SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: March 31, 2001

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to .

Commission File Number: 0-23245

Career Education Corporation
(Exact name of registrant as specified in its charter)

Delaware 36-3932190
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2895 Greenspoint Parkway, Suite 600, Hoffman Estates, IL 60195
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (847) 781-3600

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No

As of May 9, 2001, 21,770,067 shares of the registrant's Common Stock, par
value $.01, were outstanding.

CAREER EDUCATION CORPORATION

QUARTER ENDED MARCH 31, 2001

INDEX

PART I--FINANCIAL INFORMATION

Page
----

Item 1. Financial Statements

Condensed Unaudited Consolidated Balance Sheets as of March
31, 2001 and December 31, 2000............................. 3

Condensed Unaudited Consolidated Statements of Operations
for the three months ended March 31, 2001 and 2000......... 4

Condensed Unaudited Consolidated Statements of Cash Flows
for the three months ended March 31, 2001 and 2000......... 5

Notes to Condensed Unaudited Consolidated Financial 6
Statements.................................................

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 8

Item 3. Quantitative and Qualitative Disclosure About Market Risk... 13

PART II--OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders......... 14

Item 6. Exhibits and Reports on Form 8-K............................ 14

SIGNATURES............................................................... 15

PART I--FINANCIAL INFORMATION

Item 1. Financial Statements

CAREER EDUCATION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)

March 31, December 31,
2001 2000
--------- ------------

ASSETS
CURRENT ASSETS:
Cash.................................................. $ 6,404 $ 33,742
Student receivables, net.............................. 37,494 29,800
Other receivables..................................... 5,034 3,851
Inventories........................................... 3,643 2,874
Prepaid expenses and other current assets............. 23,627 13,116
Deferred income tax assets............................ 3,800 2,847
-------- --------
Total current assets................................ 80,002 86,230
-------- --------
PROPERTY AND EQUIPMENT, net............................. 113,076 90,836
INTANGIBLE ASSETS, net.................................. 157,364 93,634
OTHER ASSETS............................................ 5,657 9,999
-------- --------
TOTAL ASSETS............................................ $356,099 $280,699
======== ========

LIABILITIES AND STOCKHOLDERS' INVESTMENT

CURRENT LIABILITIES:
Current maturities of long-term debt.................. $ 6,995 $ 4,494
Accounts payable...................................... 5,964 7,608
Accrued expenses and other current liabilities........ 14,862 21,202
Accrued restructuring and severance................... 3,141 --
Deferred tuition revenue.............................. 33,978 23,610
-------- --------
Total current liabilities........................... 64,940 56,914
-------- --------
DEFERRED RENT OBLIGATIONS............................... 2,257 1,988
LONG-TERM DEBT, net of current maturities............... 28,123 14,626
DEFERRED INCOME TAX LIABILITIES......................... 5,118 6,185
OTHER LONG-TERM LIABILITIES............................. 2,070 93
COMMITMENTS AND CONTINGENCIES...........................
STOCKHOLDERS' INVESTMENT:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; no shares issued and outstanding at March
31, 2001 and December 31, 2000....................... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 21,753,143 and 20,323,739 shares issued
and outstanding at March 31, 2001 and
December 31, 2000, respectively...................... 217 203
Additional paid-in capital............................ 225,656 179,133
Accumulated other comprehensive income................ (819) (698)
Retained earnings..................................... 28,537 22,255
-------- --------
Total stockholders' investment...................... 253,591 200,893
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT.......... $356,099 $280,699
======== ========

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)

