EX-99.1 2 ceco-ex991_6.htm EX-99.1

CEC ANNOUNCES 1Q16 RESULTS …PG 1

Exhibit 99.1

CAREER EDUCATION CORPORATION REPORTS RESULTS FOR FIRST QUARTER 2016

Total operating income of $7.0 million vs prior quarter operating loss of $24.4 million,

reflects strong execution against the Company’s strategic initiative

Schaumburg, Ill. (May 4, 2016) – Career Education Corporation (NASDAQ: CECO) today reported operating and financial results for the first quarter of 2016.

Consolidated Results:

| · | Operating income improved to $7.0 million for the current year quarter as compared to an operating loss of $24.4 million for the prior year quarter

| · | Achieved consolidated adjusted EBITDA of $13.2 million compared to a loss of $11.8 million in the prior year quarter (see reconciliation of GAAP to non-GAAP items attached to this press release)

| · | First quarter cash used in operating activities was $10.6 million, an improvement versus cash usage of $20.2 million in the first quarter of 2015

| · | Ended the quarter with $189.5 million in cash, cash equivalents, restricted cash and available-for-sale short-term and long-term investments, net of borrowings

University Business Highlights:

| · | University Group revenue increased by 4.9 percent year-over-year

| · | University Group operating income increased by $9.4 million to $21.1 million, primarily driven by increased revenue and improved efficiency in its operations

| · | Achieved adjusted EBITDA of $20.2 million for the University Group and Corporate compared to $11.3 million in the prior year quarter

| · | Total University Group enrollments increased slightly as compared to the prior year quarter

“Our first quarter results reflect a continuation of the trends we witnessed at the end of last year, and position us well to continue to successfully execute on our strategy for the remainder of 2016 and beyond. Improved efficiency in operations, maintaining overall University Group total enrollments and in-line performance of teach-outs, resulted in improvement of year-over-year financial performance,” said Todd Nelson, President and Chief Executive Officer. “Overall, we are executing well against our strategic initiatives and we remain confident in the outlook we provided last quarter. Our priorities for the near-term will continue to be focused on improving the strength of our University platform with investments in technology and resources which we believe will further enhance student retention and outcomes.”

CEC ANNOUNCES 1Q16 RESULTS …PG 2

REVENUE

For the first quarter of 2016, total revenue was $198.9 million, a 12.4 percent decrease from $227.0 million for the first quarter of 2015. Total revenue for the University Group was $144.9 million for the first quarter of 2016 compared to $138.2 million for the first quarter of 2015, an increase of 4.9 percent.

Revenue ($ in thousands) |  | Q1 2016 |  |  | Q4 2015 |  |  | Q3 2015 |  |  | Q2 2015 |  |  | Q1 2015 |
CTU |  | $ | 91,966 |  |  | $ | 91,481 |  |  | $ | 85,433 |  |  | $ | 86,174 |  |  | $ | 85,127 |
AIU |  |  | 52,973 |  |  |  | 45,871 |  |  |  | 50,688 |  |  |  | 52,024 |  |  |  | 53,066 |
Total University Group |  |  | 144,939 |  |  |  | 137,352 |  |  |  | 136,121 |  |  |  | 138,198 |  |  |  | 138,193 |
Corporate and Other |  |  | — |  |  |  | 40 |  |  |  | 39 |  |  |  | 39 |  |  |  | 39 |
Subtotal |  |  | 144,939 |  |  |  | 137,392 |  |  |  | 136,160 |  |  |  | 138,237 |  |  |  | 138,232 |
Culinary Arts (1) |  |  | 38,623 |  |  |  | 42,020 |  |  |  | 41,410 |  |  |  | 42,048 |  |  |  | 44,712 |
Transitional Group (1) |  |  | 15,324 |  |  |  | 20,535 |  |  |  | 25,914 |  |  |  | 36,543 |  |  |  | 44,070 |
Total |  | $ | 198,886 |  |  | $ | 199,947 |  |  | $ | 203,484 |  |  | $ | 216,828 |  |  | $ | 227,014 |

(1) | Teach-out campuses included in the Transitional Group no longer enroll new students. The Culinary Arts campuses were announced for teach-out during December 2015 and ceased enrolling new students in January 2016.

TOTAL AND NEW STUDENT ENROLLMENTS

For the first quarter of 2016, total student enrollments for the University Group were 33,900, compared to 33,800 in the prior year quarter. New student enrollments for the University Group were 9,630 compared to 10,130 in the prior year quarter. The Company believes that continued focus on student retention has contributed to the slight increase in University Group total student enrollment as compared to the prior year.

