-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, An/fnRuW1nTuOo10HWGFrwV705dSurRBc0PKjLV516mFNFR7+VgRo1kTuDlgSgQA truwYQRfhtGt5GZoxVixlw== /in/edgar/work/20000815/0000950131-00-004940/0000950131-00-004940.txt : 20000922 0000950131-00-004940.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950131-00-004940 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAREER EDUCATION CORP CENTRAL INDEX KEY: 0001046568 STANDARD INDUSTRIAL CLASSIFICATION: [8200 ] IRS NUMBER: 393932190 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23245 FILM NUMBER: 701507 BUSINESS ADDRESS: STREET 1: 2895 GREENSPOINT STREET 2: SUITE 600 CITY: HOFFMAN ESTATES STATE: IL ZIP: 60195 BUSINESS PHONE: 8477813600 MAIL ADDRESS: STREET 1: 2800 WEST HIGGINS ROAD STREET 2: SUITE 790 CITY: HOFFMAN ESTATES STATE: IL ZIP: 60195 10-Q 1 0001.txt FORM 10-Q-PERIOD ENDING JUNE 30, 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-Q ---------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: June 30, 2000 [_] 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 ---------------- Career Education Corporation (Exact name of registrant as specified in its charter) Delaware 36-3932190 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2895 Greenspoint Parkway, Suite 600, Hoffman Estates, IL 60195 (Address of principal executive offices, including 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 As of August 10, 2000, 10,121,977 shares of the registrant's Common Stock, par value $.01, were outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CAREER EDUCATION CORPORATION QUARTER ENDED JUNE 30, 2000 INDEX
Page ---- PART I--FINANCIAL INFORMATION Item 1. Financial Statements Condensed Unaudited Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999........................................... 3 Condensed Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2000 and 1999... 4 Condensed Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999............. 5 Notes to Condensed Consolidated Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 8 Item 3. Quantitative and Qualitative Disclosure About Market Risk... 13 PART II--OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders......... 13 Item 6. Exhibits and Reports on Form 8-K............................ 14 SIGNATURES............................................................... 15
2 PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAREER EDUCATION CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, 2000 December 31, 1999 ------------- ----------------- (unaudited) ASSETS CURRENT ASSETS: Cash......................................... $ 67,102 $ 44,745 Receivables, net............................. 20,638 15,941 Inventories, prepaid expenses and other current assets.............................. 11,854 7,825 Deferred income tax assets................... 2,501 1,011 -------- -------- Total current assets....................... 102,095 69,522 -------- -------- PROPERTY AND EQUIPMENT, net.................... 78,687 69,296 INTANGIBLE ASSETS, net......................... 91,970 70,484 OTHER ASSETS................................... 3,909 1,222 -------- -------- TOTAL ASSETS................................... $276,661 $210,524 ======== ======== LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Current maturities of long-term debt......... $ 3,633 $ 2,324 Accounts payable............................. 11,543 7,629 Accrued expenses and other current liabilities................................. 6,978 16,679 Deferred tuition revenue..................... 17,930 17,103 -------- -------- Total current liabilities.................. 40,084 43,735 -------- -------- LONG-TERM DEBT, net of current maturities...... 48,389 47,615 DEFERRED INCOME TAX LIABILITIES................ 5,750 4,128 OTHER LONG-TERM LIABILITIES.................... 179 1,365 -------- -------- Total long-term liabilities................ 54,318 53,108 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' INVESTMENT: Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares issued and outstanding at June 30, 2000 and December 31, 1999.................................... -- -- Common stock, $.01 par value; 50,000,000 shares authorized; 20,215,246 and 15,753,534 shares issued and outstanding at June 30, 2000 and December 31, 1999, respectively.... 202 158 Additional paid-in capital................... 176,661 113,046 Accumulated other comprehensive loss......... (574) (372) Retained earnings............................ 5,970 849 -------- -------- Total stockholders' investment............. 182,259 113,681 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT. $276,661 $210,524 ======== ========
3 CAREER EDUCATION CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
