10-Q 1 ceco-10q_20150930.htm 10-Q ceco-10q_20150930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM          TO             

Commission File Number: 0-23245

 

CAREER EDUCATION CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

36-3932190

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

231 N. Martingale Road

Schaumburg, Illinois

60173

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (847) 781-3600

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

o

 

Accelerated filer

x

 

 

 

 

 

 

Non-accelerated filer

 

o  (Do not check if a smaller reporting company)

 

Smaller reporting company

o

 

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.    Yes  o    No  x

Number of shares of registrant’s common stock, par value $0.01, outstanding as of October 28, 2015: 67,996,409

 

 


CAREER EDUCATION CORPORATION

FORM 10-Q

TABLE OF CONTENTS

 

 

 

Page

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets

1

 

 

 

 

Unaudited Condensed Consolidated Statements of Loss and Comprehensive Loss

2

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows

3

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

4

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

36

 

 

 

Item 4.

Controls and Procedures

37

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

38

 

 

 

Item 1A.

Risk Factors

38

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 5.      

Other Information

38

 

 

 

Item 6.

Exhibits

39

 

 

SIGNATURES

40

 

 

 


CAREER EDUCATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

(unaudited)

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents, unrestricted

 

$

68,940

 

 

$

93,832

 

Restricted cash

 

 

13,688

 

 

 

22,938

 

Short-term investments

 

 

116,790

 

 

 

122,858

 

Total cash and cash equivalents, restricted cash and short-term investments

 

 

199,418

 

 

 

239,628

 

 

 

 

 

 

 

 

 

 

Student receivables, net of allowance for doubtful accounts of $13,283 and $12,398

   as of September 30, 2015 and December 31, 2014, respectively

 

 

27,696

 

 

 

24,564

 

Receivables, other, net

 

 

4,415

 

 

 

18,925

 

Prepaid expenses

 

 

13,360

 

 

 

14,679

 

Inventories

 

 

2,353

 

 

 

3,305

 

Other current assets

 

 

1,565

 

 

 

2,384

 

Assets held for sale

 

 

29,239

 

 

 

76,846

 

Assets of discontinued operations

 

 

347

 

 

 

473

 

Total current assets

 

 

278,393

 

 

 

380,804

 

 

 

 

 

 

 

 

 

 

NON-CURRENT ASSETS:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

54,680

 

 

 

73,083

 

Goodwill

 

 

87,356

 

 

 

87,356

 

Intangible assets, net

 

 

7,900

 

 

 

9,819

 

Student receivables, net of allowance for doubtful accounts of $1,628

   and $2,119 as of September 30, 2015 and December 31, 2014, respectively

 

 

2,874

 

 

 

2,926

 

Other assets

 

 

16,901

 

 

 

18,571

 

Assets of discontinued operations

 

 

780

 

 

 

975

 

TOTAL ASSETS

 

$

448,884

 

 

$

573,534

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

 

 

$

10,000

 

Accounts payable

 

 

28,293

 

 

 

21,968

 

Accrued expenses:

 

 

 

 

 

 

 

 

Payroll and related benefits

 

 

31,208

 

 

 

29,545

 

Advertising and production costs

 

 

15,026

 

 

 

13,162

 

Income taxes

 

 

1,717

 

 

 

1,633

 

Other

 

 

22,295

 

 

 

21,440

 

Deferred tuition revenue

 

 

31,004

 

 

 

37,572

 

Liabilities held for sale

 

 

45,187

 

 

 

50,357

 

Liabilities of discontinued operations

 

 

12,355

 

 

 

15,506

 

Total current liabilities

 

 

187,085

 

 

 

201,183

 

 

 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Deferred rent obligations

 

 

34,999

 

 

 

48,381

 

Other liabilities

 

 

19,760

 

 

 

19,178

 

Liabilities of discontinued operations

 

 

12,597

 

 

 

22,859

 

Total non-current liabilities

 

 

67,356

 

 

 

90,418

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued or outstanding

 

 

 

 

 

 

Common stock, $0.01 par value; 300,000,000 shares authorized; 82,874,634

   and 82,336,689 shares issued, 67,981,417 and 67,521,038 shares

   outstanding as of September 30, 2015 and December 31, 2014, respectively

 

