| Item 1.01. | Entry into a Material Definitive Agreement. |
On July 26, 2019, Career Education Corporation (“CEC”) and certain operating subsidiaries (together the “CEC Parties”) executed a settlement agreement (the “Agreement”) with the Federal Trade Commission (“FTC”) to resolve a previously disclosed inquiry commenced by the FTC on August 20, 2015. While not admitting any wrongdoing, CEC chose to settle the FTC inquiry after almost four years of legal expenses and cooperating with the FTC’s investigation. CEC is pleased this matter is reaching resolution, particularly as its universities focus on their strategic priorities that directly support quality academic outcomes and their students’ success. Student services and access to federal student loans are not impacted by the Agreement, nor does the Agreement involve the academic quality of the educational programs at CEC’s universities.
The Agreement provides that the CEC Parties will pay $30 million in monetary relief, including for the purpose of restitution, to be distributed at the sole discretion of the FTC. CEC expects to record a related pre-tax settlement charge of $30 million in the second quarter of 2019 arising from the monetary terms of the settlement. Under the terms of the Agreement, the CEC Parties have agreed to continued compliance with the Federal Trade Commission Act and the Telemarketing and Consumer Fraud and Abuse Prevention Act, including compliance with the national do not call registry. The CEC Parties agreed to enhance their current operational and compliance processes with respect to prospective student leads purchased from lead aggregators and will implement other agreed-upon compliance measures. Specifically, the Agreement requires the operation of a system to monitor lead aggregators and generators involving a compliance review by, or on behalf of, the CEC Parties of the various sources a prospective student interacts with prior to the CEC Parties’ purchase and use of the prospective student lead. In addition, the Agreement contains requirements regarding employee and lead aggregator acknowledgements of the Agreement, compliance certifications and record creation and maintenance.
The Agreement which is in the form of a Stipulation as to Entry of an Order for Permanent Injunction and Monetary Judgment is subject to approval by the Commissioners of the FTC and upon approval by them will be submitted to, and will become effective upon its entry as an Order in, the United States District Court of the Northern District of Illinois. CEC anticipates the Order will be entered within the next 60 days. The principal provisions of the Agreement will remain in effect for twenty years.
The Company does not expect the Agreement to negatively impact its previously provided 2019 adjusted operating income outlook. As a reminder, the Company will report second quarter 2019 financial results after the market closes on Wednesday, August 7, 2019 and will host a live conference call and webcast to discuss second quarter financial results and 2019 outlook later that evening at 5:30 p.m. Eastern time.
Cautionary Statement Regarding Forward-Looking Statements
This current report on Form 8-K contains forward-looking statements, including statements about the expected approval and effects of the Agreement. These forward-looking statements and the ultimate effect of the Agreement are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including the FTC Commissioners’ failure to approve the Agreement and the extent to which our enhanced compliance undertakings impact student enrollments and operational costs. Except to the extent required by law, the Company disclaims any obligations to update any forward-looking statements.
