Market Overview

Career Education Corporation Reports Results for Third Quarter 2012

SCHAUMBURG, Ill.--(BUSINESS WIRE)--

Career Education Corporation (NASDAQ: CECO) today reported total revenue of $332.8 million, and a net loss of $33.1 million, or -$0.50 per diluted share, for the third quarter of 2012 compared to total revenue of $428.4 million and net income of $10.6 million, or $0.14 per diluted share, for the third quarter of 2011.

“We are taking the difficult step of closing campuses and reducing our workforce because these measures are essential to advancing the turnaround of Career Education,” Chairman, President and Chief Executive Officer Steven H. Lesnik said. “To move forward successfully, we must align the organization to the new market realities in private postsecondary education.”

“As we rationally reduce the size and scope of the organization, we are ultimately positioning the Company to execute and embark upon our long-term strategic direction. Our strategy envisions a simplified and more nimble organization, fewer ground campuses, more differentiated brands serving distinct student populations and the leading student-centric, personalized learning technology in higher education. I am confident that this is the right strategic course for the Company and will ensure a leaner, stronger Career Education that continues to provide access to high-quality, career-focused postsecondary education long into the future.”

CONSOLIDATED RESULTS

Quarter Ended September 30, 2012

  • Total revenue was $332.8 million for the third quarter of 2012, a 22.3 percent decrease from $428.4 million for the third quarter of 2011.
  • An operating loss of $48.2 million was reported for the third quarter of 2012, compared to operating income of $19.9 million for the third quarter of 2011. The operating margin was -14.5 percent for the third quarter of 2012 versus 4.6 percent for the third quarter of 2011.
  • The loss from continuing operations for the third quarter of 2012 was $30.8 million, or -$0.47 per diluted share, versus income from continuing operations of $14.1 million, or $0.19 per diluted share, for the third quarter of 2011.

Year to Date Ended September 30, 2012

  • Total revenue was $1,135.9 million for the year to date ended September 30, 2012, compared to $1,445.0 million for the year to date ended September 30, 2011.
  • The operating loss for the year to date ended September 30, 2012 was $109.7 million, versus operating income of $208.1 million for the year to date ended September 30, 2011. The operating margin decreased to -9.7 percent for the year to date ended September 30, 2012, from 14.4 percent for the year to date ended September 30, 2011.
  • The loss from continuing operations for the year to date ended September 30, 2012, was $78.3 million, or -$1.18 per diluted share, compared to income from continuing operations of $138.1 million, or $1.83 per diluted share, for the year to date ended September 30, 2011.

The Company believes it is useful to present non-GAAP financial measures, which exclude certain significant items, as a means to understand the performance of its core business. There are no significant items included for the third quarters ended 2012 or 2011. For the year to date ended September 30, 2012, on a non-GAAP basis, loss per diluted share from continuing operations was -$0.14, as compared to earnings per diluted share of $1.79 for the year to date ended September 30, 2011. (See table below and the GAAP to non-GAAP reconciliation attached to this press release for further details.)

The operating results for the years to date ended September 30, 2012 and 2011 include the following significant items:

     

Significant Items
(In Millions)

 

(Loss) Earnings
per Diluted
Share Impact

Year to Date Ended September 30, 2012
Goodwill and Intangible Asset Impairments $ 84.4 $ 1.22
Asset Impairments 1.3 0.01
Insurance Recoveries   (19.0 )   (0.19 )
TOTAL $ 66.7   $ 1.04  
 
Year to Date Ended September 30, 2011
Goodwill and Intangible Asset Impairments $ 2.7 $ 0.02
Insurance Recoveries   (7.0 )   (0.06 )
TOTAL $ (4.3 ) $ (0.04 )
 
  • During the year to date ended September 30, 2012, the Company recorded non-cash goodwill and intangible asset impairment charges of $84.4 million, of which $42.9 million was reflected within Health Education and $41.5 million within Art & Design. In addition, $1.2 million of non-cash asset impairment charges were recorded resulting from the decision made in the second quarter of 2012 to teach out four campuses, primarily within Health Education. The operating results for the year to date ended September 30, 2011 included $2.7 million of non-cash goodwill and intangible asset impairment charges primarily related to accreditation rights impairment.
  • During the year to date ended September 30, 2012, the Company recorded a $19.0 million insurance recovery related to the settlement of claims under certain insurance policies. During the year to date ended September 30, 2011, the Company recorded a $7.0 million insurance recovery related to previously settled legal matters.
  • Excluding the significant items in the table above, the operating loss was $43.0 million for the year to date ended September 30, 2012 and the operating income was $203.8 million for the year to date ended September 30, 2011. Operating margin was -3.8 percent and 14.1 percent for the years to date ended September 30, 2012 and 2011, respectively.

