EX-99.1 2 a4943306ex991.txt CAREER EDUCATION CORPORATION EXHIBIT 99.1 Exhibit 99.1 Career Education Corporation Reports Second Quarter Results; Board Approves Share Repurchase Program; CEC's Board of Directors and management demonstrate commitment to shareholder value with share repurchase program HOFFMAN ESTATES, Ill.--(BUSINESS WIRE)--Aug. 1, 2005--Career Education Corporation (Nasdaq:CECO) today reported financial results for the second quarter ended June 30, 2005. The company also announced that its Board of Directors has approved a share repurchase program. "We are pleased with our financial results in the second quarter," said John Larson, Chairman and Chief Executive Officer of Career Education Corporation. "In addition, we believe that our share repurchase program is a sound use of our cash and represents an excellent shareholder value enhancement opportunity." Three Months Ended June 30, 2005 -- Second quarter 2005 total revenue increased 23% to $497.5 million, from $404.1 million for the same period last year. The increase in revenue is primarily attributable to an approximate 12% year-over-year increase in student population at April 30 and an approximate 10% increase in average revenue per student during the second quarter. -- Second quarter 2005 income from operations rose 36% to $81.8 million, from $60.3 million for the same period last year. Operating income margin rose to 16.4%, up from 14.9% in the same period last year. -- Second quarter 2005 net income was $52.8 million, or $0.50 per diluted share, up 44% from last year's second quarter net income of $36.6 million, or $0.35 per diluted share. Net income includes approximately $1.5 million of pre-tax expense for legal and other costs related to the SEC investigation, the investigation conducted by the special committee of our Board of Directors, and the shareholder securities class action and derivative lawsuits. This expense of $0.9 million, net or the related tax benefit of $0.6 million, represented $0.01 of diluted earnings per share. Six Months Ended June 30, 2005 -- For the six months ended June 30, 2005, revenues were $1.0 billion, up 26% from $801.4 million for the same period last year. -- Income from operations rose 46% to $180.7 million, from $124.0 million for the same period last year. Operating income margin rose to 17.9%, up from 15.5% in the same period last year. -- For the six months ended June 30, 2005, net income was $108.7 million, or $1.03 per diluted share, up 45% from last year's first half net income of $75.2 million, or $0.72 per diluted share. Net income includes approximately $0.054 loss per diluted share related to the previously disclosed discontinued operations at our IADT Montreal and IADT Ottawa campuses. In addition, the earnings per share includes approximately $3.9 million of pre-tax expense for legal and other costs related to the SEC investigation, the investigation conducted by the special committee of our Board of Directors, and the shareholder securities class action and derivative lawsuits. This expense of $2.4 million, net or the related tax benefit of $1.5 million, represented $0.2 of diluted earnings per share. Balance Sheet and Cash Flow -- Bad debt expense was 4.3% of total revenue for the quarter ended June 30, 2005, compared to 5.1% for the quarter ended June 30, 2004. The decrease in bad debt expense as a percentage of total revenue was primarily a result of decreased accounts receivable exposure. Net student receivables decreased 34%, from $96.6 as of June 30, 2004 to $63.8 million as of June 30, 2005. -- Quarterly days sales outstanding ("DSOs") were 13 days at June 30, 2005. This represents a 10-day decrease from quarterly DSOs of 23 days at June 30, 2004. We calculate DSOs by dividing the sum of net student receivables and net other receivables by average daily revenue. Average daily revenue is computed by dividing quarterly "total revenue" by the total number of days in the quarter. -- Our allowance for doubtful accounts as a percentage of gross student receivables increased from 32% as of June 30, 2004 to 44% as of June 30, 2005. -- At June 30, 2005, we had cash, cash equivalents and available-for-sale investments of $459.3 million, up 145% from $187.4 million on June 30, 2004. Short-term and long-term debt and capital lease obligations as of June 30, 2005 totaled $19.2 million. -- Net cash provided by operating activities for the second quarter of 2005 was $70.7 million, compared to $44.4 million for the same period of 2004. The second quarter cash flow improvement was attributable primarily to increases in net income and non-cash depreciation expense included in net income. -- Purchases of property and equipment