-----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, E21mLAzseko2ujmr5n2IyMeKIbnga2JCi7S5nY0dk4UbeIuZGiDuhzb1F0XqGHF2 dLQb23dfaEYjoPMcTx5LrA== 0001157523-06-011023.txt : 20061108 0001157523-06-011023.hdr.sgml : 20061108 20061108094403 ACCESSION NUMBER: 0001157523-06-011023 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20061107 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20061108 DATE AS OF CHANGE: 20061108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAREER EDUCATION CORP CENTRAL INDEX KEY: 0001046568 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 363932190 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23245 FILM NUMBER: 061195753 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 8-K 1 a5269085.txt CAREER EDUCATION CORP. 8-K OMB APPROVAL ----------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported): November 7, 2006 ------------------------- Career Education Corporation ------------------------------------------------------ (Exact Name of Registrant as Specified in Charter) Delaware 0-23245 36-3932190 -------- ------- ---------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 2895 Greenspoint Parkway, Suite 600, Hoffman Estates, IL 60169 ---------------------------------------------- ------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (847) 781-3600 -------------- --------------------------------------------------------- (Former name or former address, if changed since last report.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.02 Results of Operations and Financial Condition. On November 7, 2006, Career Education Corporation (the "Registrant") issued a press release to report the Registrant's financial results for the quarter ended September 30, 2006. A copy of the Registrant's release is attached hereto as Exhibit 99.1, and the information contained therein is incorporated herein by reference. The information contained in Item 2.02 to this Form 8-K, including the exhibit, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and the information shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing. Item 9.01 Financial Statements and Exhibits. (d) Exhibits Exhibit Number Description of Exhibits -------- ----------------------- 99.1 Press Release of Registrant dated November 7, 2006, reporting the Registrant's financial results for the quarter ended September 30, 2006. 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 hereunto duly authorized. CAREER EDUCATION CORPORATION By: /s/ Patrick K. Pesch ------------------------------------ Patrick K. Pesch Executive Vice President, Chief Financial Officer, and Assistant Secretary Dated: November 7, 2006 Exhibit Index Exhibit Number Description of Exhibits -------- ----------------------- 99.1 Press Release of Registrant dated November 7, 2006, reporting the Registrant's financial results for the quarter ended September 30, 2006. EX-99.1 2 a5269085ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 Career Education Corporation Reports Results for Third Quarter 2006 HOFFMAN ESTATES, Ill.--(BUSINESS WIRE)--Nov. 7, 2006--Career Education Corporation (NASDAQ:CECO) today reported revenue of $462.4 million and net income of $20.7 million for the quarter ended September 30, 2006. "Although third quarter results were disappointing, the board and management of Career Education Corporation took a number of significant steps during the quarter to resolve our current issues, improve our operating results, and lay the foundation for future growth," said Bob Dowdell, Career Education's President and Chief Executive Officer. "The potential for our company and our industry remains very strong, and we aim to steadily build value for all of our stakeholders going forward. Initially, we are focused on finding the best leadership for the company, specifically a permanent CEO, and strengthening key internal positions." RESULTS OF OPERATIONS Three Months Ended September 30, 2006 -- Consolidated revenue was $462.4 million during the third quarter of 2006, a 7.0 percent decrease from consolidated revenue of $497.5 million during the third quarter of 2005. Revenue generated by the University segment's fully online platforms decreased 8.5 percent, to $154.7 million during the third quarter of 2006 from $169.1 million during the third quarter of 2005. -- Income from operations declined to $28.3 million during the third quarter of 2006, from $83.7 million during the third quarter of 2005. Operating profit margin percentage was 6.1 percent during the third quarter of 2006, a 10.7 percentage point decrease relative to an operating profit margin percentage of 16.8 percent during the third quarter of 2005. The decrease in operating profit margin percentage was primarily due to a decrease in operating profit margin percentage generated by our University segment's fully-online platforms and increases in administration expense, advertising expense, and occupancy expense as a percentage of revenue, offset, in part, by a decrease in bad debt expense as a percentage of revenue. University segment income from operations declined to $33.2 million during the third quarter of 2006, from $63.9 million during the third quarter of 2005. -- Consolidated net income during the third quarter of 2006 was $20.7 million, or $0.22 per diluted share, relative to consolidated net income of $54.9 million, or $0.53 per diluted share, during the third quarter of 2005. Third quarter 2006 net income includes a non-cash charge for share-based compensation expense of $3.9 million, net of tax benefit of $2.3 million, or $0.04 