CAMPUS CLOSURES AND WORKFORCE REDUCTIONS

A key component to the Company's long-term strategy is to invest in a smaller number of institutions that have the strongest likelihood of delivering strong student outcomes, operational efficiency and strength in their market. As a result, the decision was made to close twenty-three campuses. These campuses are expected to contribute approximately $124.3 million of revenue and approximately $62.0 million of operating loss for the year ending December 31, 2012. The campuses will remain open to offer current students the ability to complete their course of study. The majority of these campuses are expected to cease operations no later than the first quarter of 2014. Along with these closures, the Company made the decision to eliminate approximately 900 positions across the organization as it reorganizes its campus and corporate functions to better align with the current student population and common operating structures across our ground campuses, most notably within our Career Schools. The position eliminations are expected to be completed by January 2013, with annual savings estimated at $45-$55 million. The fourth quarter operating results will include a pretax severance charge of approximately $7.0 million as a result of this decision.

CONSOLIDATED CASH FLOWS AND FINANCIAL POSITION

Cash Flows

Net cash flows provided by operating activities totaled $32.5 million for the year to date ended September 30, 2012, compared to $209.4 million for the year to date ended September 30, 2011.

Capital expenditures decreased to $29.5 million during the year to date ended September 30, 2012, from $67.4 million during the year to date ended September 30, 2011. Capital expenditures represented 2.6 percent and 4.6 percent of total revenue of continuing and discontinued operations during the years to date ended September 30, 2012 and 2011, respectively.

Financial Position

As of September 30, 2012 and December 31, 2011, cash and cash equivalents and short-term investments totaled $373.3 million and $441.2 million, respectively.

U.S. Credit Agreement

The Company's $185 million U.S. Credit Agreement expired on October 31, 2012. The Company's discussions surrounding the level and terms of a replacement facility are ongoing.

Stock Repurchase Program

During the third quarter of 2012, the Company did not repurchase any shares of its common stock. Year to date through September 30, 2012, the Company repurchased 6.1 million shares of its common stock for approximately $56.4 million at an average price of $9.29 per share.

As of September 30, 2012, approximately $183.3 million was available under the Company's authorized stock repurchase program to repurchase outstanding shares of its 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 various factors, including market conditions and corporate and regulatory requirements.

Student Population

Total student population by reportable segment as of September 30, 2012 and 2011, was as follows:

  As of September 30,   % Change
2012   2011 2012 vs. 2011
Student Population
CTU 22,600 25,100 -10 %
AIU 14,900 17,100 -13 %
Health Education 16,700 28,100 -41 %
Culinary Arts 11,200 15,400 -27 %
Art & Design 7,400 10,300 -28 %
International 8,800 8,400 5 %
Total Student Population 81,600 104,400 -22 %
 

New Student Starts

New student starts by reportable segment for the quarters ended September 30, 2012 and 2011, were as follows:

 
For the Quarters Ended September 30,
      % Change
2012 2011 2012 vs. 2011
New Student Starts
CTU 5,250 6,510 -19 %
AIU 3,700 4,590 -19 %
Health Education (1) 4,820 7,710 -37 %
Culinary Arts (1) 3,920 5,480 -28 %
Art & Design 1,200 1,870 -36 %
International 4,750 4,440 7 %
Total New Student Starts 23,640 30,600 -23 %
   
 

(1)

The third quarter 2012 had one additional new student start as compared to the previous year quarter.

Excluding this timing impact, the change in new student starts for Health Education and Culinary Arts

would have been -53% and -36%, respectively.

 

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Friday, November 9, 2012 at 10:00 a.m. Eastern time. Interested parties can access the live webcast of the conference call at www.careered.com in the Investor Relations section of the website. Participants can also listen to the conference call by dialing 800-580-9478 (domestic) or 630-691-2769 (international) and citing code 33496355. Please log-in or dial-in at least 10 minutes prior to the start time to ensure a connection. An archived version of the webcast will be accessible for 90 days at www.careered.com in the Investor Relations section of the website. A replay of the call will also be available for seven days by calling 888-843-7419 (domestic) or 630-652-3042 (international) and citing code 33496355.

