10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

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 JUNE 30, 2008

OR

 

¨ 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 July 31, 2008: 89,633,445

 

 

 

Table of Contents

CAREER EDUCATION CORPORATION

INDEX

 

          Page
PART 1—FINANCIAL INFORMATION   
Item 1.    Financial Statements    3
   Unaudited Consolidated Balance Sheets    3
   Unaudited Consolidated Statements of Income    4
   Unaudited Consolidated Statements of Cash Flows    5
   Notes to Unaudited Consolidated Financial Statements    6
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    22
Item 3.    Quantitative and Qualitative Disclosures about Market Risk    35
Item 4.    Controls and Procedures    36
PART II—OTHER INFORMATION   
Item 1.    Legal Proceedings    37
Item 1A.    Risk Factors    37
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    37
Item 4.    Submission of Matters to a Vote of Security Holders    38
Item 5.    Other Information    38
Item 6.    Exhibits    38
SIGNATURES    39

 

2

Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

     June 30,
2008		     December 31,
2007		  
ASSETS     

CURRENT ASSETS:

     

Cash and cash equivalents

    $ 181,367     $ 223,334  

Investments

      240,050       166,618  
                

Total cash and cash equivalents and investments

      421,417       389,952  

Receivables:

     

Students, net of allowance for doubtful accounts of $35,636 and $35,507 as of June 30, 2008 and December 31, 2007, respectively

      56,320       59,584  

Other, net

      7,631       9,052  

Prepaid expenses

      49,706       50,025  

Inventories

      13,204       15,400  

Deferred income tax assets

      19,449       19,418  

Other current assets

      8,921       16,456  

Assets of discontinued operations

      1,155       23,554  
                

Total current assets

      577,803       583,441  
                

NON CURRENT ASSETS:

     

Property and equipment, net

      319,192       337,073  

Goodwill

      382,667       379,507  

Intangible assets, net

      44,572       44,395  

Other assets, net

      22,628       22,050  
                

TOTAL ASSETS

    $ 1,346,862     $ 1,366,466  
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

CURRENT LIABILITIES:

     

Current maturities of long-term debt and capital lease obligations

    $ 10,856     $ 11,843  

Accounts payable

      30,870       27,826  

Accrued expenses:

     

Pay roll and related benefits

      47,939       34,305  

Income taxes

      11,936       19,556  

Other

      70,526       102,058  

Deferred tuition revenue

      131,928       159,482  

Liabilities of discontinued operations

      4,738       8,282  
                

Total current liabilities

      308,793       363,352  
                

LONG-TERM LIABILITIES:

     

Long-term debt and capital lease obligations, net of current maturities

      2,347       2,179  

Deferred rent obligations

      97,402       98,115  

Deferred income tax liabilities

      932       624  

Other

      10,508       4,473  
                

Total long-term liabilities

      111,189       105,391  
                

SHARE-BASED AWARDS SUBJECT TO REDEMPTION

      9,285       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; 93,129,049 and 92,956,232 shares issued, 89,584,850 and 90,412,033 shares out standing as of June 30, 2008 and December 31, 2007, respectively

      931       930  

Additional paid-in capital

      216,214       207,294  

Accumulated other comprehensive income

      21,468       16,304  

Retained earnings

      768,008       736,603  

Cost of 3,544,199 and 2,544,199 shares in treasury as of June 30, 2008 and December 31, 2007, respectively

      (89,026 )     (75,023 )
                

Total stockholders’ equity

      917,595       886,108  
                

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

    $ 1,346,862     $ 1,366,466  
                

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

 

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CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

 

     For the Three Months Ended
June 30,		     For the Six Months Ended
June 30,		  
     2008     2007     2008     2007  

REVENUE:

         

Tuition and registration fees

    $ 404,459     $ 411,229     $ 838,732     $ 843,335  

Other

      14,385       16,942       34,587       37,694  
                                

Total revenue

      418,844       428,171       873,319       881,029  
                                

OPERATING EXPENSES :

         

Educational services and facilities

      162,739       158,268       332,562       317,249  

General and administrative

      221,993       247,011       461,553       480,961  

Depreciation and amortization

      19,163       19,144       39,596       37,543  

Goodwill and asset impairment

      —         —         2,227       —    
                                

Total operating expenses

      403,895       424,423       835,938       835,753  
                                

Operating income

      14,949       3,748       37,381       45,276  
                                

OTHER INCOME (EXPENSE):

         

Interest income

      3,018       4,019       6,452       8,635  

Interest expense

      (265 )     (177 )     (492 )     (535 )

Share of affiliate earnings

      —         949       4,665       2,661  

Miscellaneous (expense) income

      (84 )     484       (276 )     719  
                                

Total other income

      2,669       5,275       10,349       11,480  
                                

Pretax income

      17,618       9,023       47,730       56,756  

Provision for income taxes

      6,422       3,117       15,918       20,574  
                                

INCOME FROM CONTINUING OPERATIONS

      11,196       5,906       31,812       36,182  

GAIN (LOSS ) FROM DISCONTINUED OPERATIONS , net of tax

      1,495       (781 )     (2,737 )     (1,019 )
                                

NET INCOME

    $ 12,691     $ 5,125     $ 29,075     $ 35,163  
                                

NET INCOME PER SHARE - BASIC:

         

Income from continuing operations

    $ 0.12     $ 0.06     $ 0.35     $ 0.38  

Gain (Loss) from discontinued operations

      0.02       (0.01 )     (0.03 )     (0.01 )
                                

Net income

    $ 0.14     $ 0.05     $ 0.32     $ 0.37  
                                

NET INCOME PER SHARE - DILUTED:

         

Income from continuing operations

    $ 0.12     $ 0.06     $ 0.35     $ 0.38  

Gain (Loss) from discontinued operations

      0.02       (0.01 )     (0.03 )     (0.01 )
                                

Net income

    $ 0.14     $ 0.05     $ 0.32     $ 0.37  
                                

WEIGHTED AVERAGE SHARES OUTSTANDING:

         

Basic

      89,594       93,924       89,913       95,103  
                                

Diluted

      89,905       94,659       90,149       95,715  
                                

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

 

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CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     For the Six Months Ended
June 30,		  
     2008     2007  

CASH FLOWS FROM OPERATING ACTIVITIES:

     

Net income

    $ 29,075     $ 35,163  

Adjustments to reconcile net income to net cash provided by operating activities:

     

Goodwill and asset impairment

      6,613       —    

Depreciation and amortization expense

      41,043       38,443  

Bad debt expense

      21,883       20,962  

Compensation expense related to share-based awards

      6,835       8,225  

Gain on sale of business

      (1,555 )     —    

Loss (gain) on disposition of property and equipment

      164       (216 )

Share of affiliate earnings, net of cash received

      939       250  

Changes in operating assets and liabilities

      (51,299 )     (14,568 )
                

Net cash provided by operating activities

      53,698       88,259