Total Student Enrollment |  | Q1 2016 |  |  | Q4 2015 |  |  | Q3 2015 |  |  | Q2 2015 |  |  | Q1 2015 |
CTU |  |  | 21,300 |  |  |  | 21,300 |  |  |  | 20,600 |  |  |  | 20,600 |  |  |  | 20,300 |
AIU |  |  | 12,600 |  |  |  | 10,600 |  |  |  | 10,800 |  |  |  | 10,700 |  |  |  | 13,500 |
Total University Group |  |  | 33,900 |  |  |  | 31,900 |  |  |  | 31,400 |  |  |  | 31,300 |  |  |  | 33,800 |
Culinary Arts |  |  | 6,900 |  |  |  | 7,800 |  |  |  | 9,200 |  |  |  | 7,800 |  |  |  | 8,800 |
Transitional Group |  |  | 2,500 |  |  |  | 3,500 |  |  |  | 5,200 |  |  |  | 7,000 |  |  |  | 9,500 |
Total |  |  | 43,300 |  |  |  | 43,200 |  |  |  | 45,800 |  |  |  | 46,100 |  |  |  | 52,100 |

New Student Enrollments |  | Q1 2016 |  |  | Q4 2015 |  |  | Q3 2015 |  |  | Q2 2015 |  |  | Q1 2015 |
CTU |  |  | 4,770 |  |  |  | 5,710 |  |  |  | 5,470 |  |  |  | 5,670 |  |  |  | 5,040 |
AIU |  |  | 4,860 |  |  |  | 3,050 |  |  |  | 2,980 |  |  |  | 2,280 |  |  |  | 5,090 |
Total University Group |  |  | 9,630 |  |  |  | 8,760 |  |  |  | 8,450 |  |  |  | 7,950 |  |  |  | 10,130 |
Culinary Arts (1) |  |  | 930 |  |  |  | 690 |  |  |  | 3,290 |  |  |  | 1,450 |  |  |  | 2,040 |
Transitional Group (1) |  |  | 60 |  |  |  | 90 |  |  |  | 510 |  |  |  | 830 |  |  |  | 1,830 |
Total |  |  | 10,620 |  |  |  | 9,540 |  |  |  | 12,250 |  |  |  | 10,230 |  |  |  | 14,000 |

(1) | Teach-out campuses within the Transitional Group and Culinary Arts no longer enroll new students, effective upon their teach-out announcement; students who re-enter after 365 days are reported as new student enrollments. For Culinary Arts, teach-outs announced in December 2015 were effective beginning after the January 2016 new enrollment.

CEC ANNOUNCES 1Q16 RESULTS …PG 3

OPERATING INCOME (LOSS)

For the first quarter of 2016, operating income of $7.0 million improved 128.7 percent compared to an operating loss of $24.4 million in the prior year quarter. Total University Group operating income increased to $21.1 million from $11.7 million in the prior year quarter, an increase of 80.3 percent. This increase in operating income was primarily driven by increased revenue and improved efficiency in operations.

Operating Income (Loss) ($ in thousands) |  | Q1 2016 |  |  | Q4 2015 |  |  | Q3 2015 |  |  | Q2 2015 |  |  | Q1 2015 |
CTU |  | $ | 19,237 |  |  | $ | 30,001 |  |  | $ | 18,616 |  |  | $ | 24,263 |  |  | $ | 14,616 |
AIU |  |  | 1,907 |  |  |  | 1,538 |  |  |  | 1,695 |  |  |  | 5,174 |  |  |  | (2,887 | )
Total University Group |  |  | 21,144 |  |  |  | 31,539 |  |  |  | 20,311 |  |  |  | 29,437 |  |  |  | 11,729 |
Corporate and Other |  |  | (5,812 | ) |  |  | (6,331 | ) |  |  | (8,040 | ) |  |  | (7,036 | ) |  |  | (5,860 | )
Subtotal |  |  | 15,332 |  |  |  | 25,208 |  |  |  | 12,271 |  |  |  | 22,401 |  |  |  | 5,869 |
Culinary Arts (1) |  |  | 3,106 |  |  |  | (14,065 | ) |  |  | (33,195 | ) |  |  | (10,560 | ) |  |  | 243 |
Transitional Group (2) |  |  | (11,459 | ) |  |  | (15,072 | ) |  |  | (23,065 | ) |  |  | (31,733 | ) |  |  | (30,470 | )
Total |  | $ | 6,979 |  |  | $ | (3,929 | ) |  | $ | (43,989 | ) |  | $ | (19,892 | ) |  | $ | (24,358 | )

(1) | Asset impairment charges of $9.0 million, $33.4 million and $9.7 million were recorded during the fourth quarter of 2015, third quarter of 2015 and second quarter of 2015, respectively.

(2) | Asset impairment charges of $0.2 million, $1.7 million and $6.0 million were recorded during the fourth quarter of 2015, second quarter of 2015 and first quarter of 2015, respectively.

CEC ANNOUNCES 1Q16 RESULTS …PG 4

ADJUSTED EBITDA

The Company believes it is useful to present non-GAAP financial measures, which exclude certain significant items, as a means to understand the performance of its operations. (See tables below and the GAAP to non-GAAP reconciliation attached to this press release for further details.)