for the second quarter 2005 was $45.4 million compared to $33.7 million for the same period last year. Share Repurchase Program The company is pleased to announce that the Board has approved a share repurchase program. Under the program, the company is authorized to repurchase up to $300 million of its common stock. "The company's superior free cash flow generation and strong balance sheet provides Career Education with considerable financial and strategic flexibility," said Patrick K. Pesch, Chief Financial Officer. "We have carefully considered the capital needs of the company and we believe this is an excellent initiative to return excess capital to shareholders." Population Data -- Start and population data excludes data for our Academy division schools that have been sold or are being taught out, including IADT Montreal, IADT Fairmont and IADT Ottawa. -- Total CEC student population on July 31, 2005 was approximately 92,000, up 12% from approximately 82,450 on July 31, 2004. Total student population of CEC's Online Education Group on June 30, 2005 was approximately 30,000, up 70% from approximately 17,600 students at the same date last year. The population includes the impact from our schools with a traditional academic calendar, like INSEEC and AIU Dubai that have a seasonally low summer period. -- Total CEC student population on July 31, 2005 without the affect of our Gibbs division would have been up 17% from July 31, 2004. As previously disclosed, we have experienced a significant decline in student population relative to prior year and we are devoting increased attention to the division to improve its performance. -- Second quarter 2005 new student starts were approximately 22,100. Business Outlook Please note that the following is an update from previously issued guidance. While we may make further acquisitions, none are contemplated by these forward-looking statements. -- We expect full year 2005 revenues to be approximately $2.040 to $2.070 billion and full year 2005 earnings per share to be approximately $2.20 to $2.29. The guidance represents an increase of 18% to 20% from prior year 2004 revenues of $1.728 billion and an increase of 29% to 34% from prior year earnings per share of $1.71. -- The $2.20 to $2.29 earnings per share include a $0.054 loss from discontinued operations recorded in the first quarter 2005 primarily related to the sale of IADT Montreal. -- We expect the Online Education Group's full year 2005 revenues, included in the $2.040 to $2.070 billion, to be approximately $660 to $675 million. -- We expect full year 2005 operating profit margin improvement to be approximately 150 basis points. -- We expect third quarter 2005 revenues to be approximately $498 to $505 million and third quarter 2005 earnings per share to be approximately $0.50 to $0.52. The guidance represents an increase of 14% to 16% from prior year 2004 revenues of $436 million and an increase of 25% to 30% from prior year earnings per share of $040. -- We expect diluted weighted average shares outstanding to be approximately 105.0 million for third quarter 2005. -- We expect our 2005 effective income tax rate to be approximately 39.25%. -- We expect that 2005 capital expenditures to be approximately 7.5% of total revenue. Conference Call Information -- Career Education Corporation will host a conference call today at 5:00 PM (Eastern Time). Interested parties can access the live webcast of the conference call at www.careered.com. Participants can also listen to the conference call by dialing (617) 801-9713 (international) or (800) 299-6183 (domestic) and citing code 84157784. Please log-in or dial-in at least 10 minutes prior to the start time to ensure a connection. After 7:00 PM (Eastern Time) the same day, an archived version of the webcast will be accessible for 90 days at www.careered.com. A replay of the call will also be available for seven days by calling (617) 801-6888 (international) or (888) 286-8010 and citing code 75701279. Career Education Corporation (www.careered.com) is one of the largest providers of private, for-profit postsecondary education and has a presence in both on-campus and online education. CEC's Colleges, Schools and Universities Group operates more than 80 campuses in the U.S., Canada, France, the United Kingdom and the United Arab Emirates and offers doctoral degree, master's degree, bachelor's degree, associate degree and diploma programs in the career-oriented disciplines of business studies, visual communication and design technologies, health education, information technology, and culinary arts. The Online Education Group operates American InterContinental University Online and Colorado Technical