants. The amended agreement provides for a $95
million revolving credit facility which reflects the reduced size
of ongoing operations and the long-term operating cost structure of
Career Education’s business. The cash collateral requirements of
the Credit Agreement remain unchanged.
Nelson concluded, “We are pleased that our lender has recognized
the success that our restructuring and transformational actions
have had on our business and thus has agreed to extend the
agreement as well as modify the covenants associated with our
lending agreement to reflect our ongoing business.”
ABOUT CAREER EDUCATION CORPORATION
Career Education’s academic institutions offer a 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 are designed to
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
pursue earning a degree by receiving course credit for knowledge
they can already demonstrate. Career Education is committed to
providing 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,” “estimate,”
“believe,” “will,” “anticipate,” “intend,” “continue” 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. In particular, the
estimates provided above for company-wide cash balances are based
on the following key assumptions and factors, among others: (i)
flat-to-modest total enrollment growth within the University Group
over time; (ii) teach-outs to occur as planned and performance
consistent with historical experience; (iii) achievement of rates
of recovery for our real estate lease obligations which are
consistent with historical experience; (iv) right-sizing of our
Corporate expense structure to serve primarily online institutions;
(vi) no material changes in the legal or regulatory environment;
and (v) consistent working capital movements in line with
historical operating trends. Although these estimates and
assumptions are based upon management’s good faith beliefs
regarding current events and actions that we may undertake in the
future, actual results could differ materially from these
estimates.
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. Risks and uncertainties, the outcomes of which could have a
material and adverse effect, include, but are not limited to, the
following: 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; declines
in enrollment; our ability to achieve anticipated cost savings and
business efficiencies; 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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version on businesswire.com: http://www.businesswire.com/news/home/20151216005338/en/
Investors:Alpha IR GroupChris Hodges or Sam Gibbons(312)
445-2870CECO@alpha-ir.comorMedia:Career Education
CorporationJeff Cooper(847) 585-2600media@careered.com
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