Career Education Corp. (CECO) filed Quarterly Report for the period ended 2009-09-30.
Career Education Corporation is a provider of private for-profit post-secondary education with campuses throughout the United States and Canada the United Kingdom and the United Arab Emirates. Their 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. They offer educational programs principally in the following four career-related fields of study Visual Communication and Design Technologies Information Technology Business Studies and Culinary Arts. Career Education Corp. has a market cap of $1.81 billion; its shares were traded at around $21.25 with a P/E ratio of 18.6 and P/S ratio of 1.1.
Highlight of Business Operations:
Our international institutions continue to grow at both INSEEC and Istituto Marangoni. Revenue grew nearly 22% over the prior year quarter. Excluding $0.3 million of favorable foreign currency exchange rates, revenue grew 19.5% over the prior year quarter. Student enrollments in the summer program increased 3% from the prior year quarter. Operating loss decreased $0.7 million due to the favorable impact of foreign currency exchange rates of approximately $1.0 million. Excluding the impact of favorable foreign currency exchange rates, operating loss increased approximately 6%.
At the point in which each campus within Transitional Schools ceases operations or exits a facility, to the extent that the facility’s lease has not ended, we will record a charge related to the estimated fair value of the remaining lease obligation. Currently, we estimate charges totaling approximately $90 – $100 million related to these real estate actions through the end of 2010. Through September 30, 2009, we have recorded approximately $39.6 million of pretax charges associated with real estate actions, with $9.5 million being recorded in 2008. We expect the majority of the remaining charges to occur in the fourth quarter 2009. $22.5 million of the $30.1 million of pretax charges recorded in the first nine months of 2009 are reflected within the results from continuing operations. The remaining costs are reflected within the loss from discontinued operations for the nine months ended 2009. During the third quarter 2009, we completed the teach-out activities for McIntosh College in Dover, NH. In connection with the teach-out of this school we recorded $7.6 million for charges related to
Total revenue increased $56.9 million, or 14.1% from the prior year quarter as student population increased, and student retention and student start growth metrics significantly improved. The overall increase in revenue is primarily attributable to Health Education and University, partially offset by decreases in Transitional Schools. As campuses within Transitional Schools wind down their operations, the number of students remaining to complete their studies declines and so revenue within Transitional Schools will continue to decline. Excluding Transitional Schools’ revenue of $2.4 million, total revenue increased $64.8 million, or 16.5%. Health Education’s and University’s revenue increases of 31.0% and 19.6%, respectively, over the prior year quarter are primarily attributable to student population and student start growth, as well as improved student retention within University.
Educational services and facilities expense decreased $12.0 million, or 7.2% from the prior year quarter. The prior year quarter expense includes $9.7 million of pretax charges related to lease termination expense and the fair value of remaining lease obligations for vacated space in our Culinary Arts segment, as well as a $1.2 million charge within our Transitional Schools segment for vacated space related to our location at Katharine Gibbs School – New York, NY. We continue to manage these costs, including occupancy costs, and focus our efforts on optimizing our staffing models as our revenue continues to grow across the Company.
General and administrative expense increased $37.1 million, or 17.1% from the prior year quarter primarily driven by a $21.6 million increase in performance-based compensation expense, $12.4 million of additional advertising expense and $2.7 million of increased bad debt expense. The increase in performance-based compensation expense over the prior year quarter was primarily due to higher expected achievement of the Company’s annual business objectives and financial performance metrics of its annual cash incentive plan. The Company incurred higher advertising expense in the current year quarter as compared to the prior year quarter in all of its operating segments, most notably within University as we continue to capitalize upon market opportunities.
During the third quarter 2009, we recorded a $2.5 million asset impairment charge for one of our owned facilities, resulting from its carrying value exceeding its current fair value. This noncash charge is reflected within Corporate and other. During the third quarter 2008 we recorded a noncash charge of $4.8 million related to write-offs of certain assets following the exit of a facility within Culinary Arts. In addition, during the third quarter 2008 we renamed our two Western School of Health & Business Career Campuses to Sanford-Brown Institute. As a result the $2.0 million assigned to the Western School of Health & Business Careers’ trade name was written off.
CECO is in the portfolios of Andreas Halvorsen of Viking Global Investors LP.
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