University Online and offers a variety of degrees in information technology, business, visual communication and education. CEC's total student population on July 31, 2005 was approximately 92,000 students. Except for the historical and present factual information contained herein, the matters set forth in this release, including statements under "Business Outlook" and statements identified by words such as "anticipates," "expects," "projects," "plans," "will," and similar expressions, are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on information currently available to us and involve risks and uncertainties that could cause our actual growth, results, performance and business prospects and opportunities to differ materially from those expressed in, or implied by these statements. These risks and uncertainties, the outcome of which could materially and adversely affect our financial condition and operations, include, but are not limited to: risks related to our ability to comply with, and the impact of changes in, legislation and regulations that affect our ability to participate in student financial aid programs; costs, risks and effects of legal and administrative proceedings and investigations and governmental regulations, including the pending Securities and Exchange Commission and Justice Department investigations and, class action, derivative, and other lawsuits; risks related to our ability to comply with accrediting agency requirements or obtain accrediting agency approvals; costs and difficulties related to the integration of acquired businesses; risks related to our ability to manage and continue growth; future financial and operational results; risks related to competition, general economic conditions, and other risk factors relating to our industry and business, as detailed in our Annual Report on Form 10-K for the year ended December 31, 2004, and from time to time in our other reports filed with the Securities and Exchange Commission. We disclaim any responsibility to update or revise these forward-looking statements. CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended June 30, 2005 and 2004 (In thousands, except per share data and percentages) % of % of 2005 Revenue 2004 Revenue --------- ------- ---------- ------- (Restated) Revenue: Tuition and registration fees $475,932 95.7% $375,627 93.0% Other 21,531 4.3% 28,435 7.0% --------- ---------- Total revenue 497,463 100.0% 404,062 100.0% --------- ---------- Operating expenses: Educational services and facilities 153,451 30.8% 136,932 33.9% General and administrative 242,403 48.8% 193,617 47.9% Depreciation and amortization 19,833 4.0% 13,220 3.3% --------- ---------- Total operating expenses 415,687 83.6% 343,769 85.1% --------- ---------- Income from operations 81,776 16.4% 60,293 14.9% Other income (expense): Interest income 4,280 0.9% 538 0.1% Interest expense (420) -0.1% (713) -0.2% Share of affiliate earnings 1,416 0.3% 1,185 0.4% Miscellaneous expense (200) 0.0% (10) 0.0% --------- ---------- Total other income 5,076 1.1% 1,000 0.3% --------- ---------- Income before provision for income taxes 86,852 17.5% 61,293 15.2% Provision for income taxes 34,089 6.9% 24,670 6.1% --------- ---------- Income from continuing operations 52,763 10.6% 36,623 9.1% Loss on disposition of discontinued operations - 0.0% - 0.0% Write-off of goodwill of discontinued operations - 0.0% - 0.0% --------- ---------- Loss from discontinued operations - 0.0% - 0.0% --------- ---------- Net Income $52,763 10.6% $36,623 9.1% ========= ========== ====================================================================== Income per share - Diluted Income from continuing operations $0.502 $0.347 Loss from discontinued operations - - --------- ---------- Net income $0.502 $0.347 ========= ========== Diluted weighted average shares outstanding 105,200 105,484 ====================================================================== CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME For the Six Months Ended June 30, 2005 and 2004 (In thousands, except per share data and percentages) % of % of 2005 Revenue 2004 Revenue ---------- ------- ---------- ------- (Restated) Revenue: Tuition and registration fees $960,813 95.3% $742,530 92.7% Other 47,086 4.7% 58,897 7.3% ---------- ---------- Total revenue 1,007,899 100.0% 801,427 100.0% ---------- ---------- Operating expenses: Educational services and facilities 309,799 30.7% 265,069 33.1% General and administrative 480,393 47.7% 386,407 48.2% Depreciation and amortization 37,034 3.7% 25,987 3.2% ---------- ---------- Total operating expenses 827,226 82.1% 677,463 84.5% ---------- ---------- Income from operations 180,673 17.9% 123,964 