Three Months Six Months Ended Ended June 30, June 30, ---------------- ----------------- 2000 1999 2000 1999 ------- ------- -------- ------- (unaudited) REVENUE: Tuition and registration fees, net...... $66,879 $44,842 $131,559 $86,963 Other, net.............................. 6,702 3,938 12,337 7,252 ------- ------- -------- ------- Total net revenue..................... 73,581 48,780 143,896 94,215 ------- ------- -------- ------- OPERATING EXPENSES: Educational services and facilities..... 31,110 21,160 58,849 39,681 General and administrative.............. 32,842 22,421 64,640 43,349 Depreciation and amortization........... 5,124 3,561 9,686 6,635 ------- ------- -------- ------- Total operating expenses.............. 69,076 47,142 133,175 89,665 ------- ------- -------- ------- Income from operations................ 4,505 1,638 10,721 4,550 INTEREST EXPENSE, net..................... (171) (333) (296) (545) ------- ------- -------- ------- Income before provision for income taxes and cumulative effect of change in accounting principle................... 4,334 1,305 10,425 4,005 PROVISION FOR INCOME TAXES................ 1,907 561 4,526 1,722 ------- ------- -------- ------- Income before cumulative effect of change in accounting principle......... 2,427 744 5,899 2,283 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, net of taxes of $587.......... -- -- (778) -- ------- ------- -------- ------- NET INCOME................................ $ 2,427 $ 744 $ 5,121 $ 2,283 ======= ======= ======== ======= NET INCOME PER SHARE: Basic Income before cumulative effect of change in accounting principle....... $ 0.13 $ 0.05 $ 0.35 $ 0.15 Cumulative effect of change in accounting principle, net of taxes... -- -- (0.05) -- ------- ------- -------- ------- Net Income.......................... $ 0.13 $ 0.05 $ 0.30 $ 0.15 ======= ======= ======== ======= Diluted Income before cumulative effect of change in accounting principle....... $ 0.13 $ 0.05 $ 0.34 $ 0.15 Cumulative effect of change in accounting principle, net of taxes... -- -- (0.05) -- ------- ------- -------- ------- Net Income.......................... $ 0.13 $ 0.05 $ 0.29 $ 0.15 ======= ======= ======== ======= WEIGHTED AVERAGE SHARES OUTSTANDING: Basic................................... 18,319 15,630 17,070 15,052 ------- ------- -------- ------- Diluted................................. 18,825 16,200 17,582 15,640 ------- ------- -------- -------
4 CAREER EDUCATION CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended June 30, ------------------ 2000 1999 -------- -------- (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................... $ 5,121 $ 2,283 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization.......................... 9,686 6,635 Compensation expense related to stock options.......... 26 -- Deferred income taxes.................................. 5,452 (2,721) Changes in operating assets and liabilities, net of acquisitions.......................................... (20,416) 1,294 -------- -------- Net cash (used in) provided by operating activities.. (131) 7,491 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions, net of cash....................... (23,468) (24,751) Acquisition costs and financing transaction costs........ (1,396) (1,195) Purchase of property and equipment, net.................. (9,136) (6,947) Other assets............................................. -- 375 -------- -------- Net cash used in investing activities................ (34,000) (32,518) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock................................. 67,007 15,723 Equity issuance costs.................................... (4,225) (1,945) Payments of amounts due and notes payable to former owners of acquired businesses, capital lease obligations and other long-term debt................................ (4,197) (14) Net borrowings (payments) on revolving loans under Credit Agreement............................................... (2,000) 21,751 -------- -------- Net cash provided by financing activities............ 56,585 35,515 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH.................... (97) 78 -------- -------- NET INCREASE IN CASH....................................... 22,357 10,566 CASH, BEGINNING OF PERIOD.................................. 44,745 23,548 -------- -------- CASH, END OF PERIOD........................................ $ 67,102 $ 34,114 ======== ======== NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital lease obligations for purchase of equipment...... $ 2,578 $ -- Shares of common stock for license fee................... -- 2,000 ======== ========
5 CAREER EDUCATION CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1--Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2000. The condensed consolidated balance sheet at December 31, 1999 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For additional information, refer to the consolidated financial statements and footnotes for the year ended December 31, 1999, that are included in our annual report on Form 10-K. Note 2--Public Offering of Common Stock On May 10, 2000, we sold 2,025,000 shares of common stock at $32.50 per share pursuant to a public offering. The net proceeds to us from the sale of the shares of common stock, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, were approximately $61.6 million. We used $28.5 million of the offering net proceeds to repay indebtedness under our credit facility and the remaining $33.1 million is being used for general corporate purposes. Note 3--Business Acquisitions The Cooking and Hospitality Institute of Chicago, Inc. On February 1, 2000, we acquired all of the outstanding capital stock of The Cooking and Hospitality Institute of Chicago, Inc. The purchase price was approximately $5.5 million, subject to adjustment. The acquisition was accounted for as a purchase and the purchase price