 

829

 

 

 

823

 

Additional paid-in capital

 

 

610,063

 

 

 

606,531

 

Accumulated other comprehensive loss

 

 

(620

)

 

 

(853

)

Retained deficit

 

 

(200,242

)

 

 

(109,403

)

Cost of 14,893,217 and 14,815,651 shares in treasury as of September 30, 2015

   and December 31, 2014, respectively

 

 

(215,587

)

 

 

(215,165

)

Total stockholders' equity

 

 

194,443

 

 

 

281,933

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

448,884

 

 

$

573,534

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1


CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

 

 

 

For the Quarter Ended September 30,

 

 

For the Year to Date Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tuition and registration fees

 

$

161,358

 

 

$

181,761

 

 

$

516,722

 

 

$

563,806

 

Other

 

 

716

 

 

 

1,064

 

 

 

2,434

 

 

 

3,345

 

Total revenue

 

 

162,074

 

 

 

182,825

 

 

 

519,156

 

 

 

567,151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Educational services and facilities

 

 

54,201

 

 

 

60,790

 

 

 

163,101

 

 

 

181,429

 

General and administrative

 

 

112,705

 

 

 

132,090

 

 

 

373,218

 

 

 

409,587

 

Depreciation and amortization

 

 

5,962

 

 

 

8,739

 

 

 

19,860

 

 

 

28,052

 

Asset impairment

 

 

 

 

 

12,938

 

 

 

7,704

 

 

 

13,015

 

Total operating expenses

 

 

172,868

 

 

 

214,557

 

 

 

563,883

 

 

 

632,083

 

Operating loss

 

 

(10,794

)

 

 

(31,732

)

 

 

(44,727

)

 

 

(64,932

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

163

 

 

 

223

 

 

 

545

 

 

 

614

 

Interest expense

 

 

(170

)

 

 

(103

)

 

 

(502

)

 

 

(292

)

Loss on sale of business

 

 

(715

)

 

 

 

 

 

(1,632

)

 

 

 

Miscellaneous income (expense)

 

 

31

 

 

 

(39

)

 

 

(377

)

 

 

(147

)

Total other (expense) income

 

 

(691

)

 

 

81

 

 

 

(1,966

)

 

 

175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRETAX LOSS

 

 

(11,485

)

 

 

(31,651

)

 

 

(46,693

)

 

 

(64,757

)

Provision for (benefit from)  income taxes

 

 

35

 

 

 

1,116

 

 

 

(923

)

 

 

3,190

 

LOSS FROM CONTINUING OPERATIONS

 

 

(11,520

)

 

 

(32,767

)

 

 

(45,770

)

 

 

(67,947

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS, net of tax

 

 

(33,715

)

 

 

(15,201

)

 

 

(45,069

)

 

 

(84,728

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(45,235

)

 

 

(47,968

)

 

 

(90,839

)

 

 

(152,675

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE LOSS, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on investments

 

 

81

 

 

 

(108

)

 

 

233

 

 

 

(243

)

COMPREHENSIVE LOSS

 

$

(45,154

)

 

$

(48,076

)

 

$

(90,606

)

 

$

(152,918

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS PER SHARE - BASIC and DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.17

)

 

$

(0.49

)

 

$

(0.68

)

 

$

(1.01

)

Loss from discontinued operations

 

 

(0.50

)

 

 

(0.22

)

 

 

(0.66

)

 

 

(1.26

)

Net loss per share

 

$

(0.67

)

 

$

(0.71

)

 

$

(1.34

)

 

$

(2.27

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

67,961

 

 

 

67,209

 

 

 

67,798

 

 

 

67,121

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

2


CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

For the Year to Date Ended September 30,

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(90,839

)

 

$

(152,675

)

Adjustments to reconcile net loss to net

 

 

 

 

 

 

 

 

cash used in operating activities:

 

 

 

 

 

 

 

 

Asset impairment

 

 

50,837

 

 

 

22,006

 

Depreciation and amortization expense

 

 

19,861

 

 

 

42,966

 

Bad debt expense

 

 

15,526

 

 

 

19,107

 

Compensation expense related to share-based awards

 

 

2,453

 

 

 

3,311

 