As shown in the table below, for the first quarter of 2016, adjusted EBITDA for the University Group and Corporate was $20.2 million representing an increase of 78.1 percent, or $8.9 million, compared to the first quarter of 2015. Adjusted EBITDA for the Transitional Group, Culinary Arts and discontinued operations improved to negative $7.0 million for the first quarter of 2016 from negative $23.1 million for the first quarter of 2015, representing an improvement of 69.8 percent, or $16.2 million.

Adjusted EBITDA ($ in thousands) |  | Q1 2016 |  |  | Q4 2015 (4) |  |  | Q3 2015 (4) |  |  | Q2 2015 (4) |  |  | Q1 2015 (4) |
University Group and Corporate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pre-tax income (loss) from continuing operations |  | $ | 7,225 |  |  | $ | (4,292 | ) |  | $ | (44,656 | ) |  | $ | (20,750 | ) |  | $ | (24,740 | )
Transitional Group pre-tax loss |  |  | 11,316 |  |  |  | 15,182 |  |  |  | 23,724 |  |  |  | 32,624 |  |  |  | 30,470 |
Culinary Arts pre-tax (income) loss |  |  | (3,107 | ) |  |  | 14,065 |  |  |  | 33,171 |  |  |  | 10,532 |  |  |  | (250 | )
Interest (income) expense, net (1) |  |  | (28 | ) |  |  | 87 |  |  |  | 7 |  |  |  | (52 | ) |  |  | 2 |
Depreciation and amortization (1) |  |  | 3,103 |  |  |  | 3,318 |  |  |  | 3,454 |  |  |  | 3,956 |  |  |  | 4,361 |
Legal settlements (1) |  |  | — |  |  |  | 200 |  |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation (1) |  |  | 544 |  |  |  | 404 |  |  |  | 983 |  |  |  | 530 |  |  |  | 940 |
Asset impairments (1) |  |  | 237 |  |  |  | 507 |  |  |  | — |  |  |  | — |  |  |  | — |
Unused space charges (1) (2) |  |  | 909 |  |  |  | 114 |  |  |  | (385 | ) |  |  | (348 | ) |  |  | 556 |
Adjusted EBITDA--University Group and Corporate |  | $ | 20,199 |  |  | $ | 29,585 |  |  | $ | 16,298 |  |  | $ | 26,492 |  |  | $ | 11,339 |
Memo: Advertising Expenses (1) |  | $ | 43,966 |  |  | $ | 33,431 |  |  | $ | 46,194 |  |  | $ | 34,258 |  |  | $ | 50,587 |
Transitional Group, Culinary Arts and Discontinued Operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pre-tax loss from discontinued operations |  | $ | (126 | ) |  | $ | (512 | ) |  | $ | (544 | ) |  | $ | (720 | ) |  | $ | (352 | )
Transitional Group pre-tax loss |  |  | (11,316 | ) |  |  | (15,182 | ) |  |  | (23,724 | ) |  |  | (32,624 | ) |  |  | (30,470 | )
Culinary Arts pre-tax income (loss) |  |  | 3,107 |  |  |  | (14,065 | ) |  |  | (33,171 | ) |  |  | (10,532 | ) |  |  | 250 |
Interest income, net (3) |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Loss on sale of business (3) |  |  | — |  |  |  | 161 |  |  |  | 715 |  |  |  | 917 |  |  |  | — |
Depreciation and amortization (3) |  |  | 3,466 |  |  |  | 1,759 |  |  |  | 2,508 |  |  |  | 3,231 |  |  |  | 2,351 |
Legal settlements (3) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (166 | ) |  |  | 1,485 |
Asset impairments (3) |  |  | — |  |  |  | 9,171 |  |  |  | 33,446 |  |  |  | 11,372 |  |  |  | 6,019 |
Unused space charges (2) (3) |  |  | (2,108 | ) |  |  | (2,002 | ) |  |  | 7,174 |  |  |  | (2,305 | ) |  |  | (2,424 | )
Adjusted EBITDA--Transitional, Culinary Arts and Discontinued Operations |  | $ | (6,978 | ) |  | $ | (20,670 | ) |  | $ | (13,596 | ) |  | $ | (30,827 | ) |  | $ | (23,141 | )
Consolidated Adjusted EBITDA |  | $ | 13,221 |  |  | $ | 8,915 |  |  | $ | 2,702 |  |  | $ | (4,335 | ) |  | $ | (11,802 | )

(1) | Quarterly amounts relate to the University Group and Corporate

(2) | Unused space charges represent the net present value of remaining lease obligations less an estimated amount for sublease income as well as the subsequent accretion of these charges

(3) | Quarterly amounts relate to Transitional Group, Culinary Arts and discontinued operations

(4) | Previously disclosed adjusted EBITDA included an adjustment related to revenue recognition as a result of a cumulative adjustment which was recorded during the fourth quarter of 2014. This adjustment was removed because all periods presented are now comparable in this regard and therefore management no longer views it as a material adjustment.