ABOUT CAREER EDUCATION CORPORATION

The colleges, schools and universities that are part of the Career Education Corporation (“CEC”) family offer high-quality education to a diverse student population of more than 80,000 students across the world in a variety of career-oriented disciplines through online, on-ground and hybrid learning program offerings. The more than 90 campuses that serve these students are located throughout the United States and in France, the United Kingdom and Monaco, and offer doctoral, master's, bachelor's and associate degrees and diploma and certificate programs.

CEC is an industry leader whose institutions are recognized globally. Those institutions include, among others, American InterContinental University (“AIU”); Brooks Institute; Colorado Technical University (“CTU”); Harrington College of Design; INSEEC Group (“INSEEC”) Schools; International University of Monaco (“IUM”); International Academy of Design & Technology (“IADT”); Le Cordon Bleu North America (“LCB”); and Sanford-Brown Institutes and Colleges. Through its schools, CEC is committed to providing high-quality education, enabling students to graduate and pursue rewarding career opportunities.

For more information, see CEC's website at www.careered.com. The website includes a detailed listing of individual campus locations and web links to CEC's colleges, schools, and universities.

Except for the historical and present factual information contained herein, the matters set forth in this release, including statements identified by words such as “anticipate,” “believe,” “plan,” “expect,” “intend,” “project,” “will,” “potential” 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 assumptions, risks, uncertainties and other factors that could cause our results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update or revise such factors or 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 outcomes of which could materially and adversely affect our financial condition and operations, include, but are not limited to, the following: changes in enrollment, student mix and average registered credits taken by students; our ability to implement effective cost reduction strategies; our ability to obtain a replacement credit facility on acceptable terms; our continued compliance with and eligibility to participate in Title IV Programs under the Higher Education Act of 1965, as amended, and the regulations thereunder (including the “90-10 Rule” and financial responsibility standards prescribed by the U.S. Department of Education), as well as national and regional accreditation standards and state regulatory requirements; our ability to obtain accrediting agency approvals for existing, changed or new programs and to successfully defend litigation and other claims brought against us; rulemaking by the U.S. Department of Education and increased focus by the U.S. Congress and governmental agencies on for-profit education institutions; and changes in the overall U.S. or global economy. Further information about these and other relevant risks and uncertainties may be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and its subsequent filings with the Securities and Exchange Commission.

   
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
September 30,

2012

December 31,
2011

(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 242,828 $ 280,592
Short-term investments   130,495     160,607  
Total cash and cash equivalents and short-term investments 373,323 441,199
 
Student receivables, net 65,021 60,573
Student receivables held for sale 1,019 -
Receivables, other, net 1,672 2,914
Prepaid expenses 75,183 62,399
Inventories 9,157 11,356
Deferred income tax assets, net 10,940 10,940
Other current assets 5,214 17,769
Assets of discontinued operations   3,441     3,328  
Total current assets   544,970     610,478  
 
NON-CURRENT ASSETS:
Property and equipment, net 317,484 349,788
Goodwill 131,862 212,626
Intangible assets, net 74,032 77,186
Student receivables, net 8,016 9,297
Deferred income tax assets, net 9,452 9,522
Other assets, net 42,293 30,122
Assets of discontinued operations   16,920     17,101  
TOTAL ASSETS $ 1,145,029   $ 1,316,120  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 306 $ 844
Accounts payable 53,237 48,408
Accrued expenses:
Payroll and related benefits 39,359 41,853
Advertising and production costs 20,993 17,717
Other 48,542 67,271
Deferred tuition revenue 135,483 144,947
Liabilities of discontinued operations   12,843     8,403  
Total current liabilities   310,763     329,443  
 
NON-CURRENT LIABILITIES:
Capital lease obligations, net of current maturities - 207
Deferred rent obligations 97,766 102,079
Other liabilities 35,894 40,365
Liabilities of discontinued operations   28,842     37,935  
Total non-current liabilities   162,502     180,586  
 
SHARE-BASED AWARDS SUBJECT TO REDEMPTION 99 110
 
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 816 820
Additional paid-in capital 599,534 590,965
Accumulated other comprehensive loss (9,015 ) (5,136 )
Retained earnings 294,315 375,607
Cost of shares in treasury   (213,985 )   (156,275 )
Total stockholders' equity   671,665     805,981  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,145,029   $ 1,316,120  
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts and percentages)
         