per diluted share. Share-based compensation expense recorded during the third quarter of 2005, prior to our adoption of SFAS 123R, was insignificant. Nine Months Ended September 30, 2006 -- Consolidated revenue was $1.48 billion during the nine months ended September 30, 2006, compared to consolidated revenue of $1.51 billion during the nine months ended September 30, 2005. Revenue generated by the University segment's online platforms increased 6.3 percent, to $528.1 million during the nine months ended September 30, 2006, from $497.0 million during the nine months ended September 30, 2005. -- Income from operations decreased to $73.7 million during the nine months ended September 30, 2006, from $264.4 million during the nine months ended September 30, 2005. Operating income margin percentage decreased to 5.0 percent during the nine months ended September 30, 2006, from 17.6 percent during the nine months ended September 30, 2005. During the nine months ended September 30, 2006, we recorded goodwill and intangible asset impairment charges of $96.1 million, pre-tax, attributable to our Health Education and Gibbs divisions. University segment income from operations declined to $183.1 million during the nine months ended September 30, 2006, from $218.1 million during the nine months ended September 30, 2005. The decrease in University segment income from operations is primarily attributable to the adverse impact on student population and revenue of AIU's probation status and the cost and effect of changes adopted in response to recommendations made by AIU's accrediting body. University segment operating income margin percentage decreased to 27.6 percent during the nine months ended September 30, 2006, from 33.7 percent during the nine months ended September 30, 2005. The decrease in University segment operating income margin percentage is primarily a result of the adverse impact on revenue of AIU's probation status and the disproportionate growth of CTU Online operations, which operates at a lower operating margin percentage than that of AIU Online. -- Consolidated net income during the nine months ended September 30, 2006, was $25.9 million, or $0.26 per diluted share, relative to consolidated net income of $163.6 million, or $1.57 per diluted share, during the nine months ended September 30, 2005. Consolidated net income during the nine months ended September 30, 2006, includes the following non-cash charges (in millions, except per share data): Impact on Earnings Per Pretax Tax Benefit Net Diluted Share - ---------------------------------------------------------------------- Goodwill and intangible asset impairment charge - Health Education division $(85.8) $2.7 (1) $(83.1) $(0.84) - ---------------------------------------------------------------------- Goodwill and intangible asset impairment charge - Gibbs division $(10.3) $3.9 $(6.4) $(0.07) - ---------------------------------------------------------------------- Share-based compensation expense $(14.7) $5.5 $(9.2) $(0.09) - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- Total $(110.8) $12.1 $(98.7) $(1.00) - ---------------------------------------------------------------------- (1) The company estimates that only $7.3 million of the Health Education division goodwill and intangible asset impairment charge will be deductible for income tax reporting purposes. PROVISION FOR INCOME TAXES Provision for income taxes during the nine months ended September 30, 2006, was $62.3 million, relative to income before provision for income taxes during the nine months ended September 30, 2006, of $88.3 million. This represents an effective income tax rate of 70.6 percent for the nine months ended September 30, 3006. The unusual relationship between income before provision for income taxes and our provision for income taxes for the nine months ended September 30, 2006, is attributable to the fact that only $7.3 million of our total $85.8 million Health Education division goodwill and intangible asset impairment charge recognized during the second and third quarters of 2006 is deductible for income tax reporting purposes. Excluding the effect of the Health Education goodwill and intangible asset impairment charge, the company's effective income tax rate for the nine months ended September 30, 2006 was 37.4%. CASH FLOWS AND FINANCIAL POSITION Cash Flows -- Net cash provided by operating activities was $83.2 million during the third quarter of 2006, compared to $106.2 million during the third quarter of 2005. The decrease is primarily attributable to the decrease in net income during the third quarter of 2006. -- Capital expenditures decreased to $16.9 million during the third quarter of 2006, from $28.3 million during the third quarter of 2005. Capital expenditures represented 3.6 percent of consolidated revenue during the third quarter of 2006 and 5.7 percent of consolidated revenue during the third quarter of 2005. Financial Position -- As of September 30, 2006, and June 30, 2006, cash and cash equivalents and investments totaled $444.5 million and $378.0 million, respectively. This increase is primarily attributable to cash generated by operating activities during the third quarter of 2006. -- Accounts receivable quarterly days sales outstanding (DSO) were 17 days as of September 30, 2006, which represents a six-day increase from DSO as of June 30, 2006, of 11 days and is consistent with DSO as of September 30, 2005, of 17 days. Stock Repurchase Program Since July 2005, CEC's Board of Directors has authorized the use of $500.2 million to