Three Months
Ended
March 31,
-----------------
2001 2000
-------- -------

REVENUE:
Tuition and registration fees, net........................ $109,413 $64,680
Other, net................................................ 10,302 5,635
-------- -------
Total net revenue....................................... 119,715 70,315
-------- -------
OPERATING EXPENSES:
Educational services and facilities....................... 48,888 27,739
General and administrative................................ 52,575 31,798
Depreciation and amortization............................. 7,125 4,562
-------- -------
Total operating expenses................................ 108,588 64,099
-------- -------
Income from operations.................................. 11,127 6,216
Interest income........................................... 229 150
Interest expense.......................................... (515) (275)
Share of affiliate earnings............................... 577 --
-------- -------
Income before provision for income taxes and cumulative
effect of change in accounting principle................. 11,418 6,091
PROVISION FOR INCOME TAXES.................................. 5,136 2,619
-------- -------
Income before cumulative effect of change in accounting
principle................................................ 6,282 3,472
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, net of taxes of $587............................ -- (778)
-------- -------
NET INCOME.................................................. $ 6,282 $ 2,694
======== =======
NET INCOME PER SHARE:
Basic--
Income before cumulative effect of change in accounting
principle.............................................. $ 0.29 $ 0.22
Cumulative effect of change in accounting principle, net
of taxes............................................... -- (0.05)
-------- -------
Net income............................................ $ 0.29 $ 0.17
======== =======
Diluted--
Income before cumulative effect of change in accounting
principle.............................................. $ 0.28 $ 0.21
Cumulative effect of change in accounting principle, net
of taxes............................................... -- (0.05)
-------- -------
Net income............................................ $ 0.28 $ 0.16
======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic..................................................... 21,626 15,820
-------- -------
Diluted................................................... 22,565 16,394
======== =======

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

Three Months
Ended March 31,
-----------------
2001 2000
-------- -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 6,282 $ 2,694
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 7,125 4,562
Compensation expense related to stock options........... 13 13
Deferred income taxes................................... 4,874 740
Changes in operating assets and liabilities, net of
acquisitions........................................... (24,127) (1,847)
-------- -------
Net cash provided by (used in) operating activities... (5,833) 6,162
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash........................ (1,383) (3,047)
Acquisition costs and financing transaction costs......... (1,244) (369)
Purchase of property and equipment, net................... (12,464) (2,979)
-------- -------
Net cash used in investing activities................. (15,091) (6,395)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................. 2,485 441
Payments of amounts due and notes payable to former owners
of acquired
businesses, capital lease obligations and other long-term
debt..................................................... (17,636) (599)
Net borrowings (payments) on revolving loans under Credit
Agreement................................................ 9,000 (2,000)
-------- -------
Net cash used in financing activities................. (6,151) (2,158)
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (263) (11)
-------- -------
NET DECREASE IN CASH........................................ (27,338) (2,402)
CASH, beginning of period................................... 33,742 44,745
-------- -------
CASH, end of period......................................... $ 6,404 $42,343
======== =======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations for purchase of equipment....... $ -- $ 996

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1--Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 2001 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2001. The condensed
consolidated balance sheet at December 31, 2000 has been derived from the
audited consolidated financial statements at that date, but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. For additional information,
refer to the consolidated financial statements and footnotes for the year
ended December 31, 2000 that are included in our annual report on Form 10-K.

Note 2--Business Acquisitions

On January 2, 2001, we completed our acquisition of EduTrek International,
Inc., a Georgia corporation and operator of American InterContinental
University (AIU). EduTrek's shareholders received an aggregate of
approximately 1.2 million shares of our common stock (0.0901 shares of our
common stock for each share of EduTrek stock) and approximately $2.5 million
in cash ($0.1877 per share). The acquisition was accounted for as a purchase
and the purchase price, subject to adjustment, exceeded the fair market value
of identifiable assets acquired and liabilities assumed, resulting in goodwill
of approximately $65.7 million as of the end of the first quarter of 2001.
Additionally, at November 30, 2000, one of EduTrek's lenders, Sylvan Learning
Systems, Inc., assigned its $5.0 million promissory note to us, in exchange
for $5.0 million plus accrued interest. This note is included in other assets
in the accompanying consolidated balance sheet as of December 31, 2000.

As part of the acquisition we acquired a minority interest in the American
InterContinental University in Dubai, United Arab Emirates. The entity is
accounted for by the equity method and, therefore, is not consolidated in our
results of operations.

