CECO CECO Environmental Corporation

Career Education Corporation (NASDAQ: CECO) today reported total revenue of $497.2 million, and net income of $55.4 million, or $0.73 per diluted share, for the second quarter of 2011 compared to total revenue of $527.7 million and net income of $64.3 million, or $0.80 per diluted share, for the second quarter of 2010.

CONSOLIDATED RESULTS

Quarter Ended June 30, 2011

• Total revenue was $497.2 million for the second quarter of 2011, a 5.8 percent decrease from $527.7 million for the second quarter of 2010.
• Operating income was $82.7 million for the second quarter of 2011, versus operating income of $96.8 million for the second quarter of 2010, a decrease of 14.5 percent. The operating margin was 16.6 percent for the second quarter of 2011, compared to an operating margin of 18.3 percent for the second quarter of 2010. Operating income for the second quarter of 2011 included $2.7 million in non-cash goodwill and asset impairment charges primarily related to accreditation rights for certain schools.
• Income from continuing operations for the quarter ended June 30, 2011, was $55.8 million, or $0.74 per diluted share, compared to $66.3 million, or $0.82 per diluted share, for the quarter ended June 30, 2010. Income from continuing operations for the quarters ended June 30, 2011 and 2010 included discrete income tax benefits of $1.6 million and $4.2 million, respectively.

Year to Date Ended June 30, 2011

• Total revenue was $1,040.6 million for the year to date ended June 30, 2011, compared to $1,057.2 million for the year to date ended June 30, 2010.
• Operating income increased to $195.9 million for the year to date ended June 30, 2011, from $186.2 million for the year to date ended June 30, 2010. The operating margin increased to 18.8 percent for the year to date ended June 30, 2011, from 17.6 percent for the year to date ended June 30, 2010. Operating income for the year to date ended June 30, 2011 included a $7.0 million insurance recovery related to previously settled legal matters and $2.7 million in non-cash goodwill and asset impairment charges. Operating income for the year to date ended June 30, 2010 included an additional expense of $8.1 million for the increase in the allowance for doubtful accounts associated with certain extended payment plan programs and a $3.7 million lease termination charge in connection with the Company’s move to its new campus support center.
• Income from continuing operations for the year to date ended June 30, 2011, was $129.3 million, or $1.70 per diluted share, compared to $123.4 million, or $1.51 per diluted share, for the year to date ended June 30, 2010.

CONSOLIDATED CASH FLOWS AND FINANCIAL POSITION

Cash Flows

• Net cash flows provided by operating activities totaled $114.8 million for the year to date ended June 30, 2011, compared to $47.9 million for the year to date ended June 30, 2010. The increase in operating cash flows, as compared to the prior year to date, is primarily due to the prior year cash flow being negatively impacted by a delay in the receipt of Title IV funds of approximately $30 million and the continued use of Company funds being extended to an increasing number of students in the form of extended payment plans.
• Capital expenditures increased to $47.9 million during the year to date ended June 30, 2011, from $43.2 million during the year to date ended June 30, 2010. Capital expenditures represented 4.6 percent of total revenue during the year ended June 30, 2011 and 4.1 percent during the year to date ended June 30, 2010.

Financial Position

• As of June 30, 2011 and December 31, 2010, cash and cash equivalents and short-term investments totaled $388.8 million and $449.2 million, respectively.

Stock Repurchase Program

During the quarter ended June 30, 2011, the Company repurchased 1.8 million shares of its common stock for approximately $40.0 million at an average price of $22.51 per share. Year to date ended June 30, 2011, the Company repurchased 5.9 million shares of its common stock for approximately $129.9 million at an average price of $21.94 per share.