repurchase outstanding shares of the company's common stock. Stock repurchases under this program may be made on the open market or in privately negotiated transactions from time to time, depending on factors including market conditions and corporate and regulatory requirements. The stock repurchase program does not have an expiration date and may be suspended or discontinued at any time. Since the inception of the program, the company has repurchased 9.1 million shares of its common stock for approximately $325.0 million at an average price of $35.63 per share. No shares were repurchased during the third quarter of 2006. SEGMENT REPORTING Pursuant to Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information, as of September 30, 2006, CEC identified seven school reportable segments: the University segment, the Culinary Arts segment, the Colleges segment, the Health Education segment, the Gibbs segment, the Academy segment, and the INSEEC segment, and one non-school segment, the JDV Online segment. POPULATION AND NEW STUDENT START DATA Student Population Total student population by reportable segment as of October 31, 2006 and 2005, was as follows: Population Population Percentage Segment October 31, 2006 October 31, 2005 Difference - ---------------------------------------------------------------------- University (1) 41,400 46,400 (11%) - ---------------------------------------------------------------------- Culinary Arts 11,700 12,500 (6%) - ---------------------------------------------------------------------- College 11,800 14,200 (17%) - ---------------------------------------------------------------------- Health Education 11,700 11,200 5% - ---------------------------------------------------------------------- Academy 10,000 10,100 (1%) - ---------------------------------------------------------------------- Gibbs 7,000 7,500 (7%) - ---------------------------------------------------------------------- INSEEC 6,000 5,500 9% - ---------------------------------------------------------------------- CEC Consolidated 99,600 107,400 (7%) - ---------------------------------------------------------------------- (1) As of October 31, 2006 and 2005, the University segment population includes approximately 28,800 students and 32,000 students, respectively, who were taking classes at such dates in fully-online academic programs offered by University segment schools. New Student Starts New student starts by reportable segment during the third quarter of 2006 and 2005 were as follows: Third Quarter Third Quarter Percentage Segment 2006 2005 Difference - ---------------------------------------------------------------------- University (1) 11,730 15,250 (23%) - ---------------------------------------------------------------------- Culinary Arts 4,320 4,300 0.5% - ---------------------------------------------------------------------- College 3,220 3,870 (17%) - ---------------------------------------------------------------------- Health Education 4,070 4,050 0.5% - ---------------------------------------------------------------------- Academy 1,860 2,280 (18%) - ---------------------------------------------------------------------- Gibbs 1,620 1,650 (2%) - ---------------------------------------------------------------------- INSEEC 2,680 2,400 12% - ---------------------------------------------------------------------- CEC Consolidated 29,500 33,800 (13%) - ---------------------------------------------------------------------- (1) University segment new student starts includes approximately 9,200 students and 12,200 students, respectively, who were taking classes in fully-online academic programs offered by University segment schools during the third quarter of 2006 and 2005. RECENT INITIATIVES During the third quarter of 2006, the company executed a number of initiatives aimed at fostering the sustainable growth of its student population and profitability. These initiatives included the following: -- We began a search for a new Chief Marketing and Admissions Officer and continue to look for a senior-level admissions executive for our on-ground business. -- We initiated a new branding effort to better leverage CEC's competitive advantages. -- We instituted an incentive compensation program for admission representatives to reduce turnover. The plan rewards admission representatives for enrolling students who successfully complete all or a specified portion of their academic programs, and is fully compliant with the requirements and guidelines of the Department of Education. -- We expanded financing options available to all students, which primarily impacted our Culinary Arts and Healthcare segment schools during the third quarter of 2006. -- We began a program to rationalize our assets, starting with the teach-out of our Springfield, Massachusetts Sanford-Brown campus. "In the near term, we will be making a number of significant decisions related to profitability, marketing direction, and student and employee retention that we believe will position our company for future growth," said Dowdell. "We will ensure that our resources and attention are directed toward opportunities that will offer the greatest benefit to our students and provide the greatest return for our shareholders." CONFERENCE CALL INFORMATION Career Education Corporation will host a conference call today, November 7, 2006, at 5:00 p.m. (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 617.614.2707 (international) or 866.761.0749 (domestic) and citing code 81765373. Please log-in or dial-in at least 10 minutes prior to