Note 3--Comprehensive Income

The disclosure of comprehensive income and accumulated other comprehensive
income, which encompasses net income and foreign currency translation
adjustments, is as follows:

Three Months
Ended March
31,
--------------
2001 2000
------ ------

Net Income................................................ $6,282 $2,694
Other Comprehensive Loss
Foreign currency translation adjustment.................. (121) (29)
------ ------
Comprehensive Income...................................... $6,161 $2,665
====== ======

Note 4--Recent Accounting Pronouncement

On December 3, 1999, the Securities Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition, to provide guidance on
the recognition, presentation, and disclosure of revenue in financial
statements. The SAB outlines basic criteria that must be met before
registrants may recognize revenue,

including persuasive evidence of the existence of an arrangement, the delivery
of products or services, a fixed and determinable sales price, and reasonable
assurance of collection.

Prior to the release of SAB 101, our revenue recognition policy was in
compliance with generally accepted accounting principles. Through December 31,
1999, we recognized application and registration fees as revenue upon receipt.
Effective January 1, 2000, we adopted a change in accounting principle to
comply with the specific provisions and guidance of SAB 101. As a result, we
recognized a cumulative charge of $0.8 million, net of taxes, in the first
quarter of 2000. SAB 101 requires us to recognize revenue related to
application and registration fees over the program period. For additional
information refer to our annual report on Form 10-K for pro forma information
reflecting the effect of the change in the accounting principle assuming SAB
101 had been adopted at the beginning of the period.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by SFAS 137, is
effective for fiscal years beginning after June 15, 2000. This statement
requires that all derivative financial instruments, such as interest rate swap
contract and foreign exchange contracts, be recognized in the financial
statements and measured at fair value regardless of the purpose or intent for
holding them. Changes in the fair market value of derivative financial
instruments are either recognized periodically in income or shareholder's
equity (as a component of comprehensive income), depending on whether the
derivative is being used to hedge changes in fair value or cash flow. We do
not currently hold or issue any derivative financial instruments, but will
adopt SFAS 133 if this becomes applicable in the future.

Note 5--Credit Facility

As of March 31, 2001, we had approximately $19.5 million of borrowings
outstanding under our Credit Facility. Additionally, we had approximately $4.1
million of outstanding letters of credit as of such date.

Note 6--Assets Held For Sale

As of March 31, 2001, we had approximately $1.0 million in real estate
property held for sale. This property was acquired as a result of our purchase
of California Culinary Academy, Inc. This amount is included in other assets
on the accompanying condensed unaudited consolidated balance sheet.

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

The discussion below contains certain forward-looking statements (as such
term is defined in Section 21E of the Securities Exchange Act of 1934) that
are based on the beliefs of our management, as well as assumptions made by,
and information currently available to, our management. Our actual growth,
results, performance and business prospects and opportunities in 2001 and
beyond could differ materially from those expressed in, or implied by, any
such forward-looking statements. See "Special Note Regarding Forward-Looking
Statements" on page 12 for a discussion of risks and uncertainties that could
cause or contribute to such material differences.

The following discussion and analysis should be read in conjunction with
the Condensed Consolidated Financial Statements and attached Notes appearing
elsewhere in this document.

Background and Overview

We are a provider of private, for-profit postsecondary education with 38
campuses throughout the United States and in Canada, the United Kingdom and
the United Arab Emirates. We had approximately 32,800 students enrolled as of
April 30, 2001 and our schools enjoy long operating histories and offer a
variety of master's degree, bachelor's degree, associate degree, and diploma
programs in career-oriented disciplines within our core curricula of:

. visual communication and design technologies

. information technology

. business studies

. culinary arts

We have experienced significant growth both internally and through
acquisitions. We have invested significant amounts of capital in the hiring of
additional personnel and increased marketing and capital improvements at each
of the schools we have acquired. The increased costs of personnel and
marketing are expensed as incurred and are reflected in general and
administrative expenses. Additional depreciation is a result of capital
improvements and increased amortization is a result of added goodwill.

We believe that EBITDA, while not a substitute for generally accepted
accounting principles' measures of operating results, is an important measure
of our financial performance and that of our schools. Our EBITDA increased
74%, from $10.8 million in the first quarter of 2000 to $18.8 million in the
first quarter of 2001. We believe that EBITDA is particularly meaningful due
principally to the role acquisitions have played in our development. Our rapid
growth through acquisitions has resulted in significant non-cash depreciation
and amortization expense, because a significant portion of the purchase price
of a school acquired by us is generally allocated to fixed assets, goodwill
and other intangible assets. As a result of our ongoing acquisition strategy,
non-cash amortization expense may continue to be substantial.