exceeded the fair market value of assets acquired and liabilities assumed, resulting in goodwill of approximately $5.1 million. California Culinary Academy, Inc. On April 3, 2000, we closed the acquisition of California Culinary Academy, Inc. The purchase price was approximately $20.0 million. We also assumed approximately $3.0 million of the debt of California Culinary Academy, Inc. The acquisition was accounted for as a purchase and the purchase price exceeded the fair market value of assets acquired and liabilities assumed, resulting in goodwill of approximately $18.3 million. SoftTrain Institute, Inc. On July 28, 2000, we closed the acquisition of SoftTrain Institute, Inc. The purchase price was approximately $0.5 million, subject to adjustment. The acquisition was accounted for as a purchase and the purchase price exceeded the fair market value of assets acquired and liabilities assumed, resulting in goodwill of approximately $0.5 million. 6 Note 4--Comprehensive Income The disclosure of comprehensive income and accumulated other comprehensive income, which encompasses net income and foreign currency translation adjustments, is as follows:
Six Months Ended June 30, -------------- 2000 1999 ------ ------ Net Income................................................. $5,121 $2,283 Other Comprehensive (Loss) Income Foreign currency translation adjustment.................. (202) 289 ------ ------ Comprehensive Income....................................... $4,919 $2,572 ====== ======
Note 5--Recent Accounting Pronouncement On December 3, 1999, the Securities and Exchange Commission released Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, to provide guidance on the recognition, presentation, and disclosure of revenue in financial statements. The SAB outlines basic criteria that must be met before registrants may recognize revenue, including persuasive evidence of the existence of an arrangement, the delivery of products or services, a fixed and determinable sales price, and reasonable assurance of collection. SAB 101 is required to be adopted in the fourth fiscal quarter of the first fiscal year beginning after December 15, 1999. Prior to the release of SAB 101, our revenue recognition policy was in compliance with generally accepted accounting principles. Effective January 1, 2000, we adopted this change in accounting principle to comply with the specific provisions and guidance of SAB 101. SAB 101 requires us to recognize revenue related to application and registration fees over the student benefit period. Through December 31, 1999, we recognized application and registration fees as revenue upon receipt. As a result, we recognized a cumulative net of tax charge of $0.8 million, in the first quarter of 2000. Note 6--Assets Held For Sale As of June 30, 2000, we had approximately $2.7 million in real estate property held for sale. This property was acquired as a result of our purchase of California Culinary Academy, Inc. This amount is included in other assets on the accompanying condensed unaudited consolidated balance sheet. Note 7--Stock Split Our Board of Directors announced a 2-for-1 stock split to be effected in the form of a stock dividend. The dividend will be payable on August 25, 2000 to shareholders of record on August 14, 2000. All share and per share amounts in the accompanying financial statements have been retroactively adjusted to reflect this stock dividend. Note 8--Reclassification We have reclassified direct contract training expenses in 1999 from general and administrative expenses to educational services and facilities expense to conform to the 2000 presentation. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The discussion below contains certain forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934) that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual growth, results, performance and business prospects and opportunities in 2000 and beyond could differ materially from those expressed in, or implied by, any such forward-looking statements. See "Special Note Regarding Forward-Looking Statements" on page 13 for a discussion of risks and uncertainties that could cause or contribute to such material differences. The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and attached Notes appearing elsewhere in this document. Background and Overview We are a provider of private, for-profit postsecondary education in North America, with approximately 21,800 students enrolled as of July 31, 2000. We have 28 campuses located in 15 states and two Canadian provinces. Our schools enjoy long operating histories and offer a variety of bachelor's degree, associate degree and non-degree programs in career-oriented disciplines within our core curricula of: . visual communication and design technologies . information technology . business studies . culinary arts We have experienced significant growth both internally and through acquisitions. We have invested significant amounts of capital in the hiring of additional personnel and increased marketing and capital improvements at each of the schools we have acquired. The increased costs of personnel and marketing are expensed as incurred and are reflected in general and administrative expenses. Additional depreciation is a result of capital improvements and increased