15.5% Other income (expense): Interest income 5,987 0.6% 890 0.1% Interest expense (856) -0.1% (1,542) -0.2% Share of affiliate earnings 3,242 0.4% 2,590 0.3% Miscellaneous expense (758) -0.1% (15) 0.0% ---------- ---------- Total other income 7,615 0.8% 1,923 0.2% ---------- ---------- Income before provision for income taxes 188,288 18.7% 125,887 15.7% Provision for income taxes 73,903 7.4% 50,670 6.3% ---------- ---------- Income from continuing operations 114,385 11.3% 75,217 9.4% Loss on disposition of discontinued operations (2,179) -0.2% - 0.0% Write-off of goodwill of discontinued operations (3,521) -0.3% - 0.0% ---------- ---------- Loss from discontinued operations (5,700) -0.5% - 0.0% ---------- ---------- Net Income $108,685 10.8% $75,217 9.4% ========== ========== ====================================================================== Income per share - Diluted Income from continuing operations $1.087 $0.716 Loss from discontinued operations $(0.054) - ---------- ---------- Net income $1.033 $0.716 ========== ========== Diluted weighted average shares outstanding 105,196 105,028 ====================================================================== CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, June 30, 2005 2004 2004 ------------ ------------ ------------ (Restated) ASSETS CURRENT ASSETS: Cash and cash equivalents $217,044 $349,458 $187,404 Available-for-sale investments 242,230 - - ------------ ------------ ------------ Total cash, cash equivalents, and available-for-sale investments $459,274 $349,458 $187,404 Receivables: Students, net of allowance for doubtful accounts of $50,726, $61,136, and $44,855 as of June 30, 2005, December 31, 2004, and June 30, 2004, respectively 63,843 85,982 96,576 Other, net 5,924 5,378 5,327 Inventories 17,863 17,347 12,858 Prepaid expenses 36,247 29,649 67,051 Other current assets 6,914 5,980 4,555 Deferred income tax assets 18,806 18,806 5,029 ------------ ------------ ------------ Total current assets 608,871 512,600 378,800 ------------ ------------ ------------ PROPERTY AND EQUIPMENT, net 382,709 351,140 291,531 GOODWILL 443,669 448,896 444,663 INTANGIBLE ASSETS, net 35,666 35,881 35,973 OTHER ASSETS 33,727 38,495 40,025 ------------ ------------ ------------ TOTAL ASSETS $1,504,642 $1,387,012 $1,190,992 ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long- term debt $1,793 $2,274 $2,500 Accounts payable 25,286 38,263 21,555 Accrued expenses: Payroll and related benefits 40,608 38,193 40,711 Income taxes 16,926 4,663 - Other 72,402 70,520 54,352 Deferred tuition revenue 145,617 166,743 136,617 ------------ ------------ ------------ Total current liabilities 302,632 320,656 255,735 ------------ ------------ ------------ LONG-TERM LIABILITIES: Long-term debt, net of current maturities 17,449 21,591 21,069 Long-term contractual obligation - - 9,679 Deferred income tax liabilities 39,889 39,972 18,366 Other 45,614 19,962 13,891 ------------ ------------ ------------ Total long-term liabilities 102,952 81,525 63,005 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock $- $- $- Common stock 1,029 1,025 1,023 Additional paid-in capital 580,557 571,192 565,738 Accumulated other comprehensive income 569 4,396 1,676 Retained earnings 516,903 408,218 303,815 ------------ ------------ ------------ Total stockholders' equity 1,099,058 984,831 872,252 ------------ ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,504,642 $1,387,012 $1,190,992 ------------ ------------ ------------ CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2005 2004 2005 2004 --------- ---------- --------- ---------- (Restated) (Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $52,763 $36,623 $108,685 $75,217 Adjustments to reconcile net income to income from continuing operations: Loss from disposition of discontinued operations - - 2,179 - Write-down of goodwill of discontinued operations - - 3,521 - --------- ---------- --------- ---------- Income from continuing operations 52,763 36,623 114,385 75,217 --------- ---------- --------- ---------- Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 19,833 13,220 37,034 25,987 Royalty expense related to stock options 118 118 236 236 Compensation expense related to stock options - 13 - 26 Amortization of deferred financing costs 91 117 164 202 Loss on disposition of property and equipment 120 8 550 8 Changes in operating assets and liabilities, net of acquisitions Tax benefit associated with option exercises 1,790 39,056 2,416 42,139 Other (4,041) (44,801) 27,684 (9,222) --------- ---------- --------- ---------- Net cash provided by operating activities 70,674 44,354 182,469 134,593 --------- ---------- --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Business