CECO CECO Environmental Corporation

Career Education Corporation (NASDAQ: CECO) today reported total revenue of $543.4 million, and net income of $73.0 million, or $0.95 per diluted share, for the first quarter of 2011 compared to total revenue of $529.4 million and net income of $55.2 million, or $0.66 per diluted share, for the first quarter of 2010.

“Our performance continues to be in line with our expectations as we take steps to improve our programs, processes and systems to comply with new federal regulations,” said Gary E. McCullough, President and Chief Executive Officer. “We intend to emerge from this period of change among the leading providers of private sector education, serving our students better than ever before.”

CONSOLIDATED RESULTS

Quarter Ended March 31, 2011

• Total revenue was $543.4 million for the first quarter of 2011, a 2.6 percent increase from $529.4 million for the first quarter of 2010.
• Operating income was $113.2 million for the first quarter of 2011, versus operating income of $89.4 million for the first quarter of 2010, an increase of 26.6 percent. The operating margin was 20.8 percent for the first quarter of 2011, compared to an operating margin of 16.9 percent for the first quarter of 2010.
• Operating income for the first quarter of 2011 included a $7.0 million ($0.06 per diluted share) pretax insurance recovery related to previously settled legal matters. Operating income for the first quarter 2010 included pretax expense of $8.1 million ($0.06 per diluted share) related to the increase in the allowance for doubtful accounts associated with certain extended payment plan programs as well as $3.7 million ($0.03 per diluted share) in pretax lease termination charges incurred in connection with the move to the Company’s new campus support center.

CONSOLIDATED CASH FLOWS AND FINANCIAL POSITION

Cash Flows

• Net cash flows provided by operating activities totaled $59.7 million for the quarter ended March 31, 2011, compared to $53.5 million for the quarter ended March 31, 2010.
• Capital expenditures increased to $23.8 million during the quarter ended March 31, 2011, from $19.8 million during the quarter ended March 31, 2010. Capital expenditures represented 4.4 percent of total revenue during the quarter ended March 31, 2011 and 3.7 percent during the quarter ended March 31, 2010.

Financial Position

• As of March 31, 2011 and December 31, 2010, cash and cash equivalents and short-term investments totaled $399.1 million and $449.2 million, respectively.

Stock Repurchase Program

During the quarter ended March 31, 2011, the Company repurchased approximately 4.1 million shares of its common stock for approximately $89.9 million at an average price of $21.69 per share.

As of March 31, 2011, approximately $200.5 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 AND NEW STUDENT STARTS

Student Population

Total student population by reportable segment as of March 31, 2011 and 2010, was as follows:

      As of March 31,

% Change2011 vs. 2010

2011 2010

Student Population

CTU 29,100 28,900 1 % AIU 22,500 25,000 -10 % Health Education 31,300 28,200 11 % Culinary Arts 13,500 12,200 11 % Art & Design 11,900 12,800 -7 % International 10,800 9,500 14 %   Total Student Population 119,100 116,600 2 %

New Student Starts

New student starts by reportable segment for the quarters ended March 31, 2011 and 2010, were as follows:

      For the QuartersEnded March 31, % Change2011 vs. 2010 2011 2010

New Student Starts

CTU 7,440 8,840 -16 % AIU 8,660 11,260 -23 % Health Education 9,140 9,380 -3 % Culinary Arts 3,560 3,860 -8 % Art & Design 2,240 2,770 -19 % International 790 710 11 %   Total New Student Starts 31,830 36,820 -14 %

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Thursday, May 5, 2011 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 29440682. 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 29440682.