the conference call start time to ensure a connection. An archived version of the conference call webcast will be accessible for 90 days at www.careered.com. A replay of the conference call will also be available for seven days by calling 617-801-6888 (international) or 888-286-8010 and citing code 78537381. About Career Education Corporation The colleges, schools and universities that are part of the Career Education Corporation (CEC) family offer high quality education to approximately 100,000 students across the world in a variety of career-oriented disciplines. The 80-plus campuses that serve these students are located throughout the U. S., Canada, France, and the United Kingdom, and offer doctoral, master's, bachelor's, and associate degrees and diploma and certificate programs. Many students attend the fully online educational platforms offered by American InterContinental University Online and Colorado Technical University Online. Career Education is an industry leader whose gold-standard brands are recognized globally. Those brands include, among others, Le Cordon Bleu Schools North America; Harrington College of Design; Brooks Institute of Photography; the Katharine Gibbs Schools; American InterContinental University; Colorado Technical University and Sanford-Brown Institutes and Colleges. The mission of CEC, through its schools, its educators, and its employees is education--their primary goal, to enable students to graduate successfully and pursue rewarding careers. For more information see www.careered.com. The company's website also has a detailed listing of individual campus locations and web links for its 80-plus colleges, schools and universities. Except for the historical and present factual information contained herein, the matters set forth in this release, including statements under "Recent Initiatives" and statements identified by words such as "anticipate," "believe," "plan," "expect," "intend," "project," "will," and similar expressions, are forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on information currently available to us and are subject to various risks, uncertainties, and other factors that could cause our actual growth, results of operations, performance and business prospects, and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason. These risks and uncertainties, the outcome of which could materially and adversely affect our financial condition and operations, include, but are not limited to, the following: future financial and operational results, including the impact of the impairment of goodwill and other intangible assets; risks related to our ability to comply with accrediting agency requirements or obtain accrediting agency approvals, including the adverse impact of negative publicity concerning the continued probation status of American InterContinental University and ongoing review by its accrediting body; 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; costs and difficulties related to the integration of acquired businesses; risks related to our ability to manage and continue growth; risks related to competition, general economic conditions, and other risk factors relating to our industry and business and the factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2005, and from time to time in our other reports filed with the Securities and Exchange Commission. CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended September 30, 2006 and 2005 (In thousands, except per share amounts and percentages) % of % of 2006 Revenue 2005 Revenue --------- ------- --------- ------- REVENUE: Tuition and registration fees $437,996 94.7% $472,231 94.9% Other 24,389 5.3% 25,251 5.1% --------- --------- Total revenue 462,385 100.0% 497,482 100.0% --------- --------- OPERATING EXPENSES: Educational services and facilities 159,519 34.5% 154,797 31.1% General and administrative 251,903 54.5% 238,075 47.9% Depreciation and amortization 21,886 4.7% 20,899 4.2% Goodwill and intangible asset impairment charge 785 0.2% - - % --------- --------- Total operating expenses 434,093 93.9% 413,771 83.2% --------- --------- Income from operations 28,292 6.1% 83,711 16.8% --------- --------- OTHER INCOME (EXPENSE): Interest income 4,491 1.0% 1,890 0.4% Interest expense (322) -0.1% (343) -0.1% Share of affiliate earnings 510 0.1% 428 0.1% Miscellaneous income 120 0.1% 228 0.1% --------- --------- Total other income 4,799 1.1% 2,203 0.5% --------- --------- Income before provision for income taxes 33,091 7.2% 85,914 17.3% PROVISION FOR INCOME TAXES 12,376 2.7% 30,979 6.3% --------- --------- NET INCOME $20,715 4.5% $54,935 11.0% ========= ========= NET INCOME PER SHARE - DILUTED: $0.22 $0.53 ========= ========= DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING: 96,195 103,125 ========= ========= CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME For the Nine Months Ended September 30, 2006 and 2005 (In thousands, except per share amounts and percentages) % of % of 2006 Revenue 2005 Revenue ----------- ------- ----------- ------- REVENUE: Tuition and registration fees $1,413,074 95.6% $1,433,044 95.2% Other 64,726 4.4% 72,337 4.8% ----------- ----------- Total revenue 1,477,800 100.0% 1,505,381 100.0% ----------- ----------- OPERATING EXPENSES: Educational services and facilities 478,017 32.3% 464,596 30.9% General and administrative 765,105 51.8% 718,468 47.7% Depreciation and amortization 64,837 4.4% 57,933 3.8% Goodwill and intangible asset impairment charge 96,149 6.5% - 0.0% ----------- ----------- Total operating expenses 1,404,108 