As of June 30, 2011, approximately $160.5 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 June 30, 2011 and 2010, was as follows:

  As of June 30,   % Change 2011   2010 2011 vs. 2010

Student Population

CTU 28,100 29,000 -3 % AIU 17,600 20,400 -14 % Health Education 29,100 28,600 2 % Culinary Arts 13,200 12,100 9 % Art & Design 10,000 11,600 -14 % International 3,700 2,800 32 %   Total Student Population 101,700 104,500 -3 %

New Student Starts

New student starts by reportable segment for the quarters ended June 30, 2011 and 2010, were as follows:

 

For the QuartersEnded June 30,

  % Change 2011   2010 2011 vs. 2010

New Student Starts

CTU 7,810 9,480 -18 % AIU 4,290 5,670 -24 % Health Education 7,750 8,450 -8 % Culinary Arts 3,700 3,150 17 % Art & Design 1,000 1,690 -41 % International 330 380 -13 %   Total New Student Starts 24,880 28,820 -14 %

INTERNAL INVESTIGATION REGARDING PLACEMENT RATES

Career Education Corporation has identified improper practices at certain of its health education segment campuses relating to the determination of reported placement rates. The company recently discovered these practices in preparing its response to the previously disclosed subpoena issued to the company by the New York Attorney General on May 17, 2011. Career Education’s Board of Directors has directed outside independent legal counsel Dewey & LeBoeuf to undertake a thorough investigation of these practices. In addition, independent counsel has been directed to review the determination of student placements at all of the company’s domestic schools. The company will implement remedial measures based on the results of independent counsel’s investigation. Results of the investigation will be reported to the New York Attorney General and other relevant accrediting and governmental bodies, as appropriate.

“The integrity of Career Education and its schools is paramount. I am greatly disappointed that some people within our organization have acted inappropriately and not lived up to the standards Career Education expects,” said Gary E. McCullough, president and chief executive officer. “We will take all steps necessary to ensure we accurately determine and report placement rates in the future.”

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Thursday, August 4, 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 30161720. 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 30161720.

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 100,000 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 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 growth, and program offerings that may have significant or material effects on our operations, business and profitability; increased competition; the effectiveness of our regulatory compliance efforts; the outcome of any state attorney general investigations, including those underway in Florida and New York; the outcome of our investigation into the determination and reporting of placement rates at our domestic schools, including any claims, sanctions, operational limitations or adverse accreditation or regulatory action initiated as a result of any adverse findings from such investigation; any 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, our Quarterly Reports on Form 10-Q for the most recent fiscal quarters, 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)

      June 30,2011 December 31,2010   ASSETS CURRENT ASSETS: Cash and cash equivalents $ 228,821 $ 289,482 Short-term investments   159,939     159,671     Total cash and cash equivalents and short-term investments 388,760 449,153   Student receivables, net 57,968 62,287 Receivables, other, net 3,214 4,132 Prepaid expenses 36,634 52,077 Inventories 11,085 13,142 Deferred income tax assets, net 31,665 31,665 Other current assets 24,665 6,246 Assets of discontinued operations   4,886     6,742     Total current assets   558,877     625,444       NON-CURRENT ASSETS: Property and equipment, net 364,757 366,775 Goodwill 385,325 381,476 Intangible assets, net 112,731 118,763 Student receivables, net 11,374 12,522 Deferred income tax assets, net 4,770 5,092 Other assets, net 31,999 42,752 Assets of discontinued operations   18,843     19,055     TOTAL ASSETS $ 1,488,676   $ 1,571,879       LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Current maturities of capital lease obligations $ 878 $ 783 Accounts payable 47,395 56,013 Accrued expenses: Payroll and related benefits 45,315 73,608 Advertising and production costs 22,868 18,846 Income taxes 9,132 — Earnout payments 14,047 17,439 Other 48,104 98,113 Deferred tuition revenue 159,765 176,102 Liabilities of discontinued operations   14,010     15,100     Total current liabilities   361,514     456,004       NON-CURRENT LIABILITIES: Capital lease obligations, net of current maturities 464 1,223 Deferred rent obligations 105,627 103,996 Earnout payments — 7,690 Other liabilities 39,706 30,853 Liabilities of discontinued operations   30,317     37,576     Total non-current liabilities   176,114     181,338       SHARE-BASED AWARDS SUBJECT TO REDEMPTION 119 153   STOCKHOLDERS’ EQUITY: Preferred stock — — Common stock 824 812 Additional paid-in capital 588,676 576,853 Accumulated other comprehensive income (loss) 11,457 (81 ) Retained earnings 485,413 356,991 Cost of shares in treasury   (135,441 )   (191 )   Total stockholders’ equity   950,929     934,384     TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,488,676   $ 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 June 30, 2011 % ofTotalRevenue