CEC ANNOUNCES 1Q16 RESULTS …PG 5

BALANCE SHEET AND CASH FLOW

Net cash used in operating activities for the first quarter was $10.6 million, an improvement versus cash usage of $20.2 million in the first quarter of 2015. The Company’s continued focus on improving operating efficiencies and the completion of teach-outs drove the improvement in cash usage for the current year quarter as compared to the prior year quarter.

As of March 31, 2016 and March 31, 2015, cash, cash equivalents, restricted cash and available-for-sale short-term and long-term investments, net of borrowings totaled $189.5 million and $213.7 million, respectively.

Consolidated Cash ($ in thousands) |  | Q1 2016 |  |  | Q4 2015 |  |  | Q3 2015 |  |  | Q2 2015 |  |  | Q1 2015 |
Consolidated Cash, Cash Equivalents, Restricted Cash and Available-For-Sale Short-Term Investments (1) |  | $ | 182,130 |  |  | $ | 231,641 |  |  | $ | 199,418 |  |  | $ | 196,730 |  |  | $ | 206,365 |
Available-For-Sale Long-Term Investments (2) |  |  | 7,374 |  |  |  | 7,374 |  |  |  | 7,374 |  |  |  | 7,374 |  |  |  | 7,374 |
Borrowings (3) |  |  | - |  |  |  | 38,000 |  |  |  | - |  |  |  | - |  |  |  | - |
Consolidated Cash, Cash Equivalents, Restricted Cash and Available-For-Sale Short-Term and Long-Term Investments, net of Borrowings (1) (2) |  | $ | 189,504 |  |  | $ | 201,015 |  |  | $ | 206,792 |  |  | $ | 204,104 |  |  | $ | 213,739 |
Cash Flow from Operations ($ in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash Flow from Operations |  | $ | (10,610 | ) |  | $ | (683 | ) |  | $ | 5,592 |  |  | $ | (6,419 | ) |  | $ | (20,176 | )

(1) | Consolidated cash, cash equivalents, restricted cash and available-for-sale short-term investment balances are quarter end balances and include both continuing and discontinued operations.

(2) | Available-for-sale long-term investment balances are included within non-current other assets on our condensed consolidated balance sheets.

(3) | Cash, cash equivalents, restricted cash and available-for-sale short-term investment balances for the fourth quarter of 2015 include $38.0 million of restricted cash related to cash-collateralized borrowings under the Credit Agreement.

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Wednesday, May 4, 2016 at 5:30 p.m. Eastern time to discuss its first quarter 2016 results. Interested parties can access the live webcast of the conference call and the related presentation materials at www.careered.com in the Investor Relations section of the website. Participants can also listen to the conference call by dialing 844-378-6484 (domestic) or 412-542-4179 (international). 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.

ABOUT CAREER EDUCATION CORPORATION

Career Education’s academic institutions offer a quality education to a diverse student population in a variety of disciplines through online, campus-based and hybrid learning programs. Our two universities – American InterContinental University (“AIU”) and Colorado Technical University (“CTU”) – provide degree programs through the master’s or doctoral level as well as associate and bachelor’s levels. Both universities predominantly serve students online with career-focused degree programs that are designed to meet the educational demands of today’s busy adults. AIU and CTU continue to show innovation in higher education, advancing new personalized learning technologies like their intellipath™ adaptive learning platform that allow students to more efficiently pursue earning a degree by receiving course credit for knowledge they can already demonstrate. Career Education is committed to providing quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.

A listing of individual campus locations and web links to Career Education’s institutions can be found at www.careered.com.

Except for the historical and present factual information contained herein, the matters set forth in this release, including statements identified by words such as “believe,” “will,” “expect,” “continue,” “position us” 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 assumptions, risks, uncertainties and other factors that could cause our 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

CEC ANNOUNCES 1Q16 RESULTS …PG 6

to update or revise such factors or 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 outcomes of which could materially and adversely affect our financial condition and operations, include, but are not limited to, the following: declines in enrollment; increased competition; negative trends in the real estate market which could impact the costs related to teaching out campuses and the success of our initiatives to reduce our real estate obligations; our ability to achieve anticipated cost savings and business efficiencies; rulemaking by the U.S. Department of Education or any state and increased focus by Congress, the President and governmental agencies on, or increased negative publicity about, for-profit education institutions; our continued compliance with and eligibility to participate in Title IV Programs under the Higher Education Act of 1965, as amended, and the regulations thereunder (including the gainful employment, 90-10 and financial responsibility standards prescribed by the U.S. Department of Education), as well as applicable accreditation standards and state regulatory requirements; the impact of management changes; our ability to successfully defend litigation and other claims brought against us; and changes in the overall U.S. or global economy. Further information about these and other relevant risks and uncertainties may be found in the Company’s Annual Report on Form 10-K for the fis cal year ended December 31, 2015 and its subsequent filings with the Securities and Exchange Commission.