95.0% 1,240,997 82.4% ----------- ----------- Income from operations 73,692 5.0% 264,384 17.6% ----------- ----------- OTHER INCOME (EXPENSE): Interest income 13,469 0.9% 7,877 0.5% Interest expense (1,010) -0.1% (1,199) -0.1% Share of affiliate earnings 2,109 0.2% 3,670 0.2% Miscellaneous expense (9) 0.0% (530) 0.0% ----------- ----------- Total other income 14,559 1.0% 9,818 0.6% ----------- ----------- Income before provision for income taxes 88,251 6.0% 274,202 18.2% PROVISION FOR INCOME TAXES 62,346 4.2% 104,882 7.0% ----------- ----------- Income from continuing operations 25,905 1.8% 169,320 11.2% DISCONTINUED OPERATIONS: Loss from discontinued operations - 0.0% (5,700) -0.3% ----------- ----------- NET INCOME $25,905 1.8% $163,620 10.9% =========== =========== NET INCOME PER SHARE - DILUTED: Income from continuing operations $0.263 $1.620 Loss from discontinued operations - (0.055) ----------- ----------- Net income $0.263 $1.566 =========== =========== DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING: 98,556 104,489 =========== =========== CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (In thousands) September 30, December 31, 2006 2005 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $116,157 $132,308 Investments 328,328 272,093 ------------- ------------- Total cash and cash equivalents and investments 444,485 404,401 Receivables: Students, net of allowance for doubtful accounts of $37,902 and $44,839 as of September 30, 2006, and December 31, 2005, respectively 76,076 76,447 Other, net 8,494 5,015 Prepaid expenses 39,141 37,412 Inventories 13,839 14,090 Deferred income tax assets 10,122 10,122 Other current assets 19,021 31,067 ------------- ------------- Total current assets 611,178 578,554 PROPERTY AND EQUIPMENT, net 400,431 411,144 GOODWILL 349,459 443,584 INTANGIBLE ASSETS, net 34,559 35,286 OTHER ASSETS 31,844 37,537 ------------- ------------- TOTAL ASSETS $1,427,471 $1,506,105 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $572 $627 Accounts payable 30,544 28,627 Accrued expenses: Payroll and related benefits 30,653 39,471 Income taxes 2,618 23,509 Other 75,652 82,513 Deferred tuition revenue 177,419 152,007 ------------- ------------- Total current liabilities 317,458 326,754 ------------- ------------- LONG-TERM LIABILITIES: Long-term debt, net of current maturities 13,737 16,358 Deferred rent obligations 97,453 89,680 Deferred income tax liabilities 31,212 31,212 Other 5,769 5,854 ------------- ------------- Total long-term liabilities 148,171 143,104 ------------- ------------- SHARE-BASED AWARDS SUBJECT TO REDEMPTION 15,641 - STOCKHOLDERS' EQUITY: Common stock 1,038 1,033 Additional paid-in capital 616,679 591,287 Accumulated other comprehensive income 1,127 1,989 Retained earnings 652,360 642,096 Cost of shares in treasury (325,003) (200,158) ------------- ------------- Total stockholders' equity 946,201 1,036,247 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,427,471 $1,506,105 ============= ============= CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended September 30, 2006 and 2005 (In thousands) 2006 2005 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $20,715 $54,935 Adjustments to reconcile net income to net cash provided by operating activities: Goodwill and intangible asset impairment charge 785 - Depreciation and amortization 21,886 20,899 Compensation expense related to share-based awards 6,163 - Loss on disposition of property and equipment 5 22 Share of affiliate earnings, net of dividends received 3,633 (428) Tax benefit associated with stock option exercises - 2,410 Other (234) 193 Changes in operating assets and liabilities 30,273 28,202 --------- --------- Net cash provided by operating activities 83,226 106,233 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Business disposition - 26 Purchases of property and equipment (16,870) (28,336) Purchases of available-for-sale investments (249,160) (284,012) Sales of available-for-sale investments 208,241 272,629 Investments in and advances to affiliates (108) - Other (146) 46 --------- --------- Net cash used in investing activities (58,043) (39,647) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of treasury stock - (200,158) Issuance of common stock 1,236 5,051 Tax benefit associated with stock option exercises 51 - Payments of revolving loans (3,487) (181) Proceeds from the issuance of other long-term debt - 2,431 Payments of capital lease obligations and other long-term debt (69) (248) --------- --------- Net cash used in financing activities (2,269) (193,105) --------- --------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,654 (284) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,568 (126,803) CASH AND CASH EQUIVALENTS, beginning of period 90,589 217,044 --------- --------- CASH AND CASH EQUIVALENTS, end of period $116,157 $90,241 ========= ========= CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2006 and 2005 (In thousands) 2006 2005 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $25,905 $163,620 Adjustments to reconcile net income to net cash provided by operating activities: Goodwill and intangible asset impairment charge 96,149 - Loss from discontinued operations - 5,700 Depreciation and amortization 64,837 57,933 Compensation expense related to share-based awards 14,649 - Loss on disposition of property and equipment 260 572 Share of affiliate earnings, net of dividends received 2,034 (1,810) Tax benefit associated with stock option exercises - 4,826 Other 236 593 Changes in operating assets and liabilities 10,617 