Loss on sale of businesses, net

 

 

1,632

 

 

 

311

 

(Gain) loss on disposition of property and equipment

 

 

(10

)

 

 

32

 

Changes in operating assets and liabilities

 

 

(20,463

)

 

 

(36,203

)

Net cash used in operating activities

 

 

(21,003

)

 

 

(101,145

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of available-for-sale investments

 

 

(64,056

)

 

 

(131,487

)

Sales of available-for-sale investments

 

 

69,436

 

 

 

51,540

 

Purchases of property and equipment

 

 

(7,926

)

 

 

(10,558

)

Proceeds on the sale of assets

 

 

2,272

 

 

 

 

Payments of cash upon sale of businesses

 

 

(4,125

)

 

 

(387

)

Net cash used in investing activities

 

 

(4,399

)

 

 

(90,892

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

1,082

 

 

 

575

 

Payment on borrowings

 

 

(10,000

)

 

 

 

Change in restricted cash

 

 

9,250

 

 

 

(674

)

Net cash provided by (used in) financing activities

 

 

332

 

 

 

(99

)

 

 

 

 

 

 

 

 

 

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE

   CHANGES ON CASH AND CASH EQUIVALENTS:

 

 

178

 

 

 

121

 

 

 

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(24,892

)

 

 

(192,015

)

DISCONTINUED OPERATIONS CASH ACTIVITY INCLUDED ABOVE:

 

 

 

 

 

 

 

 

Add: Cash balance of discontinued operations, beginning of the period

 

 

 

 

 

475

 

Less: Cash balance of discontinued operations, end of the period

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of the period

 

 

93,832

 

 

 

318,468

 

CASH AND CASH EQUIVALENTS, end of the period

 

$

68,940

 

 

$

126,928

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

3


CAREER EDUCATION CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1. DESCRIPTION OF THE COMPANY

Career Education’s academic institutions offer a quality education to a diverse student population in a variety of disciplines through online, on-ground 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 detailed listing of individual campus locations and web links to Career Education’s colleges, institutions and universities can be found at www.careered.com.

As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “the Company” and “CEC” refer to Career Education Corporation and our wholly-owned subsidiaries. The terms “college,” “institution” and “university” refer to an individual, branded, proprietary educational institution owned by us and includes its campus locations. The term “campus” refers to an individual main or branch campus operated by one of our colleges, institutions or universities.

 

 

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the quarter ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

The unaudited condensed consolidated financial statements presented herein include the accounts of CEC and our wholly-owned subsidiaries (collectively, “CEC”). All intercompany transactions and balances have been eliminated.

We organize our business across three reporting segments: CTU, AIU (comprises University Group); and Transitional Group. Campuses included in our Transitional Group segment are those (i) currently being taught out and therefore no longer enrolling new students, (ii) campuses that completed their teach-out subsequent to January 1, 2015 or (iii) that have either been sold or are held for sale and which decisions were made subsequent to January 1, 2015. Those campuses in teach-out employ a gradual teach-out process, enabling them to continue to operate while current students complete their course of study. All prior periods have been recast to reflect our segments on a comparable basis and our results of operations for these campuses are recorded within continuing operations as part of the Transitional Group segment for all periods presented.

Effective January 1, 2015, ASC Topic 360 – Property, Plant and Equipment, limits discontinued operations reporting and thus as campuses cease teach-out operations on or after January 1, 2015, the results of operations for these campuses will remain within the results of continuing operations. Prior to January 1, 2015, campuses met the criteria for discontinued operations upon completion of the teach-out. During the third quarter of 2015, the Company completed the teach-out of one Transitional Group campus, Sanford-Brown Tyson’s Corner, which continues to be reported as part of the Transitional Group as of September 30, 2015.

On September 1, 2015, the Company completed the sale of its Missouri College campus. The historical results of operations for the Missouri College campus continue to be reported within continuing operations as part of the Transitional Group and the loss on sale for this campus is reported within other (expense) income on our consolidated statements of loss and comprehensive loss.