2010 (1)

% ofTotalRevenue   REVENUE: Tuition and registration fees $ 481,970 96.9 % $ 509,129 96.5 % Other   15,223   3.1 %   18,610   3.5 %   Total revenue   497,193     527,739       OPERATING EXPENSES: Educational services and facilities 161,529 32.5 % 156,918 29.7 % General and administrative 229,801 46.2 % 256,920 48.7 % Depreciation and amortization 20,507 4.1 % 17,149 3.2 % Goodwill and asset impairment   2,676   0.5 %   —   0.0 %   Total operating expenses   414,513   83.4 %   430,987   81.7 %   Operating income   82,680   16.6 %   96,752   18.3 %     OTHER INCOME (EXPENSE): Interest income 263 0.1 % 252 0.0 % Interest expense (24 ) 0.0 % (32 ) 0.0 % Miscellaneous income (expense)   69   0.0 %   (988 ) -0.2 %   Total other income (expense)   308   0.1 %   (768 ) -0.1 %     PRETAX INCOME 82,988 16.7 % 95,984 18.2 %   Provision for income taxes   27,228   5.5 %   29,714   5.6 %     INCOME FROM CONTINUING OPERATIONS 55,760 11.2 % 66,270 12.6 %   Loss from discontinued operations, net of tax   (407 ) -0.1 %   (1,952 ) -0.4 %     NET INCOME $ 55,353   11.1 % $ 64,318   12.2 %     NET INCOME (LOSS) PER SHARE - DILUTED: Income from continuing operations $ 0.74 $ 0.82 Loss from discontinued operations   (0.01 )   (0.02 )   Net income per share $ 0.73   $ 0.80       DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   75,533     80,459   (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 OPERATIONS

(In thousands, except per share amounts and percentages)

        For the Years to Date Ended June 30, 2011 % ofTotalRevenue

2010 (1)

% ofTotalRevenue   REVENUE: Tuition and registration fees $ 1,003,064 96.4 % $ 1,018,637 96.4 % Other   37,490   3.6 %   38,528   3.6 %   Total revenue   1,040,554     1,057,165       OPERATING EXPENSES: Educational services and facilities 330,430 31.8 % 316,080 29.9 % General and administrative 470,660 45.2 % 521,060 49.3 % Depreciation and amortization 40,873 3.9 % 33,827 3.2 % Goodwill and asset impairment   2,676   0.3 %   —   0.0 %   Total operating expenses   844,639   81.2 %   870,967   82.4 %   Operating income   195,915   18.8 %   186,198   17.6 %     OTHER INCOME (EXPENSE): Interest income 500 0.0 % 499 0.0 % Interest expense (50 ) 0.0 % (45 ) 0.0 % Miscellaneous income (expense)   2,069   0.2 %   (1,265 ) -0.1 %   Total other income (expense)   2,519   0.2 %   (811 ) -0.1 %     PRETAX INCOME 198,434 19.1 % 185,387 17.5 %   Provision for income taxes   69,089   6.6 %   61,971   5.9 %     INCOME FROM CONTINUING OPERATIONS 129,345 12.4 % 123,416 11.7 %   Loss from discontinued operations, net of tax   (957 ) -0.1 %   (3,876 ) -0.4 %     NET INCOME $ 128,388   12.3 % $ 119,540   11.3 %     NET INCOME (LOSS) PER SHARE - DILUTED: Income from continuing operations $ 1.70 $ 1.51 Loss from discontinued operations   (0.01 )   (0.05 )     Net income per share $ 1.69   $ 1.46       DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   76,174     81,887   (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 Years to Date EndedJune 30, 2011 2010   CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 128,388 $ 119,540 Adjustments to reconcile net income to net cash provided by operating activities: Goodwill and asset impairment 2,676 — Depreciation and amortization expense 40,873 33,970 Bad debt expense 26,834 45,569 Compensation expense related to share-based awards 8,488 10,034 Gain on disposition of property and equipment (1,777 ) (474 ) Changes in operating assets and liabilities (90,730 ) (160,774 )   Net cash provided by operating activities 114,752 47,865     CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale investments (110,162 ) (172,569 ) Sales of available-for-sale investments 109,894 210,460 Purchases of property and equipment (47,886 ) (43,156 ) Earnout payments (8,509 ) (8,457 ) Proceeds on the sale of assets 6,259 — Business acquisition, net of acquired cash — (6,194 ) Other 46 (5 )   Net cash used in investing activities (50,358 ) (19,921 )     CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (129,879 ) (154,913 ) Issuance of common stock 3,025 1,718 Tax benefit associated with stock option exercises 322 195 Payments of assumed loans upon business acquisition — (4,279 ) Payments of capital lease obligations (744 ) (450 )   Net cash used in financing activities (127,276 ) (157,729 )     EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS: 2,221 (4,960 )     NET DECREASE IN CASH AND CASH EQUIVALENTS (60,661 ) (134,745 ) 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 — — CASH AND CASH EQUIVALENTS, beginning of the period 289,482 284,334   CASH AND CASH EQUIVALENTS, end of the period $ 228,821 $ 150,327    