55,886 --------- --------- Net cash provided by operating activities 214,687 287,320 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Business disposition - (908) Purchases of property and equipment (60,021) (99,232) Purchases of available-for-sale investments (801,610) (700,636) Sales of available-for-sale investments 745,526 447,024 Investments in and advances to affiliates (134) - Other (230) 1,504 --------- --------- Net cash used in investing activities (116,469) (352,248) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of treasury stock (124,845) (200,158) Issuance of common stock 8,647 12,003 Tax benefit associated with stock option exercises 2,101 - Payments of revolving loans (3,487) (2,060) Proceeds from the issuance of other long-term debt - 2,431 Payments of capital lease obligations and other long-term debt (253) (1,753) --------- --------- Net cash used in financing activities (117,837) (189,537) --------- --------- EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 3,468 (4,752) --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (16,151) (259,217) CASH AND CASH EQUIVALENTS, beginning of period 132,308 349,458 --------- --------- CASH AND CASH EQUIVALENTS, end of period $116,157 $90,241 ========= ========= CAREER EDUCATION CORPORATION SELECTED SEGMENT INFORMATION (1) (Dollars in thousands) For the Three Months Ended September 30, ------------------------- 2006 2005 ------------ ------------ REVENUE: University segment $193,352 $215,280 Culinary Arts segment 96,908 100,406 Colleges segment 58,427 68,961 Health Education segment 42,811 38,310 Academy segment 37,688 38,160 Gibbs segment 25,921 30,756 INSEEC segment 7,045 5,609 JDV Online segment 233 - ------------ ------------ $462,385 $497,482 ============ ============ SEGMENT PROFIT (LOSS) (2): University segment $33,208 $63,925 Culinary Arts segment 19,341 25,439 Colleges segment 3,876 9,644 Health Education segment 339 683 Academy segment 427 2,193 Gibbs segment (9,244) (5,501) INSEEC segment 886 297 JDV Online segment (1,983) (785) Corporate and other (18,048) (11,756) ------------ ------------ $28,802 $84,139 ============ ============ SEGMENT PROFIT (LOSS) PERCENTAGE: University segment 17.2% 29.7% Culinary Arts segment 20.0% 25.3% Colleges segment 6.6% 14.0% Health Education segment 0.8% 1.8% Academy segment 1.1% 5.7% Gibbs segment -35.7% -17.9% INSEEC segment 12.6% 5.3% JDV Online segment -851.1% N/A - ---------------------------------------------------------------------- (1) Effective September 30, 2006, we changed the composition of our reportable segments. The historical 2005 segment information reflected in this table is categorized in accordance with our new segment structure. (2) Segment profit equals the sum of income from operations and share of affiliate earnings. CAREER EDUCATION CORPORATION SELECTED SEGMENT INFORMATION (1) (Dollars in thousands) For the Nine Months Ended September 30, ------------------------- 2006 2005 ------------ ------------ REVENUE: University segment $663,256 $648,029 Culinary Arts segment 270,242 283,870 Colleges segment 184,572 212,214 Health Education segment 124,471 113,739 Academy segment 120,133 115,915 Gibbs segment 82,088 102,144 INSEEC segment 32,554 29,470 JDV Online segment 484 - ------------ ------------ $1,477,800 $1,505,381 ============ ============ SEGMENT PROFIT (LOSS) (2): University segment $183,092 $218,137 Culinary Arts segment 41,734 58,824 Colleges segment 15,632 33,090 Health Education segment (3) (83,673) (709) Academy segment 6,828 5,628 Gibbs segment (3) (37,262) (11,469) INSEEC segment 5,927 6,056 JDV Online segment (6,053) (1,232) Corporate and other (50,424) (40,271) ------------ ------------ $75,801 $268,054 ============ ============ SEGMENT PROFIT (LOSS) PERCENTAGE: University segment 27.6% 33.7% Culinary Arts segment 15.4% 20.7% Colleges segment 8.5% 15.6% Health Education segment -67.2% -0.6% Academy segment 5.7% 4.9% Gibbs segment -45.4% -11.2% INSEEC segment 18.2% 20.5% JDV Online segment -1250.6% N/A - ---------------------------------------------------------------------- (1) Effective September 30, 2006, we changed the composition of our reportable segments. The historical 2005 segment information reflected in this table is categorized in accordance with our new segment structure. (2) Segment profit equals the sum of income from operations and share of affiliate earnings. (3) Health Education and Gibbs segment loss for the nine months ended September 30, 2006, includes goodwill and intangible asset impairment charges of $85,760 and $10,389, respectively. CAREER EDUCATION CORPORATION SELECTED ACCOUNTS RECEIVABLE AND ALLOWANCE INFORMATION (Dollars in thousands) DAYS SALES OUTSTANDING September 30, ----------------------- 2006 2005 ------------ ---------- Total revenue during the quarter ended $462,385 $497,482 Number of days in the quarter ended 92 92 Total revenue per day $5,026 $5,407 Total receivables, net $84,570 $89,578 Days sales outstanding 17 17 ALLOWANCE AS A PERCENTAGE OF STUDENT RECEIVABLES September 30, ----------------------- 2006 2005 ------------ ---------- Allowance for doubtful accounts $37,902 $50,626 Gross student receivables $113,978 $134,877 Allowance as a percentage of student receivables 33.3% 37.5% STUDENT RECEIVABLES VALUATION ALLOWANCE Balance, Amounts Balance, Beginning of Charges Written- End of Period to Expense Off Period ------------ ---------- ---------- ----------- For the three months ended September 30, 2006 $38,716 $18,196 $(19,010) $37,902 For the three months ended September 30, 2005 $50,726 $22,685 $(22,785) $50,626 For the nine months ended September 30, 2006 $44,839 $50,460 $(57,397) $37,902 For the nine months ended September 30, 2005 $61,136 $61,719 $(72,229) $50,626 CAREER EDUCATION CORPORATION SELECTED HISTORICAL 2006 SEGMENT INFORMATION (1) (Dollars in thousands) For the Three Months Ended, ------------------- March 31, June 30, --------- --------- REVENUE: University segment $243,582 $226,322 Culinary Arts segment 90,628 82,706 Colleges segment 66,320 59,825 Health Education segment 40,578 41,082 Academy segment 43,027 39,418 Gibbs segment 29,505 26,662 INSEEC segment 14,883 10,626 JDV Online segment 107 144 --------- --------- $528,630 $486,785 ========= ========= SEGMENT PROFIT (LOSS): University segment $82,390 $67,494 Culinary Arts segment 14,009 8,384 Colleges segment 7,274 4,482 Health Education segment (2) 1,213 (85,225) Academy segment 4,681 1,720 Gibbs segment (3) (17,553) (10,465) INSEEC segment 3,862 1,179 JDV Online segment (1,889) (2,181) Corporate and other (13,869) (18,507) --------- --------- 80,118 (33,119) ========= ========= SEGMENT PROFIT (LOSS) PERCENTAGE: University segment 33.8% 29.8% Culinary Arts segment 15.5% 10.1% Colleges segment 11.0% 7.5% Health Education segment (2) 3.0% -207.5% Academy segment 10.9% 4.4% Gibbs segment (3) -59.5% -39.3% INSEEC segment 25.9% 11.1% JDV Online segment -1765.4% -1514.6% STUDENT STARTS: University segment (4) 17,020 10,510 Culinary Arts segment 2,510 1,690 Colleges segment 1,740 1,110 Health Education segment 3,790 3,060 Academy segment 1,540 1,170 Gibbs segment 1,270 1,190 INSEEC segment 460 330 --------- --------- 28,330 19,060 ========= ========= STUDENT POPULATION AS OF: April 30, July 31, --------- --------- University segment (5) 44,000 37,700 Culinary Arts segment 10,600 10,600 Colleges segment 11,500 10,300 Health Education segment 11,100 10,600 Academy segment 9,100 8,600 Gibbs segment 6,500 6,200 INSEEC segment 4,300 700 --------- --------- 97,100 84,700 ========= ========= (1) Effective September 30, 2006, we changed the composition of our reportable segments. The historical segment information reflected in this table is categorized in accordance with our new segment structure. (2) Health Education segment loss for the quarter ended June 30, 2006, includes a goodwill impairment charge of $84,975. (3) Gibbs segment loss for the quarter ended March 31, 2006, includes a goodwill impairment charge of $10,389. (4) University segment student starts during the quarters ended March 31, 2006, and June 30, 2006, included student starts of 14,800 and 9,000, respectively, for its fully-online platforms. (5) University segment student population as of April 30, 2006, and July 31, 2006, included 31,500 and 28,500 students, respectively, enrolled in its fully-online platforms. CAREER EDUCATION CORPORATION SELECTED HISTORICAL 2005 SEGMENT INFORMATION (1) (Dollars in thousands) For the Three Months Ended, ------------------------------------------- For the Year Ended September December December March 31, June 30, 30, 31, 31, ---------- ---------- ---------- ---------- ----------- REVENUE: University segment $211,719 $221,030 $215,280 $222,095 $870,124 Culinary Arts segment 92,556 90,908 100,406 99,461 383,331 Colleges segment 75,765 67,488 68,961 76,287 288,501 Health Education segment 37,921 37,508 38,310 40,135 153,874 Academy segment 40,648 37,107 38,160 44,094 160,009 Gibbs segment 38,272 33,116 30,756 31,728 133,872 INSEEC segment 13,555 10,306 5,609 15,360 44,830 JDV Online segment - - - 14 14 ---------- ---------- ---------- ---------- ----------- $510,436 $497,463 $497,482 $529,174 $2,034,555 ========== ========== ========== ========== =========== SEGMENT PROFIT (LOSS): University segment $78,530 $75,682 $63,925 $69,887 $288,024 Culinary Arts segment 18,336 15,049 25,439 23,847 82,671 Colleges segment 14,245 9,201 9,644 14,707 47,797 Health Education segment (1,003) (389) 683 1,797 1,088 Academy segment 2,863 572 2,193 6,068 11,696 Gibbs segment (955) (5,013) (5,501) (3,920) (15,389) INSEEC segment 3,462 2,297 297 3,077 9,133 JDV Online segment (75) (372) (785) (2,171) (3,403) Corporate and other (14,680) (13,835) (11,756) (7,207) (47,478) ---------- ---------- ---------- ---------- ----------- $100,723 $83,192 $84,139 $106,085 $374,139 ========== ========== ========== ========== =========== SEGMENT PROFIT (LOSS) PERCENTAGE: University segment 37.1% 34.2% 29.7% 31.5% 33.1% Culinary Arts segment 19.8% 16.6% 25.3% 24.0% 21.6% Colleges segment 18.8% 13.6% 14.0% 19.3% 16.6% Health Education segment -2.6% -1.0% 1.8% 4.5% 0.7% Academy segment 7.0% 1.5% 5.7% 13.8% 7.3% Gibbs segment -2.5% -15.1% -17.9% -12.4% -11.5% INSEEC segment 25.5% 22.3% 5.3% 20.0% 20.4% JDV Online segment N/A N/A N/A -15507.1% -24307.1% STUDENT STARTS: University segment 20,030 13,010 15,250 16,600 64,890 Culinary Arts segment 2,710 1,940 4,300 2,100 11,050 Colleges segment 2,630 1,460 3,870 1,620 9,580 Health Education segment 3,220 2,830 4,050 2,570 12,670 Academy segment 1,810 1,380 2,280 2,640 8,110 Gibbs segment 1,620 1,250 1,650 1,800 6,320 INSEEC segment 480 260 2,400 900 4,040 ---------- ---------- ---------- ---------- ----------- 32,500 22,130 33,800 28,230 116,660 ========== ========== ========== ========== =========== STUDENT POPULATION AS October January OF: April 30, July 31, 31, 31, ---------- ---------- ---------- ---------- University segment 39,400 41,200 46,400 46,400 Culinary Arts segment 11,600 11,500 12,500 11,500 Colleges segment 13,500 12,700 14,200 13,100 Health Education segment 10,700 10,100 11,200 10,900 Academy segment 