Exhibit 99.1
CAREER EDUCATION CORPORATION REPORTS
RESULTS FOR SECOND QUARTER 2007
Hoffman Estates, Ill. (August 8, 2007) – Career Education Corporation (NASDAQ: CECO) today reported consolidated revenue from continuing operations of $405.3 million and income from continuing operations, net of tax, of $11.0 million, or $0.12 per diluted share, during the second quarter of 2007, compared to consolidated loss from continuing operations, net of tax, of ($40.0) million, or ($0.41) per diluted share, during the second quarter of 2006.
“We have made progress with respect to several of our key internal metrics that we believe will drive future performance,” said Gary E. McCullough, Chief Executive Officer. “Our new student start growth of 16% and population growth of 4% are higher than they have been in over a year, and conversion rates, show rates and retention rates continue to improve. Our goal is to finalize and execute on a strategic plan that will allow us to sustain these positive trends, address our issues, and better position the company for profitable, long-term growth.”
RESULTS OF CONTINUING OPERATIONS
The company is in the process of selling 11 of its schools and campuses, including the nine campuses that comprise the Gibbs division, McIntosh College, and Lehigh Valley College. The results of these 11 schools and campuses are reflected in this release as discontinued operations. Except as otherwise noted, financial data and non-financial metrics reflected in this release exclude discontinued operations.
During the second quarter of 2007, we announced our decision to “teach out” our two Brooks College campuses in Long Beach and Sunnyvale, California that previously were held for sale. Accordingly, the operating losses of our two Brooks College campuses previously reported in discontinued operations are now included in results from continuing operations for all 2007 and 2006 periods presented.
Three Months Ended June 30, 2007
· Consolidated revenue was $405.3 million during the second quarter of 2007, a 10.5 percent decrease from consolidated revenue of $452.6 million during the second quarter of 2006. Revenue generated by the University segment’s fully-online platforms decreased 24.5 percent to $136.2 million during the second quarter of 2007, from $180.3 million during the second quarter of 2006. The decrease in revenue was primarily due to a decrease in average revenue per student. The decrease in average revenue per student was primarily due to a population mix change that included an increase in students in our University segment’s fully-online associate degree programs, which offer lower tuition rates than those of our University segment’s fully-online bachelor’s degree and master’s degree programs, and more part-time students at CTU Stonecliffe, the associate degree division of CTU Online. The increase in online associate degree-seeking students was a result of a pricing decline in our AIU Online associate programs and strong student population growth at CTU Stonecliffe.
· Consolidated income from operations increased to $11.9 million during the second quarter of 2007, from consolidated loss from operations of ($21.8) million during the second quarter of 2006. Operating profit margin percentage was 2.9 percent during the second quarter of 2007, compared to operating loss margin percentage of (4.8) percent during the second quarter of 2006. Second quarter 2006 consolidated loss from operations of ($21.8) million included a pre-tax goodwill impairment charge of approximately $85.0 million. Excluding the impact of the goodwill impairment charge, income from operations and operating profit margin percentage during the second quarter of 2006 were $63.2 million and 14.0 percent, respectively.
The University segment’s fully-online platforms’ income from operations declined to $30.9 million during the second quarter of 2007, from $67.6 million during the second quarter of 2006.
· Consolidated income from operations during the second quarter of 2007 reflect the impact of the following unusual items that affect the comparability of our second quarter 2007 results with those reported in prior periods:
· During the second quarter of 2007, we recorded expenses of approximately $13.1 million in connection with the probable settlement in the near term of certain legal matters.
· Also, as discussed above, we made the decision during the second quarter of 2007 to “teach out” our two Brooks College campuses that were previously held for sale. The operating losses of these two campuses previously reported in discontinued operations are now included in results from continuing operations.
· In addition, our 2007 second quarter and year-to-date operating results include operating losses incurred by our Istituto Marangoni schools, which we acquired during the first quarter of 2007.
