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 SEPTEMBER 30, 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 October 31, 2008: 89,714,982

CAREER EDUCATION CORPORATION

INDEX


		Page
PART 1—FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Unaudited Consolidated Balance Sheets	3

	Unaudited Consolidated Statements of Operations	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	28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44

Item 4.	Controls and Procedures	45

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 6.	Exhibits	47

SIGNATURES		48

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)


	September 30, 2008			December 31, 2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	224,908		$	223,334
Investments		284,046			166,618

Total cash and cash equivalents and investments		508,954			389,952
Receivables:
Students, net of allowance for doubtful accounts of $35,393 and $35,507 as of September 30, 2008 and December 31, 2007, respectively		54,981			59,584
Other, net		7,969			9,052
Prepaid expenses		44,691			50,025
Inventories		11,850			15,400
Deferred income tax assets		19,403			19,418
Other current assets		10,120			16,456
Assets of discontinued operations		628			23,554

Total current assets		658,596			583,441

NON-CURRENT ASSETS:
Property and equipment, net		302,955			337,073
Goodwill		377,288			379,507
Intangible assets, net		40,851			44,395
Other assets, net		20,074			22,050

TOTAL ASSETS	$	1,399,764		$	1,366,466

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations	$	9,683		$	11,843
Accounts payable		39,726			27,826
Accrued expenses:
Payroll and related benefits		56,435			34,305
Income taxes		5,822			19,556
Other		76,784			102,058
Deferred tuition revenue		175,581			159,482
Liabilities of discontinued operations		2,590			8,282

Total current liabilities		366,621			363,352

LONG-TERM LIABILITIES:
Long-term debt and capital lease obligations, net of current maturities		1,984			2,179
Deferred rent obligations		99,051			98,115
Deferred income tax liabilities		412			624
Other		13,085			4,473

Total long-term liabilities		114,532			105,391

SHARE-BASED AWARDS SUBJECT TO REDEMPTION		6,191			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; 93,257,882 and 92,956,232 shares issued, 89,699,582 and 90,412,033 shares outstanding as of September 30, 2008 and December 31, 2007, respectively		933			930
Additional paid-in capital		220,833			207,294
Accumulated other comprehensive income		8,777			16,304
Retained earnings		770,955			736,603
Cost of 3,558,300 and 2,544,199 shares in treasury as of September 30, 2008 and December 31, 2007, respectively		(89,078	)		(75,023	)

Total stockholders’ equity		912,420			886,108

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,399,764		$	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 OPERATIONS

(In thousands, except per share amounts)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
REVENUE:
Tuition and registration fees	$	385,849		$	401,939		$	1,224,581		$	1,245,274
Other		19,784			25,266			54,371			62,960

Total revenue		405,633			427,205			1,278,952			1,308,234

OPERATING EXPENSES:
Educational services and facilities		170,055			162,636			502,617			479,885
General and administrative		218,454			227,186			680,007			708,147
Depreciation and amortization		19,034			18,500			58,630			56,043
Goodwill and asset impairment		6,843			—			9,070			—

Total operating expenses		414,386			408,322			1,250,324			1,244,075

Operating (loss) income		(8,753	)		18,883			28,628			64,159

OTHER INCOME (EXPENSE):
Interest income		2,875			4,152			9,327			12,787
Interest expense		(211	)		(342	)		(703	)		(877	)
Share of affiliate earnings		—			209			4,665			2,870
Miscellaneous (expense) income		(220	)		65			(496	)		784

Total other income		2,444			4,084			12,793			15,564

Pretax (loss) income		(6,309	)		22,967			41,421			79,723
(Benefit) provision for income taxes		(6,263	)		6,755			9,655			27,329

(LOSS) INCOME FROM CONTINUING OPERATIONS		(46	)		16,212			31,766			52,394
LOSS FROM DISCONTINUED OPERATIONS, net of tax		(101	)		(651	)		(2,838	)		(1,670	)

NET (LOSS) INCOME	$	(147	)	$	15,561		$	28,928		$	50,724

NET (LOSS) INCOME PER SHARE - BASIC:
(Loss) income from continuing operations	$	(0.00	)	$	0.18		$	0.35		$	0.56
Loss from discontinued operations		(0.00	)		(0.01	)		(0.03	)		(0.02	)

Net (loss) income	$	(0.00	)	$	0.17		$	0.32		$	0.54

NET (LOSS) INCOME PER SHARE - DILUTED:
(Loss) income from continuing operations	$	(0.00	)	$	0.18		$	0.35		$	0.55
Loss from discontinued operations		(0.00	)		(0.01	)		(0.03	)		(0.02	)

Net (loss) income	$	(0.00	)	$	0.17		$	0.32		$	0.53

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		89,675			92,806			89,833			94,329

Diluted		89,675			93,455			90,144			95,055

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 Nine Months Ended September 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	28,928		$	50,724
Adjustments to reconcile net income to net cash provided by operating activities:
Goodwill and asset impairment		13,600			—
Depreciation and amortization expense		60,070			57,744
Bad debt expense		33,350			32,055
Compensation expense related to share-based awards		10,017			11,700
Gain on sale of business		(1,555	)		—
Loss (gain) on disposition of property and equipment		573			(220	)
Share of affiliate earnings, net of cash received		939			(927	)
Changes in operating assets and liabilities		13,022			42,164

Net cash provided by operating activities		158,944			193,240

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