amortization is a result of added goodwill. We believe that EBITDA, while not a substitute for generally accepted accounting principles' measures of operating results, is an important measure of our financial performance and that of our schools. Our EBITDA increased 85%, from $5.2 million for the second quarter of 1999 to $9.6 million in the second quarter of 2000. For the six months ended June 30, 2000, EBITDA increased 82%, from $11.2 million to $20.4 million in the same period in 1999. We believe that EBITDA is particularly meaningful due principally to the role acquisitions have played in our development. Our rapid growth through acquisitions has resulted in significant non-cash depreciation and amortization expense, because a significant portion of the purchase price of a school acquired by us is generally allocated to fixed assets, goodwill and other intangible assets. As a result of our ongoing acquisition strategy, non- cash amortization expense may continue to be substantial. Our principal source of revenue is tuition collected from our students. The academic year is at least 30 weeks in length, but varies both by individual school and program of study. The academic year is divided by term, which is determined by start dates, which vary by school and program. Payment of each term's tuition may be made by full cash payment, financial aid and/or an installment payment plan. If a student withdraws from school prior to the completion of the term, we refund the portion of tuition already paid which is attributable to the period of the term that is not completed. Revenue is recognized ratably over the period of the student's program. Our campuses charge tuition at varying amounts, depending not only on the particular school, but also upon the type of program and the specific curriculum. On average, our campuses increase tuition one or more times annually. 8 Other revenue consists of bookstore sales, placement fees, dormitory and cafeteria fees, contract training fees, rental income and restaurant revenue. Other revenue is recognized during the period services are rendered. Educational services and facilities expense includes costs directly attributable to the educational activity of our schools, including salaries and benefits of faculty, academic administrators and student support personnel. Educational services and facilities expense also includes costs of educational supplies and facilities (including rents on school leases), distance learning costs, certain costs of establishing and maintaining computer laboratories, costs of student housing, direct contract training costs and owned facility costs. General and administrative expense includes salaries and benefits of personnel in recruitment, admissions, accounting, personnel, compliance and corporate and school administration. Costs of promotion and development, advertising and production of marketing materials, and occupancy of the corporate offices are also included in this expense category. Depreciation and amortization includes costs associated with the depreciation of purchased computer laboratories, equipment, furniture and fixtures, courseware, owned facilities, capitalized equipment leases and amortization of intangible assets, primarily goodwill and non-competition agreements with the previous owners of our schools. Acquisitions On February 1, 2000, we acquired all of the outstanding capital stock of The Cooking and Hospitality Institute of Chicago, Inc. The purchase price was approximately $5.5 million, subject to adjustment. The acquisition was accounted for as a purchase and the purchase price exceeded the fair market value of assets acquired and liabilities assumed, resulting in goodwill of approximately $5.1 million. On April 3, 2000, we closed the acquisition of California Culinary Academy, Inc. The purchase price was approximately $20.0 million. We also assumed approximately $3.0 million of debt of California Culinary Academy, Inc. The acquisition was accounted for as a purchase and the purchase price exceeded the fair market value of assets acquired and liabilities assumed, resulting in goodwill of approximately $18.3 million. On July 28, 2000, we closed the acquisition of SoftTrain Institute, Inc. The purchase price was approximately $0.5 million, subject to adjustment. The acquisition was accounted for as a purchase and the purchase price exceeded the fair market value of assets acquired and liabilities assumed, resulting in goodwill of approximately $0.5 million. 9 Results of Operations The following table summarizes our operating results as a percentage of net revenue:
Six Months Three Months Ended Ended June June 30, 30, -------------------- ------------ 2000 1999 2000 1999 --------- --------- ----- ----- Revenue: Tuition and registration fees, net....... 90.9% 91.9% 91.4% 92.3% Other, net............................... 9.1 8.1 8.6 7.7 --------- --------- ----- ----- Total net revenue...................... 100.0 100.0 100.0 100.0 --------- --------- ----- ----- Operating expenses: Educational services and facilities...... 42.3 43.4 40.9 42.1 General and administrative............... 44.6 46.0 44.9 46.0 Depreciation and amortization............ 7.0 7.3 6.7 7.1 --------- --------- ----- ----- Total operating expenses............... 93.9 96.7 92.5 95.2 --------- --------- ----- ----- Income from operations................. 6.1 3.3 7.5 4.8 Interest expense, net...................... (0.2) (0.7) (0.2) (0.6) --------- --------- ----- ----- Income before provision for income taxes and cumulative effect of change in accounting principle.................... 5.9 2.6 7.3 4.2 Provision for income taxes 2.6 1.2 3.1 1.8 --------- --------- ----- ----- Income before cumulative effect of change in accounting principle................. 3.3 1.4 4.2 2.4 Cumulative effect of change in accounting principle, net ........................... -- -- (0.5) -- --------- --------- ----- ----- Net income................................. 3.3 1.4 3.7 2.4 ========= ========= ===== =====
Revenue. Net tuition and registration fee revenue increased 49%, from $44.8 million in the second quarter of 1999 to $66.9 million in the second quarter of 2000. The increase was due to an approximate 21% increase in the student population for the schools owned prior to the second quarter of 1999, tuition increases effective after the second quarter of 1999 and student enrollment mix. The increase was also due to added net tuition and registration fee revenue of $7.1 million for the schools acquired after the first quarter of 1999. For the six months ended June 30, 2000, net tuition and registration fee increased 51%, from $87.0 million to $131.6 million primarily due to reasons mentioned above and added net tuition and registration fee revenue of $16.6 million for schools acquired after January 1999. Other net revenue increased 70%, from $3.9 million in the second quarter of 1999 to $6.7 million in the second quarter of 2000, primarily due to the increase in student population mentioned above and added other revenue of $1.6 million for the schools acquired after the first quarter of 1999. For the six months ended June 30, 2000, other net revenue increased 70%, from $7.3 million to $12.3 million primarily due to reasons mentioned above and added other revenue of $3.4 million for the schools acquired after January 1999. Educational Services and Facilities Expense. Educational services and facilities expense increased 47%, from $21.1 million in the second quarter of 1999 to $31.1 million in the second quarter of 2000. The increase was primarily due to the costs associated with the increase in student population mentioned above, an increase in contract training costs, as well as an increase in curriculum development activities. The increase was also due to added educational services and facilities expense of $4.7 million for the schools acquired after the first quarter of 1999. For the six months ended June 30, 2000 educational services and facilities expense increased 48%, from $39.7 million to $58.8 million primarily due to the reasons mentioned above and added educational services and facilities expense of $9.9 million for the schools acquired after January 1999. 10 General and Administrative Expense. General and administrative expense increased 46%, from $22.4 million in the second quarter of 1999 to $32.8 million in the second quarter of 2000. The increase was primarily attributable to $4.2 million of increased advertising and marketing (including admissions) for the schools owned prior to the second quarter of 1999, $2.0 million in expenses related to planned corporate and regional infrastructure enhancements and $2.6 million of added general and administrative expenses for the schools acquired after the first quarter of 1999. For the six months ended June 30, 2000, general and administrative expense increased 49%, from $43.3 million to $64.6 million primarily due to the reasons mentioned above and added general and administrative expenses of $7.2 million for the schools acquired after January 1999. Depreciation and Amortization Expense. Depreciation and amortization expense increased 44%, from $3.6 million in the second quarter of 1999 to $5.1 million in the second quarter of 2000. The increase was primarily due to capital expenditures for the schools acquired prior to the second quarter of 1999 and added depreciation expense of $0.3 million for the schools acquired after the first quarter of 1999. Amortization expense decreased 8%, from $1.2 million in the second quarter of 1999 to $1.1 million in the second quarter of 2000, primarily due to the decline of amortization of non-competition agreements and goodwill for the schools acquired prior to the second quarter of 1999 offset by added amortization for the schools acquired after the first quarter of 1999. For the six months ended June 30, 2000 depreciation and amortization expense increased 46%, from $6.6 million to $9.7 million. The increase was primarily due to the reasons mentioned above and added depreciation expense of $0.7 million for the schools acquired after January 1999. Amortization expense decreased 4%, from $2.3 million in the first six months of 1999 to $2.2 million in the first six months of 2000, primarily due to the reasons mentioned above offset by added amortization expense of $0.4 million for the schools acquired after January 1999. Net Interest Expense. Net interest expense decreased 49%, from $0.3 million in the second quarter of 1999 to $0.2 million in the second quarter of 2000. The decrease was primarily due to the reduction in indebtedness following our May 2000 