Our principal source of revenue is tuition collected from our students. The
academic year is at least 30 weeks in length, but varies both by individual
school and program of study. The academic year is divided by term, which is
determined by start dates, which vary by school and program. Payment of each
term's tuition may be made by full cash payment, financial aid and/or an
installment payment plan. If a student withdraws from school prior to the
completion of the term, we refund the portion of tuition already paid which is
attributable to the period of the term that is not completed. Tuition revenue
is recognized ratably over the period of the student's program and is
reflected net of bad debt expense.

Our campuses charge tuition at varying amounts, depending not only on the
particular school, but also on the type of program and the specific
curriculum. On average, our campuses increase tuition one or more times
annually.

Other revenue consists of bookstore sales, placement fees, contract
training, dormitory and cafeteria fees, rental income, and restaurant revenue.
Other revenue is recognized during the period services are rendered or goods
are delivered.

Educational services and facilities expense includes costs directly
attributable to the educational activity of our schools, including salaries
and benefits of faculty, academic administrators and student support
personnel. Educational services and facilities expense also includes costs of
educational supplies and facilities (including rents on school leases),
distance learning costs, certain costs of establishing and maintaining
computer laboratories, costs of student housing and owned facility costs.

General and administrative expense includes salaries and benefits of
personnel in recruitment, admissions, accounting, personnel, compliance and
corporate and school administration. Costs of promotion and development,
advertising and production of marketing materials, and occupancy of the
corporate offices are also included in this expense category.

Depreciation and amortization includes costs associated with the
depreciation of purchased computer laboratories, equipment, furniture and
fixtures, courseware, owned facilities, capitalized equipment leases and
amortization of intangible assets, primarily including goodwill and non-
competition agreements with the previous owners of our schools.

Share of affiliate earnings represents our share of the income before
provision for income taxes from our American InterContinental University
campus in Dubai, United Arab Emirates. This entity is accounted for by the
equity method and therefore, is not consolidated in our results for
operations.

Acquisitions

On January 2, 2001, we completed our acquisition of EduTrek International,
Inc., a Georgia corporation and operator of American InterContinental
University (AIU). EduTrek's shareholders received an aggregate of
approximately 1.2 million shares of our common stock (0.0901 shares of our
common stock for each share of EduTrek stock) and approximately $2.5 million
in cash ($0.1877 per share). The acquisition was accounted for as a purchase
and the purchase price, subject to adjustment, exceeded the fair market value
of identifiable assets acquired and liabilities assumed, resulting in goodwill
of approximately $65.7 million as of the end of the first quarter of 2001.
Additionally, at November 30, 2000, one of EduTrek's lenders, Sylvan Learning
Systems, Inc., assigned its $5.0 million promissory note to us in exchange for
$5.0 million plus accrued interest. This note is included in other assets in
the accompanying consolidated balance sheet as of December 31, 2000.

Results of Operations

The following table summarizes our operating results as a percentage of net
revenue for the periods indicated.

Three Months Ended
March 31,
--------------------
2001 2000
--------- ---------

REVENUE:
Tuition and registration fees, net.................. 91.4% 92.0%
Other, net.......................................... 8.6 8.0
--------- ---------
Total net revenue................................. 100.0 100.0
--------- ---------
OPERATING EXPENSES:
Educational services and facilities................. 40.8 39.5
General and administrative.......................... 43.9 45.2
Depreciation and amortization....................... 6.0 6.5
--------- ---------
Total operating expenses.......................... 90.7 91.2
--------- ---------
Income from operations............................ 9.3 8.8
Interest income..................................... 0.2 0.2
Interest expense.................................... (0.5) (0.3)
Share of affiliate earnings......................... 0.5 --
--------- ---------
Income before provision for income taxes and
cumulative effect of change in accounting
principle.......................................... 9.5 8.7
PROVISION FOR INCOME TAXES............................ 4.3 3.8
--------- ---------
Income before cumulative effect of change in
accounting principle............................... 5.2 4.9
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
net.................................................. -- (1.1)
--------- ---------
NET INCOME............................................ 5.2% 3.8%
========= =========