All three of these unusual items effectively reduced our second quarter 2007 consolidated income from operations and operating profit margin percentage, as shown in the table below (dollars in millions):
| | Impact on Consolidated
Income From
Operations | | Impact on Operating
Profit Margin
Percentage | |
Probable settlements of certain legal matters | | $ | (13.1 | ) | (3.2 | )% |
Brooks College operating loss | | $ | (2.3 | ) | (0.6 | )% |
Istituto Marangoni operating loss | | $ | (0.8 | ) | (0.2 | )% |
Excluding the impact of the items highlighted in the table above and the goodwill impairment charge recorded during the second quarter of 2006, operating profit margin percentage decreased from the second quarter of 2006 to the second quarter of 2007. The decrease in operating profit margin percentage was primarily due to lower revenue per student, a student population mix change among our AIU and CTU fully-online programs, and increased occupancy expense and other fixed costs as a percentage of revenue due to declines in revenue. The adverse impact on the second quarter 2007 operating profit margin percentage of the factors discussed above was offset, in part, by a decrease in bad debt expense as a percentage of revenue.
· Consolidated income from continuing operations, net of tax, during the second quarter of 2007 was $11.0 million, or $0.12 per diluted share, compared to consolidated loss from continuing operations, net of tax, of ($40.0) million, or ($0.41) per diluted share, during the second quarter of 2006. The goodwill impairment charge of $85.0 million recorded during the second quarter of 2006 reduced
second quarter 2006 consolidated income from operations, net of tax, per diluted share by approximately $0.81. The following three unusual items, which are discussed above, effectively reduced consolidated income from continuing operations, net of tax, during the second quarter of 2007 as follows (in millions, except per share data):
| | Pretax
Charge | | Tax Benefit | | Net Charge | | Impact on
Earnings
Per Diluted
Share | |
Probable settlements of certain legal matters | | $ | (13.1 | ) | $ | 4.8 | | $ | (8.3 | ) | $ | (0.088 | ) |
Brooks College operating loss | | $ | (2.3 | ) | $ | 0.8 | | $ | (1.5 | ) | $ | (0.016 | ) |
Istituto Marangoni operating loss | | $ | (0.8 | ) | $ | 0.3 | | $ | (0.5 | ) | $ | (0.005 | ) |
Six Months Ended June 30, 2007
· Consolidated revenue was $833.3 million during the six months ended June 30, 2007, relative to $942.6 million during the six months ended June 30, 2006. Revenue generated by the University segment’s fully-online platforms decreased 26.7 percent, to $273.6 million during the six months ended June 30, 2007, from $373.4 million during the six months ended June 30, 2006.
· Income from operations declined to $58.1 million during the six months ended June 30, 2007, from $75.9 million during the six months ended June 30, 2006. Operating income margin percentage decreased to 7.0 percent during the six months ended June 30, 2007, from 8.1 percent during the six months ended June 30, 2006.
· Consolidated income from continuing operations, net of tax, during the six months ended June 30, 2007, was $44.3 million, or $0.46 per diluted share, relative to $24.3 million, or $0.24 per diluted share, during the six months ended June 30, 2006.
RESULTS OF DISCONTINUED OPERATIONS
Loss from discontinued operations associated with our 11 schools and campuses currently held for sale was $5.9 million, net of tax, during the second quarter of 2007, compared to loss from discontinued operations of $7.5 million, net of tax, during the second quarter of 2006.
CONSOLIDATED CASH FLOWS AND FINANCIAL POSITION
Cash Flows
· Cash used in operating activities was $0.9 million during the second quarter of 2007, compared to cash provided by operating activities of $8.8 million during the second quarter of 2006. The decrease is primarily attributable to the decrease in net income during the second quarter of 2007, excluding the second quarter 2006 non-cash goodwill impairment charge of $85.0 million.
· Capital expenditures decreased to $14.5 million during the second quarter of 2007, from $25.6 million during the second quarter of 2006. Capital expenditures represented 3.3 percent of total consolidated revenue, including revenue generated by schools and campuses held for sale, during the second quarter of 2007.
Financial Position
· As of June 30, 2007 and December 31, 2006, cash and cash equivalents and investments totaled $363.3 million and $447.6 million, respectively. This decrease is primarily attributable to approximately $124.9 million used by the company during the first six months of 2007 to repurchase approximately 4.0 million shares of its common stock.
· Quarterly days sales outstanding (DSO) were 12 days as of June 30, 2007, an increase of one day from DSO as of June 30, 2006, of 11 days.
Stock Repurchase Program
Since July 2005, CEC’s Board of Directors has authorized the use of a total of $800.2 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.
During the second quarter of 2007, the company repurchased 2.3 million shares of its common stock for approximately $75.0 million at an average price of $32.34 per share. Since the inception of the program, the company has repurchased 14.7 million shares of its common stock for approximately $491.2 million.
