Career Education Corporation Reports Results for First Quarter 2008

Career Education Corporation (NASDAQ: CECO) today reported total revenue of $460.2 million and net income of $16.4 million, or $0.18 per diluted share, during the first quarter of 2008. "Our first quarter 2008 results were in-line with our expectations. During the first quarter, we finalized and communicated our three year plan. Our results reflect progress in executing on the opportunities and challenges outlined in that plan,” said Gary E. McCullough, president and chief executive officer. "We restructured our organization to streamline our operations, we put in place a transitional schools division to focus on the successful execution of our schools in teach-out, and we are actively addressing alternatives to help our students finance their education where needed.” Three Months Ended March 31, 2008 Total revenue was $460.2 million during the first quarter of 2008, relatively unchanged from $460.4 million during the first quarter of 2007. Operating income of $17.5 million includes the following non-comparable items in the first quarter of 2008:                     -- goodwill and asset impairment charges of $6.6 million related to the Transitional Schools division,   -- severance and stay bonus expenses of $11.4 million associated with the Company's decision to teach-out certain campuses and its efforts to reduce redundancies within the organization, and   -- higher depreciation and amortization expense within our Transitional Schools division due to the shortening of remaining useful lives for long-lived assets. Operating income for the first quarter of 2007 was $41.1 million. Operating profit margin percentage was 3.8 percent during the first quarter of 2008, a 5.1 percentage point decrease relative to an operating profit margin percentage of 8.9 percent during the first quarter of 2007. The decrease in the first quarter 2008 operating profit margin percentage was offset, in part, by a reduction in admissions representative headcount and improved representative productivity. Net income of $16.4 million or $0.18 per diluted share during the first quarter of 2008 includes the impact of these non-comparable items, compared to net income of $30.0 million, or $0.31 per diluted share, during the first quarter of 2007. Net income during the first quarter of 2008 includes $4.7 million of income related to the termination of the Company’s agreement to share profits relating to AU Dubai. CONSOLIDATED CASH FLOWS AND FINANCIAL POSITION Cash Flows Net cash flow provided by operating activities was $35.5 million during the first quarter of 2008, compared to net cash flow provided by operating activities of $89.1 million during the first quarter of 2007. The decrease is primarily due to the lower net income during the first quarter of 2008, primarily attributable to charges recorded for severance and stay bonuses, and the payments of previously settled legal matters. Capital expenditures increased to $18.8 million during the first quarter of 2008, from $16.8 million during the first quarter of 2007. Capital expenditures represented 4.1 percent of total consolidated revenue during the first quarter of 2008. Financial Position As of March 31, 2008 and December 31, 2007, cash and cash equivalents and investments totaled $417.5 million and $404.3 million, respectively. Days sales outstanding (DSO) were 14 days as of March 31, 2008, consistent with DSO of 14 days as of December 31, 2007. 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 first quarter of 2008, the company repurchased 1.0 million shares of its common stock for approximately $13.8 million at an average price of $13.84 per share. Since the inception of the program, the company has repurchased 19.2 million shares of its common stock for approximately $604.4 million. As of March 31, 2008, approximately $195.8 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 April 30, 2008 and 2007, were as follows:     PopulationApril 30, 2008   PopulationApril 30, 2007   PercentageDifference Art & Design (1)   12,800   12,700   1% Culinary Arts   10,200   10,500   (3%) Health Education   15,200   13,300   14% International   7,000   6,200   13% University (2)   43,500   40,700   7% Subtotal   88,700   83,400   6% Transitional Schools   6,400   9,900   (35%) CEC Consolidated   95,100   93,300   2% (1) As of April 30, 2008, the Art & Design population included approximately 550 students who were taking classes in fully-online academic programs offered by Art & Design schools. There were no Art & Design fully-online students as of April 30, 2007. (2) As