Three Months Ended March 31, 2001 Compared to Three Months Ended March 31,
2000

Revenue. Net tuition and registration fee revenue increased 69%, from $64.7
million in the first quarter of 2000 to $109.4 million in the first quarter of
2001. The increase was due to an approximate 38% increase in net tuition and
registration fee revenue for schools owned prior to 2000 (i.e., same-school)
which was attributable to a 22% increase in the average student population,
tuition increases effective after the first quarter of 2000 and student
enrollment mix. The increase was also due to added net tuition and
registration fee revenue of $20.7 million from schools acquired during and
after 2000. Bad debt expense remained fairly consistent at 3% of gross school
revenue.

Other net revenue increased 83%, from $5.6 million in the first quarter of
2000 to $10.3 million in the first quarter of 2001, primarily due to the
schools acquired during and after 2000.

Educational Services and Facilities Expense. Educational services and
facilities expense increased 76%, from $27.7 million in the first quarter of
2000 to $48.9 million in the first quarter of 2001. Of this increase, $11.5
million was attributable to schools owned prior to 2000 and $9.6 million was
attributable to schools acquired during and after 2000. These increases were
primarily due to the increase in average student population mentioned above,
as well as an increase in curriculum development activities.

General and Administrative Expense. General and administrative expense
increased 65%, from $31.8 million in the first quarter of 2000 to $52.6
million in the first quarter of 2001. The increase was primarily attributable
to a $9.3 million increase of expenses for schools acquired during and after
2000, an increase of

$2.1 million related to planned corporate and regional infrastructure
enhancements and increased advertising and marketing (including admissions) of
$5.6 million for schools owned prior to 2000.

Depreciation and Amortization Expense. Depreciation and amortization
expense increased 56%, from $4.6 million in the first quarter of 2000 to $7.1
million in the first quarter of 2001. The increase was primarily due to
capital expenditures for schools acquired during and after 2000 and related
increased depreciation expense of $0.9 million in 2001. Additionally,
depreciation expense increased $1.1 million due to the depreciation expense
for schools owned prior to 2000. Amortization expense increased 47% from $1.1
million in the first quarter of 2000 to $1.6 million in the first quarter of
2001, primarily due to additional amortization of non-competition agreements
and goodwill related to schools acquired during and after 2000, offset by a
decrease in amortization of non-competition agreements for schools owned prior
to 2000.

Interest Income. Interest income increased 53%, from $0.1 million in the
first quarter of 2000 to $0.2 million in the first quarter of 2001, due to
investments related to the proceeds from our May 2000 public offering.

Interest Expense. Interest expense increased 87%, from $0.3 million in the
first quarter of 2000 to $0.5 million in the first quarter of 2001, due to the
acquisition of EduTrek in the first quarter of 2001.

Share of affiliate earnings. Share of affiliate earnings from our affiliate
in Dubai, United Arab Emirates, was $0.6 million for the first quarter of
2001.

Provision for Income Taxes. The provision for income taxes increased 96%
from $2.6 million in the first quarter of 2000 to $5.1 million in the first
quarter of 2001 as a result of increases in pretax income and a one percentage
point increase in the effective income tax rate.

Income before Cumulative Effect of Change in Accounting Principle. Income
before cumulative effect of change in accounting principle increased 81%, from
$3.5 million in the first quarter of 2000 to $6.3 million in the first quarter
of 2001, due to the factors noted above.

Cumulative Effect of Change in Accounting Principle. We adopted Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition, as of January 1, 2000
resulting in a net of tax charge of $0.8 million. SAB 101 requires us to
recognize revenue related to application and registration fees over the
student benefit period rather than as revenue upon receipt.

Net Income. Net income increased 133%, from $2.7 million in the first
quarter of 2000 to $6.3 million in the first quarter of 2001, due to the
factors noted above.