 
For the Quarters Ended September 30,
2012

% of
Total
Revenue

 

2011 (1)

 

% of
Total
Revenue

 
REVENUE:
Tuition and registration fees $ 326,464 98.1 % $ 417,420 97.4 %
Other   6,293   1.9 %   10,991   2.6 %
Total revenue   332,757     428,411  
 
OPERATING EXPENSES:
Educational services and facilities 133,206 40.0 % 152,727 35.6 %
General and administrative 227,369 68.3 % 233,647 54.5 %
Depreciation and amortization 20,429 6.1 % 22,156 5.2 %
Goodwill and asset impairment   -   0.0 %   -   0.0 %
Total operating expenses   381,004   114.5 %   408,530   95.4 %
Operating (loss) income   (48,247 ) -14.5 %   19,881   4.6 %
 
OTHER INCOME (EXPENSE):
Interest income 686 0.2 % 263 0.1 %
Interest expense (22 ) 0.0 % (44 ) 0.0 %
Miscellaneous income   77   0.0 %   183   0.0 %
Total other income   741   0.2 %   402   0.1 %
 
PRETAX (LOSS) INCOME (47,506 ) -14.3 % 20,283 4.7 %
 
(Benefit from) provision for income taxes   (16,675 ) -5.0 %   6,215   1.5 %
 
(LOSS) INCOME FROM CONTINUING OPERATIONS (30,831 ) -9.3 % 14,068 3.3 %
 
Loss from discontinued operations, net of tax   (2,315 ) -0.7 %   (3,434 ) -0.8 %
 
NET (LOSS) INCOME   (33,146 ) -10.0 %   10,634   2.5 %
 
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
Foreign currency translation adjustments 743 (11,761 )
Unrealized losses on investments   (206 )   (6 )
Total other comprehensive income (loss)   537     (11,767 )
 
COMPREHENSIVE LOSS $ (32,609 ) $ (1,133 )
 
NET (LOSS) INCOME PER SHARE - DILUTED:
(Loss) income from continuing operations $ (0.47 ) $ 0.19
Loss from discontinued operations   (0.03 )   (0.05 )
Net (loss) income per share $ (0.50 ) $ 0.14  
 
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   66,100     74,058  
                     
 
(1) In November 2011, the Company sold its ownership interest in Istituto Marangoni. As a result, all prior period results
have been recast to include Istituto Marangoni as a component of discontinued operations.
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts and percentages)
         
For the Years to Date Ended September 30,
2012

% of
Total
Revenue

2011 (1)

% of
Total
Revenue

 
REVENUE:
Tuition and registration fees $ 1,112,950 98.0 % $ 1,396,557 96.6 %
Other   22,910   2.0 %   48,432   3.4 %
Total revenue   1,135,860     1,444,989  
 
OPERATING EXPENSES:
Educational services and facilities 431,739 38.0 % 476,370 33.0 %
General and administrative 667,618 58.8 % 695,313 48.1 %
Depreciation and amortization 60,555 5.3 % 62,563 4.3 %
Goodwill and asset impairment   85,661   7.5 %   2,676   0.2 %
Total operating expenses   1,245,573   109.7 %   1,236,922   85.6 %
Operating (loss) income   (109,713 ) -9.7 %   208,067   14.4 %
 
OTHER INCOME (EXPENSE):
Interest income 1,426 0.1 % 749 0.1 %
Interest expense (87 ) 0.0 % (120 ) 0.0 %
Miscellaneous income   -   0.0 %   1,968   0.1 %
Total other income   1,339   0.1 %   2,597   0.2 %
 
PRETAX (LOSS) INCOME (108,374 ) -9.5 % 210,664 14.6 %
 
(Benefit from) provision for income taxes   (30,109 ) -2.7 %   72,582   5.0 %
 
(LOSS) INCOME FROM CONTINUING OPERATIONS (78,265 ) -6.9 % 138,082 9.6 %
 
(Loss) income from discontinued operations, net of tax   (3,039 ) -0.3 %   940   0.1 %
 
NET (LOSS) INCOME   (81,304 ) -7.2 %   139,022   9.6 %
 
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax:
Foreign currency translation adjustments (3,553 ) (269 )
Unrealized (losses) gains on investments   (326 )   40  
Total other comprehensive loss   (3,879 )   (229 )
 