of April 30, 2008 and 2007, the University population included approximately 33,900 students and 30,600 students, respectively, who were taking classes in fully-online academic programs offered by University schools. New Student Starts New student starts by reportable segment during the first quarter of 2008 and 2007, were as follows:     First quarter2008   First quarter2007   PercentageDifference Art & Design (1)   2,070   1,630   27% Culinary Arts   2,520   2,730   (8%) Health Education   5,000   4,290   17% International   560   400   40% University (2)   15,830   14,610   8% Subtotal   25,980   23,670   10% Transitional Schools   1,480   1,840   (20%) CEC Consolidated   27,460   25,500   8% (1) Art & Design new student starts include approximately 300 students who began taking classes in fully-online academic programs offered by Art & Design schools during the first quarter of 2008. There were no Art & Design fully-online student starts during the first quarter of 2007. (2) University new student starts includes approximately 13,460 students and 12,570 students, respectively, who began taking classes in fully-online academic programs offered by University schools during the first quarter of 2008 and 2007. NEW CAMPUS OPENINGS During the first quarter, the company announced the opening of its 14th affiliate school of Le Cordon Bleu Schools North America in Boston. Le Cordon Bleu College of Culinary Arts Boston commenced classes on April 7, 2008. 2008 ANNUAL MEETING OF STOCKHOLDERS During the first quarter, the company announced that its Annual Meeting of Stockholders will be held at 9:00 a.m., Central Time, on Tuesday, May 13, 2008, at the Chicago Marriott Northwest, 4800 Columbine Boulevard, Hoffman Estates, Illinois. CONFERENCE CALL INFORMATION Career Education Corporation will host a conference call on May 6, 2008 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 866-578-5801 (domestic) or 617-213-8058 (international) and citing code 31861698. 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 42402283. 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 population 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 France, Italy, and the United Kingdom, and offer doctoral, master's, bachelor's, and associate degrees and diploma and certificate programs. Approximately one-third of its 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; Harrington College of Design; Brooks Institute; International Academy of Design; American InterContinental University; Colorado Technical University and Sanford-Brown Institutes and Colleges. Through its schools, CEC is committed to providing quality education, enabling 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 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: risks associated with unfavorable changes in the cost or availability of financing, including alternative loans, for our students; potential higher bad debt expense or reduced revenue associated with requiring students to pay more of their educational expenses while in school; increased competition; the effectiveness of our regulatory compliance efforts; 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; 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, and class action and other lawsuits; costs, risks and uncertainties associated with our company-wide restructuring, including risks and uncertainties associated with changes in management and reporting responsibilities; 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 or teach-out of any campuses; risks related to general economic conditions including credit market 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, 2007, and from time to time in our other reports filed with the Securities and Exchange Commission. CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (In thousands)       March 31, December 31, 2008 2007 (1)   ASSETS CURRENT ASSETS: Cash and cash equivalents $ 214,909 $ 237,705 Investments 202,550   166,618   Total cash and cash equivalents and investments 417,459 404,323 Receivables: Students, net of allowance for doubtful accounts of $36,818 and $36,227 as of March 31, 2008, and December 31, 2007, respectively 56,042 61,396 Other, net 12,842 8,876 Prepaid expenses 57,638 50,532 Inventories 13,920 15,468 Deferred income tax assets 19,631 19,598 Other current assets 9,636   16,474   Total current assets 587,168   576,667   PROPERTY AND EQUIPMENT, net 329,062 339,066 GOODWILL 382,771 383,932 INTANGIBLE ASSETS, net 44,954 44,395 OTHER ASSETS, net 21,747   22,406   TOTAL ASSETS $ 1,365,702   $ 1,366,466     LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 