###

CONTACT

Investors:

Alpha IR Group

Sam Gibbons or Chris Hodges

(312) 445-2870

CECO@alpha-ir.com

Or

Media:

Career Education Corporation

(847) 585-2600

media@careered.com

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

|  | March 31, 2016 |  |  | December 31, 2015 |
|  | (unaudited) |  |  |  |  |
ASSETS |  |  |  |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |  |  |
Cash and cash equivalents, unrestricted |  | $ | 47,536 |  |  | $ | 66,919 |
Restricted cash |  |  | 11,735 |  |  |  | 49,821 |
Short-term investments |  |  | 122,859 |  |  |  | 114,901 |
Total cash and cash equivalents, restricted cash and short-term investments |  |  | 182,130 |  |  |  | 231,641 |
Student receivables, net |  |  | 27,746 |  |  |  | 31,618 |
Receivables, other, net |  |  | 4,375 |  |  |  | 5,194 |
Prepaid expenses |  |  | 14,167 |  |  |  | 14,380 |
Inventories |  |  | 2,505 |  |  |  | 3,353 |
Other current assets |  |  | 2,331 |  |  |  | 2,523 |
Assets of discontinued operations |  |  | 225 |  |  |  | 254 |
Total current assets |  |  | 233,479 |  |  |  | 288,963 |
NON-CURRENT ASSETS: |  |  |  |  |  |  |  |
Property and equipment, net |  |  | 52,596 |  |  |  | 58,249 |
Goodwill |  |  | 87,356 |  |  |  | 87,356 |
Intangible assets, net |  |  | 9,100 |  |  |  | 9,300 |
Student receivables, net |  |  | 3,686 |  |  |  | 3,958 |
Deferred income tax assets, net |  |  | 137,716 |  |  |  | 137,716 |
Other assets |  |  | 17,552 |  |  |  | 16,562 |
Assets of discontinued operations |  |  | 8,751 |  |  |  | 8,811 |
TOTAL ASSETS |  | $ | 550,236 |  |  | $ | 610,915 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Short-term borrowings |  | $ | - |  |  | $ | 38,000 |
Accounts payable |  |  | 18,579 |  |  |  | 25,906 |
Accrued expenses: |  |  |  |  |  |  |  |
Payroll and related benefits |  |  | 30,139 |  |  |  | 38,789 |
Advertising and production costs |  |  | 14,308 |  |  |  | 11,788 |
Income taxes |  |  | 5,146 |  |  |  | 1,061 |
Other |  |  | 21,966 |  |  |  | 24,082 |
Deferred tuition revenue |  |  | 35,077 |  |  |  | 40,112 |
Liabilities of discontinued operations |  |  | 9,784 |  |  |  | 13,067 |
Total current liabilities |  |  | 134,999 |  |  |  | 192,805 |
NON-CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Deferred rent obligations |  |  | 43,244 |  |  |  | 45,927 |
Other liabilities |  |  | 22,508 |  |  |  | 25,197 |
Liabilities of discontinued operations |  |  | 8,075 |  |  |  | 9,376 |
Total non-current liabilities |  |  | 73,827 |  |  |  | 80,500 |
STOCKHOLDERS' EQUITY: |  |  |  |  |  |  |  |
Preferred stock |  |  | - |  |  |  | - |
Common stock |  |  | 833 |  |  |  | 830 |
Additional paid-in capital |  |  | 611,472 |  |  |  | 610,784 |
Accumulated other comprehensive loss |  |  | (364 | ) |  |  | (880 | )
Accumulated deficit |  |  | (54,507 | ) |  |  | (57,518 | )
Cost of shares in treasury |  |  | (216,024 | ) |  |  | (215,606 | )
Total stockholders' equity |  |  | 341,410 |  |  |  | 337,610 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |  | $ | 550,236 |  |  | $ | 610,915 |

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts and percentages)