COMPREHENSIVE (LOSS) INCOME $ (85,183 ) $ 138,793  
 
NET (LOSS) INCOME PER SHARE - DILUTED:
(Loss) income from continuing operations $ (1.18 ) $ 1.83
(Loss) income from discontinued operations   (0.05 )   0.01  
Net (loss) income per share $ (1.23 ) $ 1.84  
 
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   66,325     75,518  
                     
 
(1) In November 2011, the Company sold its ownership interest in Istituto Marangoni. As a result, all prior period results
have been recast to include Istituto Marangoni as a component of discontinued operations.
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
   

 

For the Years to Date
Ended September 30,

2012   2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (81,304 ) $ 139,022
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Goodwill and asset impairment 85,661 2,676
Loss on pending sale of student receivables 930 -
Depreciation and amortization expense 60,555 63,319
Bad debt expense 28,967 40,909
Compensation expense related to share-based awards 7,302 11,884
Loss (gain) on disposition of property and equipment 293 (1,794 )
Changes in operating assets and liabilities   (69,910 )   (46,599 )
Net cash provided by operating activities   32,494     209,417  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments (117,188 ) (149,234 )
Sales of available-for-sale investments 146,873 148,934
Purchases of property and equipment (29,496 ) (67,444 )
Proceeds on the sale of assets - 6,259
Business acquisition, net of acquired cash (3,094 ) -
Other   (1,533 )   40  
Net cash used in investing activities   (4,438 )   (61,445 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (56,431 ) (137,033 )
Issuance of common stock 1,262 3,827
Tax benefit associated with stock option exercises - 377
Payments of assumed loans upon business acquisition (318 ) -
Payments of contingent consideration (5,818 ) (12,589 )
Payments of capital lease obligations   (741 )   (855 )
Net cash used in financing activities   (62,046 )   (146,273 )
 
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS:   (3,774 )   (2,080 )
 
NET DECREASE IN CASH AND CASH EQUIVALENTS (37,764 ) (381 )
DISCONTINUED OPERATIONS CASH ACTIVITY INCLUDED ABOVE:
Add: Cash balance of discontinued operations, beginning of the period - 28,838
Less: Cash balance of discontinued operations, end of the period - 36,428
CASH AND CASH EQUIVALENTS, beginning of the period   280,592     260,644  
CASH AND CASH EQUIVALENTS, end of the period $ 242,828   $ 252,673  
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
   
For the Quarters Ended September 30,

2012

2011 (1)

 
REVENUE:
CTU $ 88,976 $ 100,477
AIU 71,204 85,787
Health Education 65,399 102,195
Culinary Arts 54,583 73,686
Art & Design 37,914 49,686
International 14,665 16,664
Corporate and Other   16     (84 )
Total $ 332,757   $ 428,411  
 
OPERATING (LOSS) INCOME:
CTU (2) $ 9,712 $ 16,755
AIU 1,084 12,430
Health Education (28,468 ) (3,632 )
Culinary Arts (10,722 ) 3,800
Art & Design (7,963 ) 2,557
International (6,444 ) (3,064 )
Corporate and Other   (5,446 )   (8,965 )
Total $ (48,247 ) $ 19,881  
 
OPERATING MARGIN (LOSS):
CTU 10.9 % 16.7 %
AIU 1.5 % 14.5 %
Health Education -43.5 % -3.6 %
Culinary Arts -19.6 % 5.2 %
Art & Design -21.0 % 5.1 %
International   -43.9 %   -18.4 %
Total   -14.5 %   4.6 %
             
 
(1) In November 2011, the Company sold its ownership interest in Istituto Marangoni. As a result, all prior period results
have been recast to include Istituto Marangoni as a component of discontinued operations.
 
(2) Third quarter 2011 included a $5.0 million accrual for an estimate for potential reimbursement of government funds which
was subsequently settled in the third quarter of 2012 for approximately $3.6 million.
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
   
For the Years to Date Ended September 30,
2012

2011 (1)

 
REVENUE:
CTU $ 283,750 $ 330,603
AIU 238,985 288,092
Health Education 232,375 328,329
Culinary Arts 176,430 248,718
Art & Design 125,636 170,962
International 78,634 78,630
Corporate and Other   50     (345 )
Total $ 1,135,860   $ 1,444,989  
 