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 119,000 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, Italy, 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”); Istituto Marangoni; 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 risks, uncertainties and other factors that could cause our actual growth, 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 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: availability of Title IV and other student financial aid or loans for our students; Congress’ willingness or ability to maintain or increase funding for Title IV Programs; our ability to maintain continued eligibility to participate in Title IV Programs, including under the “90-10 Rule” under the Higher Education Act of 1965, as amended; the impacts of the U.S. Department of Education’s new and pending regulations addressing certain aspects of administration of Title IV federal financial aid programs (including among other matters, gainful employment, certain compensation related to recruiting and admission of students, more stringent state approval criteria that may affect current state approval and licensing processes applicable to postsecondary education institutions and distance learning programs, and misrepresentation liability) on our business practices, costs of compliance and of developing and implementing changes in operations, student recruitment or enrollment, program offerings that may have significant or material effects on our operations, business and profitability; potential higher bad debt expense or reduced revenue associated with requiring students to pay more of their educational expenses while in school or with directly providing extended payment plans to our students; increased competition; the effectiveness of our regulatory compliance efforts; impairment of goodwill and other intangible assets as we continue to redefine the company and manage our brands and marketing to improve effectiveness and reduce costs; charges and expenses associated with exiting excess facility space; our ability to comply with accrediting agency requirements or obtain accrediting agency approvals for existing or new programs; the outcome of any reviews and audits conducted by accrediting, state and federal agencies; our dependence on information technology systems; our ownership or use of intellectual property; costs and impacts of regulatory, legal and administrative actions, proceedings and investigations, governmental regulations, and class action and other lawsuits; our ability to manage and continue growth; and other factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2010, and from time to time in our current reports filed with the Securities and Exchange Commission.

   

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands)

    March 31,2011 December 31,2010 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 239,261 $ 289,482 Short-term investments   159,831     159,671   Total cash and cash equivalents and short-term investments 399,092 449,153 Student receivables, net 64,147 62,287 Receivables, other, net 3,352 4,132 Prepaid expenses 34,768 52,077 Inventories 11,502 13,142 Deferred income tax assets, net 31,665 31,665 Other current assets 21,905 6,246 Assets of discontinued operations   4,865     6,742   Total current assets   571,296     625,444     NON-CURRENT ASSETS: Property and equipment, net 359,678 366,775 Goodwill 384,397 381,476 Intangible assets, net 118,499 118,763 Student receivables, net 9,667 12,522 Deferred income tax assets, net 4,208 5,092 Other assets, net 32,479 42,752 Assets of discontinued operations   18,975     19,055   TOTAL ASSETS $ 1,499,199   $ 1,571,879     LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Current maturities of capital lease obligations $ 862 $ 783 Accounts payable 41,469 56,013 Accrued expenses: Payroll and related benefits 47,665 73,608 Advertising and production costs 27,855 18,846 Income taxes 17,254 — Earnout payments 17,643 17,439 Other 52,563 98,113 Deferred tuition revenue 171,205 176,102 Liabilities of discontinued operations   14,908     15,100   Total current liabilities   391,424     456,004     NON-CURRENT LIABILITIES: Capital lease obligations, net of current maturities 561 1,223 Deferred rent obligations 104,224 103,996 Earnout payments 3,251 7,690 Other liabilities 40,570 30,853 Liabilities of discontinued operations   32,839     37,576   Total non-current liabilities   181,445     181,338     SHARE-BASED AWARDS SUBJECT TO REDEMPTION 137 153 STOCKHOLDERS’ EQUITY: Preferred stock — — Common stock 821 812 Additional paid-in capital 582,497 576,853 Accumulated other comprehensive income (loss) 8,247 (81 ) Retained earnings 430,042 356,991 Cost of shares in treasury   (95,414 )   (191 ) Total stockholders’ equity   926,193     934,384   TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,499,199   $ 1,571,879        

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts and percentages)

        For the Quarters Ended March 31, 2011 % ofTotalRevenue

2010(1)

% ofTotalRevenue REVENUE: Tuition and registration fees $ 521,094 95.9 % $ 509,508 96.2 % Other   22,267   4.1 %   19,918   3.8 % Total revenue   543,361     529,426     OPERATING EXPENSES: Educational services and facilities 168,901 31.1 % 159,162 30.1 % General and administrative 240,859 44.3 % 264,140 49.9 % Depreciation and amortization   20,366   3.7 %   16,678   3.2 % Total operating expenses   430,126   79.2 %   439,980   83.1 % Operating income   113,235   20.8 %   89,446   16.9 %   OTHER INCOME (EXPENSE): Interest income 237 0.0 % 247 0.0 % Interest expense (26 ) 0.0 % (13 ) 0.0 % Miscellaneous income (expense)   2,000   0.4 %   (277 ) -0.1 % Total other income (expense)   2,211   0.4 %   (43 ) 0.0 %   PRETAX INCOME 115,446 21.2 % 89,403 16.9 %   Provision for income taxes   41,861   7.7 %   32,257   6.1 %   INCOME FROM CONTINUING OPERATIONS 73,585 13.5 % 57,146 10.8 %   Loss from discontinued operations, net of tax   (550 ) -0.1 %   (1,924 ) -0.4 %   NET INCOME $ 73,035   13.4 % $ 55,222   10.4 %   NET INCOME (LOSS) PER SHARE—DILUTED: Income from continuing operations $ 0.96 $ 0.69 Loss from discontinued operations   (0.01 )   (0.03 ) Net income per share $ 0.95   $ 0.66     DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   76,753     83,116   (1)   In December 2010, the Transitional Schools segment ceased to exist as the Company completed the teach out of its last remaining Transitional School, AIU-Los Angeles, CA, whose results for all periods presented are now reflected as a component of discontinued operations.      

