Form 10-Q

10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 0-23245

LOGO

CAREER EDUCATION CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		36-3932190
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2895 Greenspoint Parkway, Suite 600, Hoffman Estates, Illinois		60169
(Address of principal executive offices)		(Zip Code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes ¨ No x

Number of shares of registrant’s common stock, par value $0.01, outstanding as April 30, 2008: 89,565,727

CAREER EDUCATION CORPORATION

INDEX


		Page
PART I —FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Unaudited Consolidated Balance Sheets	3
	Unaudited Consolidated Statements of Income	4
	Unaudited Consolidated Statement of Stockholders’ Equity	5
	Unaudited Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38

PART II —OTHER INFORMATION

Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	39

SIGNATURES		40

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


	March 31, 2008			December 31, 2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	214,909		$	237,705
Investments		202,550			166,618

Total cash and cash equivalents and investments		417,459			404,323
Receivables:
Students, net of allowance for doubtful accounts of $36,818 and $36,227 as of March 31, 2008 and December 31, 2007, respectively		56,042			61,396
Other, net		12,842			8,876
Prepaid expenses		57,638			50,532
Inventories		13,920			15,468
Deferred income tax assets		19,631			19,598
Other current assets		9,636			16,474

Total current assets		587,168			576,667

PROPERTY AND EQUIPMENT, net		329,062			339,066
GOODWILL		382,771			383,932
INTANGIBLE ASSETS, net		44,954			44,395
OTHER ASSETS, net		21,747			22,406

TOTAL ASSETS	$	1,365,702		$	1,366,466

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations	$	13,597		$	11,843
Accounts payable		26,736			28,145
Accrued expenses:
Payroll and related benefits		33,247			28,554
Income taxes		28,640			19,571
Other		93,804			111,298
Deferred tuition revenue		145,248			161,578

Total current liabilities		341,272			360,989

LONG-TERM LIABILITIES:
Long-term debt and capital lease obligations, net of current maturities		2,414			2,179
Deferred rent obligations		98,609			100,478
Deferred income tax liabilities		941			624
Other		10,762			4,473

Total long-term liabilities		112,726			107,754

SHARE-BASED AWARDS SUBJECT TO REDEMPTION		11,507			11,615

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock, $0.01 par value; 300,000,000 shares authorized; 93,025,242 and 92,956,232 shares issued, 89,481,043 and 90,412,033 shares outstanding as of March 31, 2008, and December 31, 2007, respectively		930			930
Additional paid-in capital		211,142			207,294
Accumulated other comprehensive income		24,043			16,304
Retained earnings		753,095			736,603
Cost of 3,544,199 and 2,544,199 shares in treasury as of March 31, 2008, and December 31, 2007, respectively		(89,013	)		(75,023	)

Total stockholders’ equity		900,197			886,108

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,365,702		$	1,366,466

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)


	For the Three Months Ended March 31,
	2008			2007
REVENUE:
Tuition and registration fees	$	440,000		$	439,500
Other		20,242			20,917

Total revenue		460,242			460,417

OPERATING EXPENSES:
Educational services and facilities		173,773			162,541
General and administrative		240,949			237,980
Depreciation and amortization		21,403			18,781
Goodwill and asset impairment		6,613			—

Total operating expenses		442,738			419,302

Operating income		17,504			41,115

OTHER INCOME (EXPENSE):
Interest income		3,469			4,706
Interest expense		(228	)		(360	)
Share of affiliate earnings		4,665			1,712
Miscellaneous (expense) income		(204	)		237

Total other income		7,702			6,295

Pretax income		25,206			47,410

Provision for income taxes		8,822			17,374

NET INCOME	$	16,384		$	30,036

NET INCOME PER SHARE:
Basic	$	0.18		$	0.31

Diluted		0.18			0.31

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		90,231			96,282

Diluted		90,289			96,798

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)


	Common Stock			Treasury Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
	Issued Shares	$0.01 Par Value		Purchased Shares		Cost			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
BALANCE, December 31, 2007	92,956	$	930	(2,544	)	$	(75,023	)	$	207,294	$	16,304	$	736,603	$	886,108
Net income	—		—	—			—			—		—		16,384		16,384
Foreign currency translation	—		—	—			—			—		7,283		—		7,283
Unrealized gain on investments	—		—	—			—			—		456		—		456

Total comprehensive income																24,123
Treasury stock purchased	—		—	(1,000	)		(13,842	)		—		—		—		(13,842	)
Share-based compensation expense	—		—	—			—			3,029		—		—		3,029
Common stock issued under:
Stock option plans	11		—	—			—			85		—		—		85
Restricted stock award plans	25		—	—			(148	)		—		—		—		(148	)
Employee stock purchase plan	33		—	—			—			708		—		—		708
Tax benefit of options exercised	—		—	—			—			26		—		—		26
Adjustment to share-based awards subject to redemption	—		—	—			—			—		—		108		108

BALANCE, March 31, 2008	93,025	$	930	(3,544	)	$	(89,013	)	$	211,142	$	24,043	$	753,095	$	900,197

The accompanying notes are an integral part of these unaudited consolidated financial statements.

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	For the Three Months Ended March 31,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	16,384		$	30,036
Adjustments to reconcile net income to net cash provided by operating activities:
Goodwill and asset impairment		6,613			—
Depreciation and amortization expense		21,403			18,781
Bad debt expense		11,765			8,449
Compensation expense related to share-based awards		3,029			3,101
(Loss) gain on disposition of property and equipment		(134	)		1
Share of affiliate earnings, net of cash received		939			230
Changes in operating assets and liabilities		(24,484	)		28,549

Net cash provided by operating activities

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