13,597 $ 11,843 Accounts payable 26,736 28,145 Accrued expenses: Payroll and related benefits 33,247 28,554 Income taxes 28,640 19,571 Other 93,804 111,298 Deferred tuition revenue 145,248   161,578   Total current liabilities 341,272   360,989     LONG-TERM LIABILITIES: Long-term debt, net of current maturities 2,414 2,179 Deferred rent obligations 98,609 100,478 Deferred income tax liabilities 941 624 Other 10,762   4,473   Total long-term liabilities 112,726   107,754     SHARE-BASED AWARDS SUBJECT TO REDEMPTION 11,507 11,615   STOCKHOLDERS' EQUITY: Common stock 930 930 Additional paid-in capital 211,142 207,294 Accumulated other comprehensive income 24,043 16,304 Retained earnings 753,095 736,603 Cost of shares in treasury (89,013 ) (75,023 ) Total stockholders' equity 900,197   886,108   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,365,702   $ 1,366,466               (1) Prior period financial results have been reclassified to account for the teach-out of our schools previously reported as held for sale and the change in our reportable business segments during the first quarter of 2008. For further information regarding our reclassification of reportable segments, please refer to our Form 8-K filings dated March 28, 2008 and April 11, 2008. CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts and percentages)               For the Three Months Ended March 31, % of % of 2008 Revenue 2007 (1) Revenue   REVENUE: Tuition and registration fees $ 440,000 95.6 % $ 439,500 95.5 % Other 20,242   4.4 % 20,917   4.5 % Total revenue 460,242   100.0 % 460,417   100.0 %   OPERATING EXPENSES: Educational services and facilities 173,773 37.8 % 162,541 35.3 % General and administrative 240,949 52.3 % 237,980 51.7 % Depreciation and amortization 21,403 4.7 % 18,781 4.1 % Goodwill and asset impairment 6,613   1.4 % -   0.0 % Total operating expenses 442,738   96.2 % 419,302   91.1 % Operating income 17,504   3.8 % 41,115   8.9 %   OTHER INCOME (EXPENSE): Interest income 3,469 0.7 % 4,706 1.0 % Interest expense (228 ) 0.0 % (360 ) -0.1 % Share of affiliate earnings 4,665 1.0 % 1,712 0.4 % Miscellaneous (expense) income (204 ) 0.0 % 237   0.1 % Total other income, net 7,702   1.7 % 6,295   1.4 %   Pretax income 25,206 5.5 % 47,410 10.3 %   Provision for income taxes 8,822   1.9 % 17,374   3.8 %   NET INCOME $ 16,384   3.6 % $ 30,036   6.5 %   NET INCOME PER SHARE $ 0.18   $ 0.31     DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 90,289   96,798     (1) Prior period financial results have been reclassified to account for the teach-out of our schools previously reported as held for sale and the change in our reportable business segments during the first quarter of 2008. For further information regarding our reclassification of reportable segments, please refer to our Form 8-K filings dated March 28, 2008 and April 11, 2008. CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)               For the Three Months Ended March 31, 2008 2007   CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Net income $ 16,384 $ 30,036 Adjustments to reconcile net income to net cash provided by operating activities: Goodwill and asset impairment 6,613 - Depreciation and amortization expense 21,403 18,781 Bad debt expense 11,765 8,449 Compensation expense related to share-based awards 3,029 3,101 (Loss) gain on disposition of property and equipment (134 ) 1 Share of affiliate earnings, net of cash received 939 230 Changes in operating assets and liabilities (24,484 ) 28,549   Net cash provided by operating activities 35,515   89,147     CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions, net of acquired cash - (30,324 ) Acquisition transaction costs - (1,106 ) Purchases of property and equipment (18,814 ) (16,812 ) Purchases of available-for-sale investments (213,501 ) (209,454 ) Sales of available-for-sale investments 177,569 186,955 Other 433   6   Net cash used in investing activities (54,313 ) (70,735 )   CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (13,990 ) (49,967 ) Issuance of common stock 793 7,144 Tax benefit associated with stock option exercises 26 1,925 Borrowings on revolving loans 999 - Payments of capital lease obligations and other long-term debt (118 ) (29 ) Net cash used in financing activities (12,290 ) (40,927 )     EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS: 8,292   706     NET DECREASE IN CASH AND CASH EQUIVALENTS (22,796 ) (21,809 ) CASH AND CASH EQUIVALENTS, beginning of the period 237,705   189,816   CASH AND CASH EQUIVALENTS, end of the period $ 214,909   $ 168,007   CAREER EDUCATION CORPORATION SELECTED