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

  For the Quarters Ended March 31, 2011   2010 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 73,035 $ 55,222 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 20,366 16,753 Bad debt expense 17,151 26,217 Compensation expense related to share-based awards 4,200 4,995 (Gain)/loss on disposition of property and equipment (1,801 ) 337 Changes in operating assets and liabilities   (53,295 )   (50,056 ) Net cash provided by operating activities   59,656     53,468     CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale investments (60,934 ) (117,628 ) Sales of available-for-sale investments 60,774 111,782 Purchases of property and equipment (23,792 ) (19,757 ) Earnout payments (4,235 ) (4,382 ) Proceeds on the sale of assets 6,259 — Other   85     (309 ) Net cash used in investing activities   (21,843 )   (30,294 )   CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (89,915 ) (89,637 ) Issuance of common stock 1,292 883 Tax benefit associated with stock option exercises 159 64 Payments of capital lease obligations   (641 )   (749 ) Net cash used in financing activities   (89,105 )   (89,439 )   EFFECT OF FOREIGN CURRENCY EXCHANGE RATECHANGES ON CASH AND CASH EQUIVALENTS:   1,071     (2,857 )   NET DECREASE IN CASH AND CASH EQUIVALENTS (50,221 ) (69,122 ) DISCONTINUED OPERATIONS CASH ACTIVITY INCLUDED ABOVE: Add: Cash balance of discontinued operations, beginning of the period — 738 Less: Cash balance of discontinued operations, end of the period — 169 CASH AND CASH EQUIVALENTS, beginning of the period   289,482     284,334   CASH AND CASH EQUIVALENTS, end of the period $ 239,261   $ 215,781        

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED SELECTED SEGMENT INFORMATION

(In thousands, except percentages)

    For the Quarters EndedMarch 31, 2011  

2010(1)

REVENUE: CTU (2) $ 118,065 $ 110,999 AIU (2) 104,274 116,778 Health Education 116,309 103,864 Culinary Arts 91,773 92,754 Art & Design (2) 64,600 62,887 International 48,476 42,338 Corporate and Other   (136 )   (194 ) Total $ 543,361   $ 529,426     OPERATING INCOME (LOSS): CTU (2) $ 36,288 $ 29,406 AIU (2) 27,617 32,798 Health Education 11,630 11,008 Culinary Arts (4) 13,767 8,205 Art & Design (2) 10,395 6,504 International 14,115 13,432 Corporate and Other (3) (5)   (577 )   (11,907 ) Total $ 113,235   $ 89,446     OPERATING MARGIN: CTU 30.7 % 26.5 % AIU 26.5 % 28.1 % Health Education 10.0 % 10.6 % Culinary Arts 15.0 % 8.8 % Art & Design 16.1 % 10.3 % International   29.1 %   31.7 % Total   20.8 %   16.9 %      

(1)

 

In December 2010, the Transitional Schools segment ceased to exist as the Company completed the teach out of its last remaining Transitional School, AIU-Los Angeles, CA, whose results for all periods presented are now reflected as a component of discontinued operations.

(2)

Prior period financial results have been reclassified to report CTU, AIU and Art & Design as individual segments due to a change in organizational structure beginning in January, 2011. Previously, these results were reported on a combined basis as the University segment.

(3)

First quarter 2011 included a $7.0 million pretax insurance recovery related to previously settled legal matters.