As of June 30, 2007, approximately $308.8 million was available under the stock repurchase program to repurchase outstanding shares of the company’s common stock.
POPULATION AND NEW STUDENT START DATA
Student Population
Total student population by reportable segment as of July 31, 2007 and 2006, was as follows:
| | Population
July 31, 2007 (1) | | Population
July 31, 2006 (1) | | Percentage
Difference | |
Academy (2) | | 8,600 | | 8,100 | | 6 | % |
Colleges | | 6,900 | | 7,900 | | (13 | )% |
Culinary Arts | | 11,000 | | 10,600 | | 4 | % |
Health Education | | 11,800 | | 10,400 | | 13 | % |
International | | 1,000 | | 700 | | 43 | % |
University (3) | | 39,500 | | 37,700 | | 5 | % |
CEC Consolidated | | 78,800 | | 75,400 | | 4 | % |
(1) Segment and CEC consolidated student population data does not include the student population of schools held for sale or schools in the process of a teach-out.
(2) As of July 31, 2007, the Academy segment population included approximately 80 students who were taking classes at such date in fully-online academic programs offered by Academy segment schools. There were no Academy segment fully-online students as of July 31, 2006.
(3) As of July 31, 2007 and 2006, the University segment population included approximately 30,800 students and 28,500 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 second quarter of 2007 and 2006, were as follows:
| | Second quarter
2007 (1) | | Second quarter
2006 (1) | | Percentage
Difference | |
Academy | | 1,230 | | 1,080 | | 14 | % |
Colleges | | 620 | | 780 | | (21 | )% |
Culinary Arts | | 2,090 | | 1,690 | | 24 | % |
Health Education | | 3,660 | | 3,010 | | 22 | % |
International | | 330 | | 330 | | — | |
University (2) | | 12,250 | | 10,510 | | 17 | % |
CEC Consolidated | | 20,180 | | 17,400 | | 16 | % |
(1) Segment and CEC consolidated student starts data does not include student starts of schools held for sale or schools in the process of a teach-out.
(2) University segment new student starts includes approximately 10,680 students and 8,980 students, respectively, who began taking classes in fully-online academic programs offered by the University segment schools during the second quarter of 2007 and 2006.
CONFERENCE CALL INFORMATION
Career Education Corporation will host a conference call on August 9, 2007, at 10:00 AM (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 866-831-6234 (domestic) or 617-213-8854 (international) and citing code 12290103. Please log-in or dial-in at least ten 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 888-286-8010 (domestic) or 617-801-6888 (international) and citing code 89699477.
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 90,000 students across the world in a variety of career-oriented disciplines. The more than 75 campuses that serve these students are located throughout the U.S. and in Canada, France, Italy, and the United Kingdom, and offer doctoral, master's, bachelor's, and associate degrees and diploma and certificate programs. Approximately half of our students attend the web-based virtual campuses of American InterContinental University Online and Colorado Technical University Online.
CEC is an industry leader whose gold-standard brands are recognized globally. Those brands include, among others, the Le Cordon Bleu Schools North America; the Harrington College of Design; the Brooks Institute of Photography; the Katharine Gibbs Schools; American InterContinental University; Colorado Technical University and Sanford-Brown Institutes and Colleges. Through its schools, its educators, and its employees, CEC strives to provide quality education that enables its students to graduate and pursue rewarding careers.
For more information, see the company’s website at www.careered.com. The company's website includes a detailed listing of individual campus locations and web links to its more than 75 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," 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 investigation and Justice Department investigation 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 the sale of any campuses; 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, 2006, and from time to time in our other reports filed with the Securities and Exchange Commission.