|  | For the Quarter Ended March 31, |
|  | 2016 |  |  | % of Total Revenue |  |  | 2015 |  |  | % of Total Revenue |
REVENUE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tuition and registration fees |  | $ | 197,785 |  |  |  | 99.4 | % |  | $ | 225,691 |  |  |  | 99.4 | %
Other |  |  | 1,101 |  |  |  | 0.6 | % |  |  | 1,323 |  |  |  | 0.6 | %
Total revenue |  |  | 198,886 |  |  |  |  |  |  |  | 227,014 |  |  |  |  |
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Educational services and facilities |  |  | 61,538 |  |  |  | 30.9 | % |  |  | 74,894 |  |  |  | 33.0 | %
General and administrative |  |  | 123,563 |  |  |  | 62.1 | % |  |  | 163,673 |  |  |  | 72.1 | %
Depreciation and amortization |  |  | 6,569 |  |  |  | 3.3 | % |  |  | 6,786 |  |  |  | 3.0 | %
Asset impairment |  |  | 237 |  |  |  | 0.1 | % |  |  | 6,019 |  |  |  | 2.7 | %
Total operating expenses |  |  | 191,907 |  |  |  | 96.5 | % |  |  | 251,372 |  |  |  | 110.7 | %
Operating income (loss) |  |  | 6,979 |  |  |  | 3.5 | % |  |  | (24,358 | ) |  |  | -10.7 | %
OTHER INCOME (EXPENSE): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 265 |  |  |  | 0.1 | % |  |  | 160 |  |  |  | 0.1 | %
Interest expense |  |  | (236 | ) |  |  | -0.1 | % |  |  | (162 | ) |  |  | -0.1 | %
Miscellaneous income (expense) |  |  | 217 |  |  |  | 0.1 | % |  |  | (380 | ) |  |  | -0.2 | %
Total other income (expense) |  |  | 246 |  |  |  | 0.1 | % |  |  | (382 | ) |  |  | -0.2 | %
PRETAX INCOME (LOSS) |  |  | 7,225 |  |  |  | 3.6 | % |  |  | (24,740 | ) |  |  | -10.9 | %
Provision for (benefit from) income taxes |  |  | 4,135 |  |  |  | 2.1 | % |  |  | (211 | ) |  |  | -0.1 | %
INCOME (LOSS) FROM CONTINUING OPERATIONS |  |  | 3,090 |  |  |  | 1.6 | % |  |  | (24,529 | ) |  |  | -10.8 | %
Loss from discontinued operations, net of tax |  |  | (79 | ) |  |  | 0.0 | % |  |  | (352 | ) |  |  | -0.2 | %
NET INCOME (LOSS) |  |  | 3,011 |  |  |  | 1.5 | % |  |  | (24,881 | ) |  |  | -11.0 | %
OTHER COMPREHENSIVE INCOME (LOSS), net of tax: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | 193 |  |  |  |  |  |  |  | - |  |  |  |  |
Unrealized gain on investments |  |  | 323 |  |  |  |  |  |  |  | 195 |  |  |  |  |
Total other comprehensive income |  |  | 516 |  |  |  |  |  |  |  | 195 |  |  |  |  |
COMPREHENSIVE INCOME (LOSS) |  | $ | 3,527 |  |  |  |  |  |  | $ | (24,686 | ) |  |  |  |
NET INCOME (LOSS) PER SHARE - BASIC and DILUTED: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income (loss) from continuing operations |  | $ | 0.04 |  |  |  |  |  |  | $ | (0.36 | ) |  |  |  |
Loss from discontinued operations |  |  | - |  |  |  |  |  |  |  | (0.01 | ) |  |  |  |
Net income (loss) per share |  | $ | 0.04 |  |  |  |  |  |  | $ | (0.37 | ) |  |  |  |
WEIGHTED AVERAGE SHARES OUTSTANDING: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 68,155 |  |  |  |  |  |  |  | 67,534 |  |  |  |  |
Diluted |  |  | 68,798 |  |  |  |  |  |  |  | 67,534 |  |  |  |  |

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

|  | For the Quarter Ended March 31, |
|  | 2016 |  |  | 2015 |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |
Net income (loss) |  | $ | 3,011 |  |  | $ | (24,881 | )
Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |  |  |  |  |  |  |
Asset impairment |  |  | 237 |  |  |  | 6,019 |
Depreciation and amortization expense |  |  | 6,569 |  |  |  | 6,712 |
Bad debt expense |  |  | 9,552 |  |  |  | 4,275 |
Compensation expense related to share-based awards |  |  | 544 |  |  |  | 940 |
Loss on disposition of property and equipment |  |  | — |  |  |  | 3 |
Changes in operating assets and liabilities: |  |  | (30,523 | ) |  |  | (13,244 | )
Net cash used in operating activities |  |  | (10,610 | ) |  |  | (20,176 | )
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |
Purchases of available-for-sale investments |  |  | (36,004 | ) |  |  | (15,259 | )
Sales of available-for-sale investments |  |  | 28,189 |  |  |  | 14,754 |
Purchases of property and equipment |  |  | (876 | ) |  |  | (3,369 | )
Payments of cash upon sale of businesses |  |  | (62 | ) |  |  | — |
Net cash used in investing activities |  |  | (8,753 | ) |  |  | (3,874 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |
Issuance of common stock |  |  | 147 |  |  |  | 174 |
Payment on borrowings |  |  | (38,000 | ) |  |  | (10,000 | )
Change in restricted cash |  |  | 38,086 |  |  |  | 9,000 |
Net cash provided by (used in) financing activities |  |  | 233 |  |  |  | (826 | )
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS: |  |  | (253 | ) |  |  | 288 |
NET DECREASE IN CASH AND CASH EQUIVALENTS |  |  | (19,383 | ) |  |  | (24,588 | )
DISCONTINUED OPERATIONS CASH ACTIVITY INCLUDED ABOVE: |  |  |  |  |  |  |  |
Add: Cash balance of discontinued operations, beginning of the period |  |  | — |  |  |  | — |
Less: Cash balance of discontinued operations, end of the period |  |  | — |  |  |  | — |
CASH AND CASH EQUIVALENTS, beginning of the period |  |  | 66,919 |  |  |  | 93,832 |
CASH AND CASH EQUIVALENTS, end of the period |  | $ | 47,536 |  |  | $ | 69,244 |