8,900 8,800 10,100 9,800 Gibbs segment 8,100 7,400 7,500 7,000 INSEEC segment 4,500 300 5,500 5,500 ---------- ---------- ---------- ---------- 96,700 92,000 107,400 104,200 ========== ========== ========== ========== (1) Effective September 30, 2006, we changed the composition of our reportable segments. The historical segment information reflected in this table is categorized in accordance with our new segment structure. CAREER EDUCATION CORPORATION SELECTED HISTORICAL 2004 SEGMENT INFORMATION (1) (Dollars in thousands) For the Three Months Ended, ------------------------------------------ For the Year Ended September December December March 31, June 30, 30, 31, 31, ---------- ---------- ---------- --------- ----------- REVENUE: University segment $123,049 $145,556 $155,840 $173,103 $597,548 Culinary Arts segment 78,861 79,433 92,749 98,558 349,601 Colleges segment 69,210 61,776 68,921 84,185 284,092 Health Education segment 33,771 34,855 37,732 38,637 144,995 Academy segment 34,423 32,790 34,740 41,443 143,396 Gibbs segment 46,781 41,650 41,289 42,049 171,769 INSEEC segment 11,270 8,002 4,763 13,096 37,131 ---------- ---------- ---------- --------- ----------- $397,365 $404,062 $436,034 $491,071 $1,728,532 ========== ========== ========== ========= =========== SEGMENT PROFIT (LOSS): University segment $41,302 $48,452 $44,737 $48,517 $183,008 Culinary Arts segment 15,033 14,328 23,322 26,821 79,504 Colleges segment 12,468 8,854 12,324 22,543 56,189 Health Education segment (552) (634) 1,344 2,819 2,977 Academy segment 2,081 (408) (878) 3,427 4,222 Gibbs segment 877 (3,133) (4,755) (5,191) (12,202) INSEEC segment 2,599 1,577 (628) 3,357 6,905 Corporate and other (8,732) (7,558) (5,885) (2,619) (24,794) ---------- ---------- ---------- --------- ----------- $65,076 $61,478 $69,581 $99,674 $295,809 ========== ========== ========== ========= =========== SEGMENT PROFIT (LOSS) PERCENTAGE: University segment 33.6% 33.3% 28.7% 28.0% 30.6% Culinary Arts segment 19.1% 18.0% 25.1% 27.2% 22.7% Colleges segment 18.0% 14.3% 17.9% 26.8% 19.8% Health Education segment -1.6% -1.8% 3.6% 7.3% 2.1% Academy segment 6.0% -1.2% -2.5% 8.3% 2.9% Gibbs segment 1.9% -7.5% -11.5% -12.3% -7.1% INSEEC segment 23.1% 19.7% -13.2% 25.6% 18.6% STUDENT STARTS: University segment 12,190 9,250 12,840 14,490 48,770 Culinary Arts segment 2,760 2,120 4,530 2,620 12,030 Colleges segment 3,040 2,030 5,000 2,320 12,390 Health Education segment 3,810 3,010 4,100 2,630 13,550 Academy segment 1,880 1,510 2,720 2,780 8,890 Gibbs segment 2,830 2,300 2,690 2,630 10,450 INSEEC segment 290 320 1,660 1,160 3,430 ---------- ---------- ---------- --------- ----------- 26,800 20,540 33,540 28,630 109,510 ========== ========== ========== ========= =========== STUDENT POPULATION AS October January OF: April 30, July 31, 31, 31, ---------- ---------- ---------- --------- University segment 28,500 29,600 35,600 39,800 Culinary Arts segment 10,500 11,100 12,700 12,200 Colleges segment 13,900 12,900 16,000 15,200 Health Education segment 10,800 10,200 11,100 10,800 Academy segment 8,200 8,200 9,100 9,400 Gibbs segment 11,000 10,200 10,300 9,200 INSEEC segment 3,800 100 4,600 4,900 ---------- ---------- ---------- --------- 86,700 82,300 99,400 101,500 ========== ========== ========== ========= (1) Effective September 30, 2006, we changed the composition of our reportable segments. The historical segment information reflected in this table is categorized in accordance with our new segment structure. CAREER EDUCATION CORPORATION OCTOBER 2006 SEGMENT STUDENT START INFORMATION For the Month Ended October 31, ------------------- 2006 2005 --------- --------- STUDENT STARTS: University segment 7,450 11,270 Culinary Arts segment 1,470 1,140 Colleges segment 1,120 1,520 Health Education segment 1,430 1,210 Academy segment 2,530 2,650 Gibbs segment 2,070 1,820 INSEEC segment 930 940 --------- --------- 17,000 20,550 ========= ========= CAREER EDUCATION CORPORATION AND SUBSIDIARIES SELECTED QUARTERLY DATA FOR UNIVERSITY SEGMENT 2006 2005 --------------------------- --------------------------- 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q ------ ------ ------ ------ ------ ------ ------ ------ Revenue earning days AIU Online 83 84 78 70 82 84 79 70 CTU Online 77 77 77 77 77 77 77 77 ------ ------ ------ ------ ------ ------ ------ ------ Total 160 161 155 147 159 161 156 147 ====== ====== ====== ====== ====== ====== ====== ====== AIU Online CTU Online --------------------------- --------------------------- 2006 2005 2006 2005 ------------- ------------- ------------- ------------- Start Grad Start Grad Start Grad Start Grad ------ ------ ------ ------ ------ ------ ------ ------ January 1/1 none 1/2 none 1/1 none 1/2 none February 2/5 2/4 2/13 2/5 2/8 2/7 2/9 2/8 March 3/19 3/11 3/20 3/19 none 3/18 none 3/19 Total 1Q dates 3 2 3 2 2 2 2 2 April 4/23 4/22 none 4/23 4/2 none 4/3 none May none 5/27 5/1 none 5/17 5/9 5/11 5/10 June 6/4 none 6/5 6/4 none 6/24 none 6/18 Total 2Q dates 2 2 2 2 2 2 2 2 July 7/9 7/8 7/17 7/9 7/2 none 7/3 none August 8/27 8/12 8/21 8/20 8/16 8/8 8/10 8/9 September none 9/30 none 9/24 none 9/23 none 9/17 Total 3Q dates 2 3 2 3 2 2 2 2 October 10/1 none 10/9 none 10/1 none 10/2 none November 11/12 11/4 11/13 11/12 11/15 11/7 11/9 11/8 December none 12/16 none 12/17 none 12/23 none 12/17 Total 4Q dates 2 2 2 2 2 2 2 2 CONTACT: Career Education Corporation Investors: Karen M. King 847-585-3899 www.careered.com or Media: Pattie Overstreet-Miller 847-851-7351 or Lynne Baker 847-851-7006 -----END PRIVACY-ENHANCED MESSAGE-----