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Investors: | Karen M. King | |
| 847/585-3899 | |
| www.careered.com | |
| | |
Media: | Lynne Baker | |
| 847/851-7006 | |
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| | June 30, | | December 31, | |
| | 2007 | | 2006 | |
ASSETS | | | | | |
CURRENT ASSETS: | | | | | |
Cash and cash equivalents | | $ | 99,161 | | $ | 187,853 | |
Investments | | 264,095 | | 259,766 | |
Total cash and cash equivalents and investments | | 363,256 | | 447,619 | |
Receivables: | | | | | |
Students, net of allowance for doubtful accounts of $29,504 and $28,709 as of June 30, 2007, and December 31, 2006, respectively | | 45,030 | | 48,564 | |
Other, net | | 9,229 | | 8,094 | |
Prepaid expenses | | 39,207 | | 29,621 | |
Inventories | | 18,375 | | 16,853 | |
Deferred income tax assets | | 7,105 | | 11,357 | |
Assets held for sale | | 60,692 | | 63,156 | |
Other current assets | | 18,725 | | 32,064 | |
Total current assets | | 561,619 | | 657,328 | |
PROPERTY AND EQUIPMENT, net | | 341,954 | | 352,270 | |
GOODWILL | | 380,450 | | 349,760 | |
INTANGIBLE ASSETS, net | | 45,550 | | 33,984 | |
OTHER ASSETS | | 24,565 | | 32,321 | |
TOTAL ASSETS | | $ | 1,354,138 | | $ | 1,425,663 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
CURRENT LIABILITIES: | | | | | |
Current maturities of long-term debt | | $ | 11,311 | | $ | 12,098 | |
Accounts payable | | 26,665 | | 30,095 | |
Accrued expenses: | | | | | |
Payroll and related benefits | | 26,636 | | 27,012 | |
Income taxes | | 4,586 | | — | |
Other | | 87,742 | | 78,885 | |
Deferred tuition revenue | | 114,598 | | 132,186 | |
Liabilities held for sale | | 31,246 | | 31,879 | |
Total current liabilities | | 302,784 | | 312,155 | |
| | | | | |
LONG-TERM LIABILITIES: | | | | | |
Long-term debt, net of current maturities | | 3,304 | | 2,763 | |
Deferred rent obligations | | 91,660 | | 90,360 | |
Deferred income tax liabilities | | 16,328 | | 16,527 | |
Other | | 8,413 | | 7,980 | |
Total long-term liabilities | | 119,705 | | 117,630 | |
| | | | | |
SHARE-BASED AWARDS SUBJECT TO REDEMPTION | | 13,827 | | 13,477 | |
| | | | | |
STOCKHOLDERS’ EQUITY: | | | | | |
Common stock | | 1,076 | | 1,069 | |
Additional paid-in capital | | 688,554 | | 666,780 | |
Accumulated other comprehensive income | | 9,431 | | 5,683 | |
Retained earnings | | 710,001 | | 675,188 | |
Cost of shares in treasury | | (491,240 | ) | (366,319 | ) |
Total stockholders’ equity | | 917,822 | | 982,401 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 1,354,138 | | $ | 1,425,663 | |
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended June 30, 2007 and 2006
(In thousands, except per share amounts and percentages)
| | % of | | % of | | | | % of | |
| | 2007 | | Revenue | | 2006 | | Revenue | |
REVENUE: | | | | | | | | | |
Tuition and registration fees | | $ | 389,243 | | 96.0 | % | $ | 435,443 | | 96.2 | % |
Other | | 16,028 | | 4.0 | % | 17,141 | | 3.8 | % |
Total revenue | | 405,271 | | 100.0 | % | 452,584 | | 100.0 | % |
| | | | | | | | | |
OPERATING EXPENSES: | | | | | | | | | |
Educational services and facilities | | 143,958 | | 35.5 | % | 136,663 | | 30.1 | % |
General and administrative | | 229,717 | | 56.7 | % | 233,405 | | 51.6 | % |
Depreciation and amortization | | 19,662 | | 4.9 | % | 19,371 | | 4.3 | % |
Goodwill impairment charge | | — | | 0.0 | % | 84,975 | | 18.8 | % |
Total operating expenses | | 393,337 | | 97.1 | % | 474,414 | | 104.8 | % |
Income (loss) from operations | | 11,934 | | 2.9 | % | (21,830 | ) | (4.8) | % |
| | | | | | | | | |
OTHER INCOME (EXPENSE): | | | | | | | | | |