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED SELECTED SEGMENT INFORMATION

(In thousands, except percentages)

|  | For the Quarter Ended March 31, |
|  | 2016 |  |  | 2015 |
REVENUE: |  |  |  |  |  |  |  |
CTU |  | $ | 91,966 |  |  | $ | 85,127 |
AIU |  |  | 52,973 |  |  |  | 53,066 |
Total University Group |  |  | 144,939 |  |  |  | 138,193 |
Corporate and Other |  |  | — |  |  |  | 39 |
Subtotal |  |  | 144,939 |  |  |  | 138,232 |
Culinary Arts |  |  | 38,623 |  |  |  | 44,712 |
Transitional Group |  |  | 15,324 |  |  |  | 44,070 |
Total |  | $ | 198,886 |  |  | $ | 227,014 |
OPERATING INCOME (LOSS): |  |  |  |  |  |  |  |
CTU |  | $ | 19,237 |  |  | $ | 14,616 |
AIU |  |  | 1,907 |  |  |  | (2,887 | )
Total University Group |  |  | 21,144 |  |  |  | 11,729 |
Corporate and Other |  |  | (5,812 | ) |  |  | (5,860 | )
Subtotal |  |  | 15,332 |  |  |  | 5,869 |
Culinary Arts |  |  | 3,106 |  |  |  | 243 |
Transitional Group |  |  | (11,459 | ) |  |  | (30,470 | )
Total |  | $ | 6,979 |  |  | $ | (24,358 | )
OPERATING INCOME (LOSS) MARGIN: |  |  |  |  |  |  |  |
CTU |  |  | 20.9 | % |  |  | 17.2 | %
AIU |  |  | 3.6 | % |  |  | -5.4 | %
Total University Group |  |  | 14.6 | % |  |  | 8.5 | %
Corporate and Other |  | NM |  |  | NM |
Subtotal |  |  | 10.6 | % |  |  | 4.2 | %
Culinary Arts |  |  | 8.0 | % |  |  | 0.5 | %
Transitional Group |  |  | -74.8 | % |  |  | -69.1 | %
Total |  |  | 3.5 | % |  |  | -10.7 | %

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ITEMS (1)

(In thousands)

Adjusted EBITDA |  | Q1 2016 |  |  | Q4 2015 (7) |  |  | Q3 2015 (7) |  |  | Q2 2015 (7) |  |  | Q1 2015 (7) |
University Group and Corporate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pre-tax income (loss) from continuing operations |  | $ | 7,225 |  |  | $ | (4,292 | ) |  | $ | (44,656 | ) |  | $ | (20,750 | ) |  | $ | (24,740 | )
Transitional Group pre-tax loss |  |  | 11,316 |  |  |  | 15,182 |  |  |  | 23,724 |  |  |  | 32,624 |  |  |  | 30,470 |
Culinary Arts pre-tax (income) loss |  |  | (3,107 | ) |  |  | 14,065 |  |  |  | 33,171 |  |  |  | 10,532 |  |  |  | (250 | )
Interest (income) expense, net (2) |  |  | (28 | ) |  |  | 87 |  |  |  | 7 |  |  |  | (52 | ) |  |  | 2 |
Depreciation and amortization (2) |  |  | 3,103 |  |  |  | 3,318 |  |  |  | 3,454 |  |  |  | 3,956 |  |  |  | 4,361 |
Legal settlements (2) (3) |  |  | — |  |  |  | 200 |  |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation (2) |  |  | 544 |  |  |  | 404 |  |  |  | 983 |  |  |  | 530 |  |  |  | 940 |
Asset impairments (2) |  |  | 237 |  |  |  | 507 |  |  |  | — |  |  |  | — |  |  |  | — |
Unused space charges (2) (4) |  |  | 909 |  |  |  | 114 |  |  |  | (385 | ) |  |  | (348 | ) |  |  | 556 |
Adjusted EBITDA--University Group and Corporate (5) |  | $ | 20,199 |  |  | $ | 29,585 |  |  | $ | 16,298 |  |  | $ | 26,492 |  |  | $ | 11,339 |
Memo: Advertising Expenses (2) |  | $ | 43,966 |  |  | $ | 33,431 |  |  | $ | 46,194 |  |  | $ | 34,258 |  |  | $ | 50,587 |
Transitional Group, Culinary Arts and Discontinued Operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pre-tax loss from discontinued operations |  | $ | (126 | ) |  | $ | (512 | ) |  | $ | (544 | ) |  | $ | (720 | ) |  | $ | (352 | )
Transitional Group pre-tax loss |  |  | (11,316 | ) |  |  | (15,182 | ) |  |  | (23,724 | ) |  |  | (32,624 | ) |  |  | (30,470 | )
Culinary Arts pre-tax income (loss) |  |  | 3,107 |  |  |  | (14,065 | ) |  |  | (33,171 | ) |  |  | (10,532 | ) |  |  | 250 |
Interest income, net (6) |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Loss on sale of business (6) |  |  | — |  |  |  | 161 |  |  |  | 715 |  |  |  | 917 |  |  |  | — |
Depreciation and amortization (6) |  |  | 3,466 |  |  |  | 1,759 |  |  |  | 2,508 |  |  |  | 3,231 |  |  |  | 2,351 |
Legal settlements (3) (6) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (166 | ) |  |  | 1,485 |
Asset impairments (6) |  |  | — |  |  |  | 9,171 |  |  |  | 33,446 |  |  |  | 11,372 |  |  |  | 6,019 |
Unused space charges (4) (6) |  |  | (2,108 | ) |  |  | (2,002 | ) |  |  | 7,174 |  |  |  | (2,305 | ) |  |  | (2,424 | )
Adjusted EBITDA--Transitional, Culinary Arts and Discontinued Operations (5) (8) |  | $ | (6,978 | ) |  | $ | (20,670 | ) |  | $ | (13,596 | ) |  | $ | (30,827 | ) |  | $ | (23,141 | )
Consolidated Adjusted EBITDA |  | $ | 13,221 |  |  | $ | 8,915 |  |  | $ | 2,702 |  |  | $ | (4,335 | ) |  | $ | (11,802 | )