public offering. For the six months ended June 30, 2000, net interest expense decreased 46%, from $0.5 million to $0.3 million due to the reasons mentioned above. Provision for Income Taxes. The provision for income taxes increased 240%, from $0.6 million in the second quarter of 1999 to $1.9 million in the second quarter of 2000 as a result of increases in pretax income. For the six months ended June 30, 2000, the provision for income taxes increased 163%, from $1.7 million to $4.5 million due to the reasons mentioned above. Income before Cumulative Effect of Change in Accounting Principle. Net income increased 226%, from $0.7 million in the second quarter of 1999 to $2.4 million in the second quarter of 2000 due to the reasons mentioned above. For the six months ended June 30, 2000, net income before cumulative effect of change in accounting principle increased 158%, from $2.3 million to $5.9 million due to the reasons mentioned above. Cumulative Effect of Change in Accounting Principle. We adopted Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, as of January 1, 2000 resulting in a net of tax charge of $0.8 million. SAB 101 requires us to recognize revenue related to application and registration fees over the student benefit period rather than as revenue upon receipt. Net Income. Net income increased 226%, from $0.7 million in the second quarter of 1999 to $2.4 million in the second quarter of 2000, due to the reasons mentioned above. For the six months ended June 30, 2000, net income increased 124%, from $2.3 million to $5.1 million due to the reasons mentioned above. Liquidity and Capital Resources On May 10, 2000, we sold 2,025,000 shares of common stock at $32.50 per share pursuant to a public offering. The net proceeds to us from the sale of the shares of common stock, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, were approximately $61.6 million. 11 We used $28.5 million of the offering net proceeds to repay indebtedness under our credit facility and the remaining $33.1 million is being used for general corporate purposes. We finance our operating activities and our internal growth through cash generated from operations. We finance acquisitions through funding from a combination of additional equity investments, credit facilities and remaining cash generated from operations. Net cash provided by operating activities decreased from $7.5 million for the first six months of 1999 to net cash used in operating activities of $0.1 million for the first six months of 2000. The decrease was primarily due to approximately $3.0 million of severance costs and other liabilities related to acquisitions. Additionally, during the first six months of 2000, we paid approximately $6.5 million more in tax payments than in 1999 as a result of our increased profitability. Capital expenditures increased from $6.9 million in the first six months of 1999 to $9.1 million in the first six months of 2000. This increase was primarily due to investments in leasehold improvements on new and expanded facilities and capital equipment as a result of increasing student population. We would normally expect capital expenditures to increase as new schools are acquired or opened, student population increases and current facilities and equipment are upgraded and expanded. Our net receivables at June 30, as a percentage of net revenue for the first six months, increased to 14% in 2000 from 11% in 1999. Based upon past experience and judgment, we establish an allowance for doubtful accounts with respect to tuition receivables. We have a $90.0 million line of credit and can obtain letters of credit up to $50.0 million. Outstanding letters of credit reduce the revolving credit facility availability under our credit agreement. Our credit agreement matures on October 26, 2003. Under the credit agreement our borrowings bear interest, payable quarterly, of either (1) the bank's base or prime rate depending on whether the particular loan is denominated in U.S. or Canadian dollars, plus a specified number of basis points, ranging from 0 to 75, based upon our leverage ratio or (2) LIBOR, plus a specified number of basis points, ranging from 75 to 200 based upon our leverage ratio. Under the credit agreement, we are required, among other things, to maintain (1) financial ratios with respect to debt to EBITDA and interest coverage and (2) a specified level of net worth. We are also subject to limitations on, among other things, payment of dividends, disposition of assets and incurrence of additional indebtedness. We are required to pledge the stock of our subsidiaries as collateral for the repayment of our obligations under the credit agreement. At June 30, 2000, we had approximately $2.5 million of outstanding letters of credit and had approximately $39.0 million in outstanding borrowings under our credit facility. As a result, at June 30, 2000, our remaining credit availability under the credit agreement was approximately $48.5 million. The DOE requires that we keep unbilled Title IV Program funds that are collected in separate cash accounts until the students are billed for the program portion related to those Title IV Program funds. In addition, all funds transferred to our schools through electronic funds transfer program are held in a separate cash account until certain conditions are satisfied. As of June 30, 2000, we held nominal amounts of such funds in separate accounts. The restrictions on any cash held in these accounts have not significantly affected our ability to fund daily operations. Year 2000 Compliance We have not experienced any year 2000 problems, nor have our operations been affected by any year 2000 failures of third parties on which we rely. Although we have not experienced any year 2000 problems to date, we plan to continue to monitor the situation closely, as year 2000 problems could still arise. 