Liquidity and Capital Resources

Our merger with EduTrek International, Inc., operator of American
InterContinental University, was completed on January 2, 2001. Under the terms
of the merger agreement, EduTrek shareholders received an aggregate of
approximately 1.2 million shares of our common stock (approximately 0.09
shares of our stock for each share of EduTrek stock) and approximately $2.5
million in cash (approximately $0.19 per share). There were approximately
13.32 million EduTrek shares outstanding as of the merger date.

We finance our operating activities and our internal growth through cash
generated from operations. We finance acquisitions through funding from a
combination of equity issuances, credit facilities and remaining cash
generated from operations. Net cash provided by operating activities decreased
from $6.2 million provided by operations in the first quarter of 2000 to net
cash used in operating activities of $5.8 million in the first quarter of
2001, due to decreases in the operating assets and liabilities offset by
increases in net income and depreciation and amortization. The $22.3 million
decrease in operating assets and liabilities was attributed to a $10.1 million
decrease in accounts payable and accrueds, a $6.4 million increase in
prepaids, a $5.9 million increase in student accounts receivables and a $2.1
million increase in other receivables. Of the $22.3 million decrease in
operating

assets and liabilities, $10.3 million was attributed specifically to our
January 2, 2001 acquisition of EduTrek in which the anticipated working
capital changes that have occurred since the acquisition flow through cash
flow from operating activities rather than cash flow from business
acquisitions under investing activities. Excluding the effect of the
acquisition of EduTrek, net cash provided by operating activities would have
been approximately $4.5 million for the first quarter of 2001.

Capital expenditures increased from $3.0 million in the first quarter of
2000 to $12.5 million in the first quarter of 2001 due to investments in
leasehold improvements on new and expanded facilities and investments in
capital equipment necessitated by increasing student population. We expect
capital expenditures to be approximately $35 to $45 million for all of 2001.
We would normally expect capital expenditures to increase as new schools are
acquired or opened, student population increases and current facilities and
equipment are upgraded and expanded.

Net student receivables at March 31 as a percentage of net student revenue
for the first quarter increased from 20% in 2000 to 34% in 2001. This change
was primarily due to a greater number of students taking higher priced
programs that result in lower government funding for students as a percentage
of cash receipts. Based upon past experience and judgment, we establish an
allowance for doubtful accounts with respect to tuition receivables. When a
student withdraws, the receivable balance attributable to such student is
charged to this allowance for doubtful accounts. Our historical bad debt
expense as a percentage of gross student revenue for the first quarter ended
March 31, 2001 and for the first quarter ended March 31, 2000, was 3.1% and
2.8%, respectively.

Our credit agreement provides for a $90.0 million line of credit. We may
obtain letters of credit up to $50.0 million. Outstanding letters of credit
reduce the revolving credit facility availability under our credit agreement.
Our credit agreement matures on October 26, 2003. Under the credit agreement
our borrowings bear interest, payable quarterly, at either:

(1) the bank's base or prime rate depending on whether the particular loan
is denominated in U.S. or Canadian dollars, plus a specified number of
basis points, ranging from 0 to 75, based upon our leverage ratio; or

(2) LIBOR, plus a specified number of basis points, ranging from 75 to 200
based upon our leverage ratio.

Under the credit agreement, we are required, among other things, to
maintain (1) financial ratios with respect to debt to EBITDA and interest
coverage and (2) a specified level of net worth. We are also subject to
limitations on, among other things, payment of dividends, disposition of
assets and incurrence of additional indebtedness. We are required to pledge
the stock of our subsidiaries as collateral for the repayment of our
obligations under the credit agreement. At March 31, 2001, we had
approximately $4.1 million of outstanding letters of credit and $19.5 million
of outstanding borrowings under our credit facility. As a result, at March 31,
2001, our remaining credit availability under the credit agreement was
approximately $66.4 million.

The DOE requires that we keep unbilled Title IV Program funds that are
collected in separate cash accounts until the students are billed for the
program portion related to those Title IV Program funds. In addition, all
funds transferred to our schools through electronic funds transfer program are
held in a separate cash account until certain conditions are satisfied. As of
March 31, 2001, we held nominal amounts of such funds in separate accounts.
The restrictions on any cash held in these accounts have not significantly
affected our ability to fund daily operations.