(4)

First quarter 2010 included a $3.2 million pretax charge for additional bad debt expense for increases in reserve rates applied to outstanding student receivable balances attributed to the Company’s student extended payment plans.

(5)

First quarter 2010 included a $2.4 million pretax lease termination charge incurred in connection with the Company’s move to its new campus support center and a $4.1 million pretax charge for an increase in the allowance for doubtful accounts related to the Company’s previously terminated recourse loan program.

     

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED SELECTED SEGMENT INFORMATION FOR CTU, AIU and Art & Design (1)

(Dollars in thousands)

    For the 2010 Quarters Ended,   Full Year March 31   June 30   September 30   December 31 REVENUE: CTU $ 110,999 $ 114,769 $ 116,311 $ 123,236 $ 465,315 AIU 116,778 120,037 113,119 98,647 448,581 Art & Design   62,887     62,301     61,082     59,125     245,395   Total $ 290,664   $ 297,107   $ 290,512   $ 281,008   $ 1,159,291     OPERATING INCOME: CTU $ 29,406 $ 32,458 $ 32,414 $ 39,603 $ 133,881 AIU 32,798 40,004 23,252 22,905 118,959 Art & Design   6,504     7,001     9,158     6,510     29,173   Total $ 68,708   $ 79,463   $ 64,824   $ 69,018   $ 282,013     OPERATING MARGIN: CTU 26.5 % 28.3 % 27.9 % 32.1 % 28.8 % AIU 28.1 % 33.3 % 20.6 % 23.2 % 26.5 % Art & Design   10.3 %   11.2 %   15.0 %   11.0 %   11.9 % Total   23.6 %   26.7 %   22.3 %   24.6 %   24.3 %   NEW STUDENT STARTS: CTU 8,840 9,480 9,180 8,740 AIU 11,260 5,670 6,760 6,230 Art & Design   2,770     1,690     3,130     1,540   Total   22,870     16,840     19,070     16,510       As of the 2010 Quarters Ended, March 31 June 30 September 30 December 31 STUDENT POPULATION: CTU 28,900 29,000 29,900 30,900 AIU 25,000 20,400 21,000 20,000 Art & Design   12,800     11,600     12,600     11,500   Total   66,700     61,000     63,500     62,400       For the 2009 Quarters Ended, Full Year March 31 June 30 September 30 December 31 REVENUE: CTU $ 83,132 $ 87,121 $ 92,848 $ 105,520 $ 368,621 AIU 97,893 104,199 107,184 99,767 409,043 Art & Design   57,914     58,759     60,135     63,722     240,530   Total $ 238,939   $ 250,079   $ 260,167   $ 269,009   $ 1,018,194     OPERATING INCOME: CTU $ 16,437 $ 16,544 $ 15,556 $ 31,352 $ 79,889 AIU 20,611 25,196 23,716 20,604 90,127 Art & Design   5,440     4,140     6,149     9,336     25,065   Total $ 42,488   $ 45,880   $ 45,421   $ 61,292   $ 195,081     OPERATING MARGIN: CTU 19.8 % 19.0 % 16.8 % 29.7 % 21.7 % AIU 21.1 % 24.2 % 22.1 % 20.7 % 22.0 % Art & Design   9.4 %   7.0 %   10.2 %   14.7 %   10.4 % Total   17.8 %   18.3 %   17.5 %   22.8 %   19.2 %   NEW STUDENT STARTS: CTU 6,530 7,550 8,760 9,800 AIU 9,270 4,990 6,530 7,210 Art & Design   1,810     2,660     3,060     1,540   Total   17,610     15,200     18,350     18,550       As of the 2009 Quarters Ended, March 31 June 30 September 30 December 31 STUDENT POPULATION: CTU 22,300 22,900 24,500 27,300 AIU 21,700 17,900 19,500 20,300 Art & Design   10,900     11,000     12,400     11,700   Total   54,900     51,800     56,400     59,300   (1)   Prior period financial results have been reclassified to report CTU, AIU and Art & Design as individual segments due to a change in organizational structure beginning in January, 2011. Previously, these results were reported on a combined basis as the University segment. The above information is provided for the 2010 and 2009 quarter and fiscal year ends to facilitate analysis of these segments.