SEGMENT INFORMATION (Dollars in thousands)           For the Three Months Ended March 31, 2008 2007 (1)   REVENUE: University $ 177,151 $ 185,845 Culinary Arts 87,189 88,697 Health Education 56,241 49,365 Arts & Design 70,929 69,633 International 34,467 21,900 Transitional Schools 34,265 44,852 Corporate and other -   125   $ 460,242   $ 460,417     SEGMENT OPERATING INCOME (LOSS): University $ 24,991 $ 34,089 Culinary Arts 5,379 11,424 Health Education 5,126 3,628 Arts & Design 10,685 9,711 International 12,789 6,207 Transitional Schools (2) (22,984 ) (7,754 ) Corporate and other (18,482 ) (16,190 ) $ 17,504   $ 41,115     SEGMENT OPERATING INCOME (LOSS) PERCENTAGE: University 14.1 % 18.3 % Culinary Arts 6.2 % 12.9 % Health Education 9.1 % 7.3 % Arts & Design 15.1 % 13.9 % International 37.1 % 28.3 % Transitional Schools -67.1 % -17.3 %                   (1) Prior period financial results have been reclassified to account for the teach-out of our schools previously reported as held for sale and the change in our reportable business segments during the first quarter of 2008. For further information regarding our reclassification of reportable segments, please refer to our Form 8-K filings dated March 28, 2008 and April 11, 2008.   (2) For the three months ended March 31, 2008, the Transitional Schools segment included a $6.6 million goodwill and asset impairment charge and $8.6 million of severance and stay bonus expense. CAREER EDUCATION CORPORATION SELECTED SEGMENT START-UP INFORMATION (In thousands)           For the Three Months Ended March 31, 2008 2007 (1)   REVENUE: Culinary Arts (2) 2,371 - Arts & Design (3) 4,805   -   $ 7,176   $ -     SEGMENT OPERATING (LOSS) INCOME: Culinary Arts (2) (2,348 ) (1,070 ) Arts & Design (3) (551 ) (1,848 ) $ (2,899 ) $ (2,918 )                   (1) Prior period financial results have been reclassified to account for the teach-out of our schools previously reported as held for sale and the change in our reportable business segments during the first quarter of 2008. For further information regarding our reclassification of reportable segments, please refer to our Form 8-K filings dated March 28, 2008 and April 11, 2008.   (2) For the three months ended March 31, 2008 and 2007, Culinary Arts start-up campuses include LCB, Boston, MA and Dallas, TX and Kitchen Academy, St. Peters, MO and Seattle, WA.   (3) For the three months ended March 31, 2008 and 2007, Art & Design start-up campuses include IADT Sacramento, CA, San Antonio, TX and IADT Online, Tampa, FL. CAREER EDUCATION CORPORATION SELECTED UNIVERSITY SEGMENT INFORMATION (Dollars in thousands)         For the Three Months Ended March 31, 2008 2007 (1)   UNIVERSITY REVENUE: AIU Online $ 71,972 $ 87,770 Onground 22,982 25,382 CTU Online 59,198 49,667 Onground 13,538 12,929 Briarcliffe 9,461   10,097   University $ 177,151   $ 185,845     UNIVERSITY SEGMENT OPERATING INCOME (LOSS): AIU Online $ 8,531 $ 26,899 Onground (1,535 ) (1,102 ) CTU Online 16,165 7,523 Onground 828 (166 ) Briarcliffe 1,002   935   University $ 24,991   $ 34,089     UNIVERSITY SEGMENT OPERATING INCOME (LOSS) PERCENTAGE: AIU Online 11.9 % 30.6 % Onground -6.7 % -4.3 % CTU Online 27.3 % 15.1 % Onground 6.1 % -1.3 % Briarcliffe 10.6 % 9.3 % University 14.1 % 18.3 %     Student Population as of April 30, 2008 2007 AIU Online 16,900 16,800 Onground 3,500 4,100 CTU Online 17,000 13,800 Onground 4,300 4,000 Briarcliffe 1,800   2,000   University 43,500   40,700       Student Starts for the three months ended March 31, 2008 2007 AIU Online 8,160 7,620 Onground 1,140 850 CTU Online 5,300 4,950 Onground 860 830 Briarcliffe 370   360   University 15,830   14,610                   (1) Prior period financial results have been reclassified to account for the teach-out of our schools previously reported as held for sale and the change in our reportable business segments during the first quarter of 2008. For further information regarding our reclassification of reportable segments, please refer to our Form 8-K filings dated March 28, 2008 and April 11, 2008. UPDATED STUDENT FINANCING PROJECTIONS (In millions)     Projected Balance as ofDecember 31, 2008 2009   Previously Communicated Student Financing Through Company Balance Sheet $25-$35 $25-$35   Reduction of Previously Available Private Lending Sources $30-$50 $35-$55     Subtotal $55-$85   $60-$90     Increased Stafford Loan Levels Reducing Company Balance Sheet Needs ($10-$20 ) ($15-$25 )     Total $45-$65   $45-$65     Note: The company has provided this schedule as further clarification to comments that will be made on the first quarter 2008 earnings call.