Career Education Corporation Reports Results for Third Quarter 2006

By: Reference and Education News

Career Education Corporation (NASDAQ:CECO) today reported revenue of $462.4 million and net income of $20.7 million for the quarter ended September 30, 2006.

“Although third quarter results were disappointing, the board and management of Career Education Corporation took a number of significant steps during the quarter to resolve our current issues, improve our operating results, and lay the foundation for future growth,” said Bob Dowdell, Career Education’s President and Chief Executive Officer. “The potential for our company and our industry remains very strong, and we aim to steadily build value for all of our stakeholders going forward. Initially, we are focused on finding the best leadership for the company, specifically a permanent CEO, and strengthening key internal positions.”

RESULTS OF OPERATIONS

Three Months Ended September 30, 2006

* Consolidated revenue was $462.4 million during the third quarter of 2006, a 7.0 percent decrease from consolidated revenue of $497.5 million during the third quarter of 2005. Revenue generated by the University segment’s fully online platforms decreased 8.5 percent, to $154.7 million during the third quarter of 2006 from $169.1 million during the third quarter of 2005.
* Income from operations declined to $28.3 million during the third quarter of 2006, from $83.7 million during the third quarter of 2005. Operating profit margin percentage was 6.1 percent during the third quarter of 2006, a 10.7 percentage point decrease relative to an operating profit margin percentage of 16.8 percent during the third quarter of 2005. The decrease in operating profit margin percentage was primarily due to a decrease in operating profit margin percentage generated by our University segment’s fully-online platforms and increases in administration expense, advertising expense, and occupancy expense as a percentage of revenue, offset, in part, by a decrease in bad debt expense as a percentage of revenue.

University segment income from operations declined to $33.2 million during the third quarter of 2006, from $63.9 million during the third quarter of 2005.

* Consolidated net income during the third quarter of 2006 was $20.7 million, or $0.22 per diluted share, relative to consolidated net income of $54.9 million, or $0.53 per diluted share, during the third quarter of 2005. Third quarter 2006 net income includes a non-cash charge for share-based compensation expense of $3.9 million, net of tax benefit of $2.3 million, or $0.04 per diluted share. Share-based compensation expense recorded during the third quarter of 2005, prior to our adoption of SFAS 123R, was insignificant.

Nine Months Ended September 30, 2006

* Consolidated revenue was $1.48 billion during the nine months ended September 30, 2006, compared to consolidated revenue of $1.51 billion during the nine months ended September 30, 2005. Revenue generated by the University segment’s online platforms increased 6.3 percent, to $528.1 million during the nine months ended September 30, 2006, from $497.0 million during the nine months ended September 30, 2005.
* Income from operations decreased to $73.7 million during the nine months ended September 30, 2006, from $264.4 million during the nine months ended September 30, 2005. Operating income margin percentage decreased to 5.0 percent during the nine months ended September 30, 2006, from 17.6 percent during the nine months ended September 30, 2005. During the nine months ended September 30, 2006, we recorded goodwill and intangible asset impairment charges of $96.1 million, pre-tax, attributable to our Health Education and Gibbs divisions.

University segment income from operations declined to $183.1 million during the nine months ended September 30, 2006, from $218.1 million during the nine months ended September 30, 2005. The decrease in University segment income from operations is primarily attributable to the adverse impact on student population and revenue of AIU’s probation status and the cost and effect of changes adopted in response to recommendations made by AIU’s accrediting body. University segment operating income margin percentage decreased to 27.6 percent during the nine months ended September 30, 2006, from 33.7 percent during the nine months ended September 30, 2005. The decrease in University segment operating income margin percentage is primarily a result of the adverse impact on revenue of AIU’s probation status and the disproportionate growth of CTU Online operations, which operates at a lower operating margin percentage than that of AIU Online.