(1) | The Company believes it is useful to present non-GAAP financial measures which exclude certain significant items as a means to understand the performance of its operations. As a general matter, the Company uses non-GAAP financial measures in conjunction with results presented in accordance with GAAP to help analyze the performance of its operations, assist with preparing the annual operating plan, and measure performance for some forms of compensation. In addition, the Company believes that non-GAAP financial information is used by analysts and others in the investment community to analyze the Company’s historical results and to provide estimates of future performance and that failure to report non-GAAP measures could result in a misplaced perception that the Company’s results have underperformed or exceeded expectations. We believe adjusted EBITDA allows us to compare our current operating results with corresponding historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by items we do not consider reflective of underlying operating performance. We also present adjusted EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of performance. In evaluating adjusted EBITDA, investors should be aware that in the future we may incur expenses similar to the adjustments presented above. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by expenses that are unusual, non-routine or non-recurring. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for net income (loss), operating income (loss), or any other performance measure derived in accordance and reported under GAAP or as an alternative to cash flow from operating activities or as a measure of our liquidity. Non-GAAP financial measures, when viewed in a reconciliation to corresponding GAAP financial measures, provide an additional way of viewing the company’s results of operations and the factors and trends affecting the company’s business.

| Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding financial results presented in accordance with GAAP.

(2) | Quarterly amounts relate to the University Group and Corporate.

(3) | Legal settlement amounts are net of insurance recoveries.

(4) | Unused space charges represent the net present value of remaining lease obligations less an estimated amount for sublease income as well as the subsequent accretion of these charges.

(5) | Management assesses results of operations for the University Group and Corporate separately from the Transitional Group and Culinary Arts. As a result, management views adjusted EBITDA from the University Group and Corporate separately from the remainder of the organization, to assess results and make decisions. Accordingly, the Transitional Group and Culinary Arts pre-tax income (losses) are added back to pre-tax income (loss) from continuing operations and subtracted from pre-tax loss from discontinued operations.

(6) | Quarterly amounts relate to the Transitional Group, Culinary Arts and discontinued operations.

(7) | Previously disclosed adjusted EBITDA included an adjustment related to revenue recognition as a result of a cumulative adjustment which was recorded during the fourth quarter of 2014. This adjustment was removed because all periods presented are now comparable in this regard and therefore management no longer views it as a material adjustment.

(8) | Quarterly adjusted EBITDA amounts for Culinary Arts separate from the Transitional Group and discontinued operations include:

|  | Q1 2016 |  |  | Q4 2015 (7) |  |  | Q3 2015 (7) |  |  | Q2 2015 (7) |  |  | Q1 2015 (7) |
Pre-tax income (loss) |  | $ | 3,107 |  |  | $ | (14,065 | ) |  | $ | (33,171 | ) |  | $ | (10,532 | ) |  | $ | 250 |
Depreciation and amortization |  |  | 1,961 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Legal settlements |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 775 |
Asset impairments |  |  | — |  |  |  | 9,005 |  |  |  | 33,446 |  |  |  | 9,687 |  |  |  | — |
Unused space charges |  |  | 1,543 |  |  |  | 191 |  |  |  | 209 |  |  |  | (982 | ) |  |  | (377 | )
Total |  | $ | 6,611 |  |  | $ | (4,869 | ) |  | $ | 484 |  |  | $ | (1,827 | ) |  | $ | 648 |