Interest income | | 4,132 | | 1.0 | % | 4,679 | | 1.0 | % |
Interest expense | | (209 | ) | 0.0 | % | (347 | ) | (0.1) | % |
Share of affiliate earnings | | 949 | | 0.2 | % | 696 | | 0.2 | % |
Miscellaneous income (expense) | | 479 | | 0.1 | % | (251 | ) | (0.1) | % |
Total other income | | 5,351 | | 1.3 | % | 4,777 | | 1.0 | % |
| | | | | | | | | |
Income (loss) before provision for income taxes | | 17,285 | | 4.3 | % | (17,053 | ) | (3.8) | % |
PROVISION FOR INCOME TAXES | | 6,287 | | 1.6 | % | 22,959 | | 5.1 | % |
| | | | | | | | | |
INCOME (LOSS) FROM CONTINUING OPERATIONS | | $ | 10,998 | | 2.7 | % | $ | (40,012 | ) | (8.8) | % |
| | | | | | | | | |
DISCONTINUED OPERATIONS: | | | | | | | | | |
Loss from discontinued operations, net of income tax benefit | | (5,873 | ) | (1.4) | % | (7,497 | ) | (1.7) | % |
| | | | | | | | | |
NET INCOME (LOSS) | | $ | 5,125 | | 1.3 | % | $ | (47,509 | ) | (10.5) | % |
| | | | | | | | | |
NET INCOME (LOSS) PER SHARE - DILUTED: | | | | | | | | | |
Income (loss) from continuing operations | | $ | 0.116 | | | | $ | (0.413 | ) | | |
Loss from discontinued operations | | (0.062 | ) | | | (0.077 | ) | | |
Net income (loss) | | $ | 0.054 | | | | $ | (0.490 | ) | | |
| | | | | | | | | |
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING: | | 94,659 | | | | 96,989 | | | |
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Six Months Ended June 30, 2007 and 2006
(In thousands, except per share amounts and percentages)
| | | | % of | | | | % of | |
| | 2007 | | Revenue | | 2006 | | Revenue | |
REVENUE: | | | | | | | | | |
Tuition and registration fees | | $ | 797,531 | | 95.7 | % | $ | 905,122 | | 96.0 | % |
Other | | 35,789 | | 4.3 | % | 37,451 | | 4.0 | % |
Total revenue | | 833,320 | | 100.0 | % | 942,573 | | 100.0 | % |
| | | | | | | | | |
OPERATING EXPENSES: | | | | | | | | | |
Educational services and facilities | | 288,263 | | 34.6 | % | 278,462 | | 29.5 | % |
General and administrative | | 448,540 | | 53.8 | % | 465,454 | | 49.4 | % |
Depreciation and amortization | | 38,443 | | 4.6 | % | 37,760 | | 4.0 | % |
Goodwill impairment charge | | — | | 0.0 | % | 84,975 | | 9.0 | % |
Total operating expenses | | 775,246 | | 93.0 | % | 866,651 | | 91.9 | % |
Income from operations | | 58,074 | | 7.0 | % | 75,922 | | 8.1 | % |
| | | | | | | | | |
OTHER INCOME (EXPENSE): | | | | | | | | | |
Interest income | | 8,836 | | 1.1 | % | 8,973 | | 1.0 | % |
Interest expense | | (563 | ) | (0.1) | % | (685 | ) | (0.1) | % |
Share of affiliate earnings | | 2,661 | | 0.3 | % | 1,599 | | 0.1 | % |
Miscellaneous income (expense) | | 716 | | 0.1 | % | (95 | ) | 0.0 | % |
Total other income | | 11,650 | | 1.4 | % | 9,792 | | 1.0 | % |
| | | | | | | | | |
Income before provision for income taxes | | 69,724 | | 8.4 | % | 85,714 | | 9.1 | % |
PROVISION FOR INCOME TAXES | | 25,449 | | 3.1 | % | 61,395 | | 6.5 | % |
| | | | | | | | | |
INCOME FROM CONTINUING OPERATIONS | | $ | 44,275 | | 5.3 | % | $ | 24,319 | | 2.6 | % |
| | | | | | | | | |
DISCONTINUED OPERATIONS: | | | | | | | | | |
Loss from discontinued operations, net of income tax benefit | | (9,112 | ) | (1.1) | % | (19,129 | ) | (2.0) | % |
| | | | | | | | | |
NET INCOME | | $ | 35,163 | | 4.2 | % | $ | 5,190 | | 0.6 | % |
| | | | | | | | | |
NET INCOME PER SHARE - DILUTED: | | | | | | | | | |
Income from continuing operations | | $ | 0.463 | | | | $ | 0.244 | | | |
Loss from discontinued operations | | (0.095 | ) | | | (0.192 | ) | | |
Net income | | $ | 0.368 | | | | $ | 0.052 | | | |
| | | | | | | | | |
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING: | | 95,715 | | | | 99,631 | | | |