 

 

3. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in this ASU require an entity to measure in-scope inventory at the lower of cost and net realizable value, further clarifying consideration for net realizable value as estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. This ASU more

4


closely aligns the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (“IFRS”). For public business entities, ASU 2015-11 is effective for annual periods and interim periods beginning after December 15, 2016. The amendment in this ASU is prospectively applied with earlier adoption permitted.  We are currently evaluating this guidance and do not believe the adoption will significantly impact the presentation of our financial condition, results of operations and disclosures.

In June 2015, the FASB issued ASU No. 2015-10, Technical Corrections and Improvements. This ASU represents changes to clarify the FASB Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create significant administrative cost to most entities. The amendments are intended to make the Codification easier to understand and easier to apply by eliminating inconsistencies by providing needed clarifications and improving the presentation of guidance. For all entities, ASU 2015-10 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015; early adoption is permitted. We are currently evaluating changes to the applicable Codifications and do not believe the adoption will significantly impact the presentation of our financial condition, results of operations and disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU is intended to simplify the presentation of debt issuance costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15 clarifying that there is no objection to an entity deferring and presenting debt issuance costs related to line-of-credit arrangements as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangements, regardless of whether there are any outstanding borrowings on the line-of-credit arrangements.  The amendments in ASU 2015-03 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015; early adoption is permitted. We are currently evaluating this guidance and do not believe the adoption will significantly impact the presentation of our financial condition, results of operations and disclosures.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This ASU eliminates from GAAP the concept of extraordinary items. Subtopic 225-20 previously required that an entity separately classify, present, and disclose extraordinary events and transactions from the results of ordinary operations and show the items separately. The amendments in this ASU are effective for annual periods and interim periods within those annual periods, beginning after December 15, 2015; early adoption is permitted. We are currently evaluating this guidance and do not believe the adoption will significantly impact the presentation of our financial condition, results of operations and disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU provides guidance to an organization’s management, intended to define management’s responsibility to evaluate whether there is a substantial doubt about an organization’s ability to continue as a going concern and to provide guidance regarding related footnote disclosure. In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. For all entities, ASU 2014-15 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016; early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2014-15 will have on our financial condition, results of operations and disclosures.

In June 2014, the FASB issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU standardizes the reporting for these awards by requiring that entities treat these performance targets as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. For all entities, ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015; early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2014-11 will have on our financial condition, results of operations and disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is principles based guidance that can be applied to all contracts with customers, enhancing comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to

5


which the entity expects to be entitled in exchange for those goods and services. The guidance details the steps entities should apply to achieve the core principle. In August 2015, the FASB issued ASU 2015-14 approving a one-year deferral of the effective date for its new revenue standard for public and nonpublic entities reporting under US GAAP. The standard will be effective for public business entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. Nonpublic entities would be required to adopt the new standard for annual reporting periods beginning after December 15, 2018, and interim periods within annual reporting periods beginning after December 15, 2019. Additionally, the FASB approved the option to early adopt prior to the original effective date (fiscal years beginning after December 15, 2016). We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our financial condition, results of operations and disclosures.

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts upon disposal that have (or will have) a major effect on an entity’s operations and financial results. In addition, the amendments in this ASU require expanded disclosures for discontinued operations as well as for disposals that do not qualify as discontinued operations. This ASU is effective for us as of January 1, 2015. We have evaluated the impact that the adoption of ASU 2014-08 will have on our financial condition, results of operation and disclosures and believe the impact to be material. Previously, campuses within our Transitional Group would be reclassified as discontinued operations upon the teach-out date. Under the new guidance, campuses that complete their teach-out do not meet the definition of discontinued operations, with the exception of those that meet the definition of a “strategic shift” upon disposal. Therefore, revenues and any respective operating losses associated with these campuses that do not meet the definition of a “strategic shift” upon disposal remain within continuing operations for all periods presented. Additionally, we have provided increased disclosures surrounding discontinued operations as well as increased disclosures surrounding our campuses that have ceased operations but do not meet the requirements to be classified as discontinued operations.

 

 

4. DISPOSITIONS

On September 1, 2015, we completed the sale of our Missouri College campus, located in Brentwood, Missouri, to Weston Education Group, a postsecondary education school providing a variety of certificate and degree programs to students for thirty-four years. This sale reflects our strategy to focus our resources and attention on our universities – Colorado Technical University and American InterContinental University. The sale does not meet the definition of a strategic shift under ASC Topic 360 and is therefore reported within continuing operations in accordance with FASB ASC Topic 205 – Presentation of Financial Statements.