OPERATING (LOSS) INCOME:
CTU (2) $ 40,272 $ 87,016
AIU 22,623 66,384
Health Education (3) (107,565 ) 11,379
Culinary Arts (15,171 ) 30,741
Art & Design (4) (55,823 ) 20,627
International 4,275 8,729
Corporate and Other (5)   1,676     (16,809 )
Total $ (109,713 ) $ 208,067  
 
OPERATING MARGIN (LOSS):
CTU 14.2 % 26.3 %
AIU 9.5 % 23.0 %
Health Education -46.3 % 3.5 %
Culinary Arts -8.6 % 12.4 %
Art & Design -44.4 % 12.1 %
International   5.4 %   11.1 %
Total   -9.7 %   14.4 %
             
 
(1) In November 2011, the Company sold its ownership interest in Istituto Marangoni. As a result, all prior period results
have been recast to include Istituto Marangoni as a component of discontinued operations.
 
(2) Year to date 2011 included a $5.0 million accrual for an estimate for potential reimbursement of government funds which
was subsequently settled in the third quarter of 2012 for approximately $3.6 million.
 
(3) Year to date 2012 includes a $41.9 million non-cash goodwill impairment charge, a $1.1 million non-cash asset impairment
charge associated with the decision to teach out three campuses and a $1.0 million non-cash trade name impairment charge.
2011 results include a $2.0 million non-cash charge related to the impairment of certain accreditation rights.
 
(4) Year to date 2012 includes a $41.5 million non-cash goodwill impairment charge. 2011 results include a $0.5 million non-cash
charge related to the impairment of accreditation rights.
 
(5) Year to date 2012 includes a $19.0 million insurance recovery related to the settlement of claims under certain insurance
policies. Year to date 2011 includes a $7.0 million insurance recovery related to previously settled legal matters.
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ITEMS (1)
(In millions, except share and per share amounts)
           
For the Years to Date Ended September 30,

2012

2011
Operating Loss

Loss per Diluted
Share (2)

Operating Income

Earnings per
Diluted Share (2)

 
As Reported $ (109.7 ) $ (1.18 ) $ 208.1 $ 1.83
Reconciling Items:
Goodwill and Intangible Asset Impairments (3) 84.4 1.22 2.7 0.02
Asset Impairments (4) 1.3 0.01 - -
Insurance Recoveries (5)   (19.0 )   (0.19 )   (7.0 )   (0.06 )
Adjusted to Exclude Significant Items $ (43.0 ) $ (0.14 ) $ 203.8   $ 1.79  
 
Diluted Weighted Average Shares Outstanding   66,325     75,518  
                         
 
(1) The Company believes it is useful to present non-GAAP financial measures which exclude certain significant items as a means to understand the performance of its core business. As a general matter, the Company uses non-GAAP financial measures in conjunction with results presented in accordance with GAAP to help analyze the performance of its core business, assist with preparing the annual operating plan, and measure performance for some forms of compensation. In addition, the Company believes that non-GAAP financial information is used by analysts and others in the investment community to analyze the Company's historical results and to provide estimates of future performance and that failure to report non-GAAP measures could result in a misplaced perception that the Company's results have underperformed or exceeded expectations.
Non-GAAP financial measures when viewed in a reconciliation to corresponding GAAP financial measures, provides an additional way of viewing the Company's results of operations and the factors and trends affecting the Company's business. Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding financial results presented in accordance with GAAP.
 
(2) (Loss) earnings per diluted share is based on (loss) income from continuing operations and assumes a 35% tax rate for each deductible item.
 
(3) Year to date ended September 30, 2012 includes non-cash goodwill and intangible asset impairment charges totaling $84.4 million, of which $74.5 million is
non-deductible for income tax purposes, applicable to Health Education ($42.9) and Art & Design ($41.5). Year to date ended September 30, 2011 includes a $2.7
million non-cash impairment charge primarily related to accreditation rights.
 
(4) Year to date ended September 30, 2012 primarily includes non-cash asset impairment charges of $1.2 million associated with the decision to teach out three
Health Education campuses ($1.1) and one AIU campus ($0.1).
 
(5) Year to dated ended September 30, 2012 includes a $19.0 million insurance recovery related to the settlement of claims under certain insurance policies. Year to date
ended September 30, 2011 includes a $7.0 million insurance recovery related to previously settled legal matters.
 

Career Education Corporation
Investors:
Matthew Tschanz
Director, Corporate Finance
(847) 585-3899
Media:
Mark Spencer
Director, Corporate Communications
(847) 585-3802

 

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