12 Special Note Regarding Forward-Looking Statements This Form 10-Q contains certain statements, which reflect our expectations regarding our future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as "anticipate," "believe," "plan," "expect" and similar expressions have been used to identify these "forward-looking" statements. These statements reflect our current beliefs and are based on information currently available to us. Accordingly, these statements are subject to risks and uncertainties, which could cause our actual growth, results, performance and business prospects and opportunities to differ from those, expressed in, or implied by, these statements. These risks and uncertainties include, but are not limited to: . implementation of our operating and growth strategy; . risks inherent in operating private for-profit postsecondary educational institutions; . risks associated with general economic and business conditions; . charges and costs related to acquisitions; . our ability to successfully integrate our acquired institutions; . our ability to continue our acquisition strategy; . our ability to attract and retain students at our institutions; . our ability to compete with new and enhanced competition in the education industry; . our ability to meet regulatory and accrediting agency requirements; and . our ability to attract and retain key employees and faculty. We are not obligated to update or revise these forward-looking statements to reflect new events or circumstances. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. We are exposed to the impact of interest rate changes, foreign currency fluctuations and changes in the market value of our investments. We have not entered into interest rate caps or collars or other hedging instruments. Our exposure to changes in interest rates is limited to borrowings under revolving credit agreements, which have variable interest rates tied to the prime and LIBOR rates. We estimate that the book value of each of our debt instruments approximated its fair value at June 30, 2000. We are subject to fluctuations in the value of the Canadian dollar vis-a- vis the U.S. dollar. Our investment in our Canadian operations is not significant and the book value of the assets and liabilities of these operations at June 30, 2000 approximated their fair value. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) Our annual meeting of stockholders was held on May 12, 2000. (b) Our stockholders voted as follows to elect two Class II directors to our board of directors:
Authority Broker Directors: For: Withheld: Non-Votes: ---------- --------- --------- ---------- Wallace O. Laub............................... 6,683,181 -- -- Keith K. Ogata................................ 6,683,002 -- --
13 In addition to Mr. Laub and Mr. Ogata, the following directors terms of office as directors continued after the meeting: Robert E. Dowdell , Thomas B. Lally, John M. Larson and Patrick K. Pesch. (c) Our stockholders voted as follows to approve an amendment to the Career Education Corporation 1998 Employee Incentive Compensation Plan, which authorizes the addition of 750,000 shares of common stock authorized for issuance under such plan:
Broker For: Against: Abstentions: Non-Votes: ---- --------- ------------ ---------- 4,365,275 1,849,658 1,220 566,669
(d) Our stockholders voted as follows to ratify the appointment of Arthur Andersen LLP as independent auditors of our financial statements for the year ended December 31, 2000.
Broker For: Against: Abstentions: Non-Votes: ---- -------- ------------ ---------- 6,781,708 -- 1,114 --
PART II--OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. Exhibit 27--Financial Data Schedule (b) Reports on Form 8-K. We filed a Current Report on Form 8-K on April 11, 2000 to report the consummation of our acquisition of California Culinary Academy, Inc. (Items 5 and 7 of Form 8-K). We filed a Current Report on Form 8-K on April 26, 2000 filing a press release dated April 25, 2000 (Items 5 and 7 of Form 8-K). 14 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 thereunto duly authorized. Career Education Corporation /s/ John M. Larson By:__________________________________ Date: August 14, 2000 John M. Larson Chairman, President and Chief Executive Officer (Principal Executive Officer) Date: August 14, 2000 /s/ Patrick K. Pesch By:__________________________________ Patrick K. Pesch Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 15 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 67,102 0 26,609 (5,971) 1,776 102,095 110,678 (31,991) 276,661 40,084 48,389 0 0 101 182,158 276,661 0 143,896 0 133,175 0 3,596 296 10,425 4,526 5,899 0 0 (778) 5,121 0.30 0.29
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