Special Note Regarding Forward-Looking Statements

This Form 10-Q contains certain statements which reflect our expectations
regarding our future growth, results of operations, performance and business
prospects and opportunities. Wherever possible, words such as "anticipate,"
"believe," "plan," "expect" and similar expressions have been used to identify
these "forward-

looking" statements. These statements reflect our current beliefs and are
based on information currently available to us. Accordingly, these statements
are subject to risks and uncertainties, which could cause our actual growth,
results, performance and business prospects and opportunities to differ from
those, expressed in, or implied by, these statements.

These risks and uncertainties include, but are not limited to:

. implementation of our operating and growth strategy;

. risks inherent in operating private for-profit postsecondary educational
institutions;

. risks associated with general economic and business conditions;

. charges and costs related to acquisitions;

. our ability to successfully integrate our acquired institutions;

. our ability to continue our acquisition strategy;

. our ability to attract and retain students at our institutions;

. our ability to compete with new and enhanced competition in the
education industry;

. our ability to meet regulatory and accrediting agency requirements; and

. our ability to attract and retain key employees and faculty.

We are not obligated to update or revise these forward-looking statements
to reflect new events or circumstances.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

We are exposed to the impact of interest rate changes, foreign currency
fluctuations and changes in the market value of our investments. We have not
entered into interest rate caps or collars or other hedging instruments.

Our exposure to changes in interest rates is limited to borrowings under
revolving credit agreements, which have variable interest rates tied to the
prime and LIBOR rates. We estimate that the book value of each of our debt
instruments approximated its fair value at March 31, 2001.

We are subject to fluctuations in the value of the Canadian dollar and the
British pound vis-a-vis the U.S. dollar. Our investment in our foreign
operations are not significant and the book value of the assets and
liabilities of these operations at March 31, 2001 approximated their fair
value.

PART II--OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders.

(a) Our annual meeting of stockholders was held on May 11, 2001.

(b) Our stockholders voted as follows to elect two Class III directors to
our board of directors:

Authority
Directors: For: Withheld:
---------- ---------- ---------

Thomas B. Lally...................................... 19,017,173 393,848
John M. Larson....................................... 16,496,044 2,914,977

In addition to Mr. Lally and Mr. Larson, the following directors' terms of
office as directors continued after the meeting: Robert E. Dowdell, Wallace O.
Laub, Keith K. Ogata and Patrick K. Pesch.

(c) Our stockholders voted as follows on an amendment to the Career
Education Corporation Amended and Restated Certificate of Incorporation, which
would have authorized the increase in the number of authorized shares of
Career Education Corporation's Common Stock from 50,000,000 to 150,000,000:

Broker
For: Against: Abstentions: Non-Votes:
---- --------- ------------ ----------

10,158,160 9,249,554 3,307 --

Approval of this amendment required the affirmative vote of a majority of
the outstanding shares of Common Stock entitled to vote thereon and
accordingly, the proposed amendment was not approved.

(d) Our stockholders voted as follows to ratify the appointment of Arthur
Andersen LLP as independent auditors of our financial statements for the year
ended December 31, 2001:

Broker
For: Against: Absentions: Non-Votes:
---- -------- ----------- ----------

19,239,634 167,619 3,768 --

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.

None.

(b) Reports on Form 8-K.

We filed a Current Report on Form 8-K on January 3, 2001 attaching our
press release regarding the consummation of our acquisition of EduTrek
International, Inc. (Items 5 and 7 of Form 8-K).

We filed a Current Report on Form 8-K on January 11, 2001 to report the
completion of our acquisition of EduTrek International, Inc. (Items 2
and 7 of Form 8-K).

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 thereunto duly authorized.

CAREER EDUCATION CORPORATION

/s/ JOHN M. LARSON
Date: May 15, 2001 By: _________________________________
John M. Larson
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)

Date: May 15, 2001 /s/ PATRICK K. PESCH
By: _________________________________
Patrick K. Pesch
Senior Vice President,
Chief Financial Officer, Treasurer
and Secretary
(Principal Financial and
Accounting Officer)