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED SELECTED SEGMENT INFORMATION

(In thousands, except percentages)

            For the Quarters Ended June 30, 2011

2010 (1)

  REVENUE: CTU (2) $ 112,061 $ 114,769 AIU (2) 98,031 120,037 Health Education 109,825 107,971 Culinary Arts 83,259 92,822 Art & Design (2) 56,676 62,301 International 37,466 29,979 Corporate and Other   (125 )   (140 )   Total $ 497,193   $ 527,739       OPERATING INCOME (LOSS): CTU (2) $ 33,973 $ 32,458 AIU (2) 26,337 40,004 Health Education 3,381 11,606 Culinary Arts 13,174 12,395 Art & Design (2) 7,675 7,001 International 5,407 2,997 Corporate and Other   (7,267 )   (9,709 )   Total $ 82,680   $ 96,752       OPERATING MARGIN: CTU 30.3 % 28.3 % AIU 26.9 % 33.3 % Health Education 3.1 % 10.7 % Culinary Arts 15.8 % 13.4 % Art & Design 13.5 % 11.2 % International   14.4 %   10.0 %   Total   16.6 %   18.3 % (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 in January, 2011. Previously, these results were reported on a combined basis as the University segment.    

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED SELECTED SEGMENT INFORMATION

(In thousands, except percentages)

        For the Years to Date Ended June 30, 2011

2010 (1)

  REVENUE: CTU (2) $ 230,126 $ 225,768 AIU (2) 202,305 236,815 Health Education 226,134 211,835 Culinary Arts 175,032 185,576 Art & Design (2) 121,276 125,188 International 85,942 72,317 Corporate and Other   (261 )   (334 )   Total $ 1,040,554   $ 1,057,165       OPERATING INCOME (LOSS): CTU (2) $ 70,261 $ 61,864 AIU (2) 53,954 72,802 Health Education 15,011 22,614 Culinary Arts (4) 26,941 20,600 Art & Design (2) 18,070 13,505 International 19,522 16,429 Corporate and Other (3)   (7,844 )   (21,616 )   Total $ 195,915   $ 186,198       OPERATING MARGIN: CTU 30.5 % 27.4 % AIU 26.7 % 30.7 % Health Education 6.6 % 10.7 % Culinary Arts 15.4 % 11.1 % Art & Design 14.9 % 10.8 % International   22.7 %   22.7 %   Total   18.8 %   17.6 % (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 in January, 2011. Previously, these results were reported on a combined basis as the University segment.   (3) Year to date 2011 included a $7.0 million insurance recovery related to previously settled legal matters. Year to date 2010 included a $2.4 million lease termination charge incurred in connection with the Company’s move to its new campus support center and a $4.1 million charge for an increase in the allowance for doubtful accounts related to the Company’s previously terminated recourse loan program.   (4) Year to date 2010 included a $3.2 million 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.