dispositions/acquisitions, net of cash (26) (511) (934) (476) Acquisition transaction costs - (289) - (321) Purchases of property and equipment (45,359) (33,744) (70,896) (53,503) Purchases of available-for- sale investments (416,624) - (416,624) - Sales and maturities of available-for-sale investments 174,395 - 174,395 - Change in investment in affiliate 688 28 76 (174) --------- ---------- --------- ---------- Net cash used in investing activities (286,926) (34,516) (313,983) (54,474) --------- ---------- --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 4,638 23,621 6,952 27,011 Net (payments of) revolving loans (249) (1,119) (1,879) (76,119) Payments of capital lease obligations and other long-term debt (797) (3,670) (1,505) (4,529) --------- ---------- --------- ---------- Net cash provided by (used in) financing activities 3,592 18,832 3,568 (53,637) --------- ---------- --------- ---------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (2,564) 18 (4,468) (313) --------- ---------- --------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS (215,224) 28,688 (132,414) 26,169 CASH AND CASH EQUIVALENTS, beginning of period 432,268 158,716 349,458 161,235 --------- ---------- --------- ---------- CASH AND CASH EQUIVALENTS, end of period $217,044 $187,404 $217,044 $187,404 ========= ========== ========= ========== CAREER EDUCATION CORPORATION SELECTED SEGMENT INFORMATION (Dollars in thousands) For the Three Months For the Six Months Ended June 30, Ended June 30, --------------------- --------------------- 2005 2004 2005 2004 ---------- ---------- ---------- ---------- Revenue CSU (1) $326,829 $310,976 $679,995 $632,575 OEG (2) 170,634 93,086 327,904 168,852 Segment profit (3) CSU $29,785 $32,078 $79,875 $73,868 OEG 70,154 40,540 138,793 76,084 Corporate and other (16,747) (11,140) (34,753) (23,398) Segment profit percentage CSU 9.1% 10.3% 11.7% 11.7% OEG 41.1% 43.6% 42.3% 45.1% (1) The Colleges, Schools, and Universities ("CSU") segment represents an aggregation of our campus-based operating divisions. (2) The Online Education Group ("OEG") segment represents an aggregation of our online operating divisions. (3) Segment profit equals the sum of income from operations and share of affiliate earnings. CAREER EDUCATION CORPORATION SELECTED ACCOUNTS RECEIVABLE AND ALLOWANCE INFORMATION (Dollars in thousands) DAYS SALES OUTSTANDING June 30, ------------------------ 2005 2004 ----------- ----------- Total revenue during the quarter ended $497,463 $404,062 Number of days in the quarter ended 91 91 Total revenue per day $5,467 $4,440 Accounts receivable, net $69,767 $101,903 Days sales outstanding 13 23 ALLOWANCE AS A PERCENTAGE OF STUDENT RECEIVABLES June 30, December 31, 2005 2004 ----------- ----------- Allowance for doubtful accounts $50,726 $61,136 Gross student receivables $114,569 $147,118 Allowance as a percentage of student receivables 44.3% 41.6% STUDENT RECEIVABLES VALUATION ALLOWANCE Balance, Amounts Balance, Beginning of Charges Written- End of Period to Expense Off Period ------------ ---------- ---------- --------- For the three months ended June 30, 2005 $50,880 $21,538 $(21,692) $50,726 For the three months ended June 30, 2004 45,462 20,756 (21,363) 44,855 For the six months ended June 30, 2005 61,136 39,034 (49,444) 50,726 For the six months ended June 30, 2004 47,467 40,613 (43,225) 44,855 CAREER EDUCATION CORPORATION AND SUBSIDIARIES SELECTED QUARTERLY OEG SEGMENT DATA AIU Online CTU Online --------------------------- --------------------------- 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q ------ ------ ------ ------ ------ ------ ------ ------ Revenue earning days 2005 82 84 79 70 77 77 77 77 2004 81 84 78 72 77 77 77 77 AIU Online CTU Online --------------------------- --------------------------- 2005 2004 2005 2004 ------------- ------------- ------------- ------------- Start Grad Start Grad Start Grad Start Grad ------ ------ ------ ------ ------ ------ ------ ------ Total 1Q dates 3 2 3 2 2 2 2 - Total 2Q dates 2 2 2 2 2 2 2 - Total 3Q dates 2 3 2 2 2 2 2 - Total 4Q dates 2 2 2 3 2 2 2 1 January 1/2 - 1/4 - 1/2 - 1/4 - February 2/13 2/5 2/8 2/7 2/9 2/8 2/11 - March 3/20 3/19 3/21 3/13 - 3/19 - - April - 4/23 4/25 4/24 4/3 - 4/4 - May 5/1 - - 5/29 5/11 5/10 5/12 - June 6/5 6/4 6/6 - - 6/18 - - July 7/17 7/9 7/11 7/10 7/3 - 7/4 - August 8/21 8/20 8/29 8/14 8/10 8/9 8/11 - September - 9/24 - - - 9/17 - - October 10/9 - 10/3 10/2 10/2 - 10/3 - November 11/3 11/12 11/14 11/6 11/9 11/8 11/10 - December - 12/17 - 12/18 - 12/17 - 12/18 CONTACT: Career Education Corporation Karen M. King (Investor Inquiries), 847-585-3899 Tracy K. Lorenz (Media Inquiries), 847-585-3899 www.careered.com