We received no consideration for the sale of Missouri College and recorded a loss on sale of $0.9 million for the quarter ended September 30, 2015. The terms of the agreement provide that we make certain working capital payments to the buyer; accordingly, these amounts were included in the loss calculation. The loss on sale is included within other (expense) income on our unaudited condensed consolidated statements of loss and comprehensive loss.

 

 

5. DISCONTINUED OPERATIONS

As of September 30, 2015, the results of operations for campuses that have ceased operations prior to 2015 and all our Le Cordon Bleu (“LCB”) campuses that are held for sale are presented within discontinued operations. Prior to January 1, 2015, our Transitional Group campuses met the criteria for discontinued operations upon completion of their teach-out. Commencing January 1, 2015, in accordance with new guidance under ASC Topic 360, only campuses that meet the criteria of a strategic shift upon disposal will be classified within discontinued operations, among other criteria. During the third quarter of 2015, we did not have any campuses that met the criteria to be considered as a discontinued operation under the new guidance.

6


Results of Discontinued Operations

The summary of unaudited results of operations for our discontinued operations for the quarters and years to date ended September 30, 2015 and 2014 were as follows (dollars in thousands):

 

 

 

For the Quarter Ended September 30, (1)

 

 

For the Year to Date Ended September 30,  (1)

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

 

$

41,413

 

 

$

44,656

 

 

$

128,176

 

 

$

134,076

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Educational services and facilities

 

 

21,124

 

 

 

23,197

 

 

 

60,528

 

 

 

85,363

 

General and administrative

 

 

20,583

 

 

 

30,771

 

 

 

69,657

 

 

 

109,762

 

Depreciation and amortization

 

 

 

 

 

4,403

 

 

 

1

 

 

 

14,914

 

Asset impairment (2)

 

 

33,446

 

 

 

1,547

 

 

 

43,133

 

 

 

8,991

 

Total operating expenses

 

 

75,153

 

 

 

59,918

 

 

 

173,319

 

 

 

219,030

 

Loss before income tax

 

$

(33,715

)

 

$

(15,201

)

 

$

(45,069

)

 

$

(84,728

)

Income tax expense (3)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

$

(33,715

)

 

$

(15,201

)

 

$

(45,069

)

 

$

(84,728

)

Net loss per diluted share

 

$

(0.50

)

 

$

(0.22

)

 

$

(0.66

)

 

$

(1.26

)

Capital expenditures

 

$

138

 

 

$

1,110

 

 

$

457

 

 

$

1,714

 

 

(1)

Includes the results of operations for our LCB campuses that are held for sale, which met the criteria to be considered discontinued operations under ASC Topic 360, in addition to our Transitional Group campuses that completed their teach-out prior to 2015.

(2)

Asset impairment charges for the current year quarter and year to date relate to impairment recorded for our LCB campuses which are held for sale as a result of our fair value analysis.

(3)

Due to the valuation allowance against our net deferred taxes, there is no income tax benefit reported for the quarters and years to date ended September 30, 2015 and 2014.

Assets and Liabilities of Discontinued Operations

Assets and liabilities of discontinued operations on our condensed consolidated balance sheets for campuses that have ceased operations or were sold as of September 30, 2015 and December 31, 2014 include the following (dollars in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets:

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Receivables, net

 

$

334

 

 

$

473

 

Other current assets

 

 

13

 

 

 

 

Total current assets

 

 

347

 

 

 

473

 

Non-current assets:

 

 

 

 

 

 

 

 

Other assets, net

 

 

780

 

 

 

975

 

Total assets of discontinued operations (1)

 

$

1,127

 

 

$

1,448

 

Liabilities:

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

172

 

 

$

579

 

Remaining lease obligations

 

 

12,183

 

 

 

14,927

 

Total current liabilities

 

 

12,355

 

 

 

15,506

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Remaining lease obligations

 

 

12,434

 

 

 

22,689

 

Other

 

 

163

 

 

 

170

 

Total liabilities of discontinued operations (1)

 

$

24,952

 

 

$

38,365

 

 

(1)

Excludes assets and liabilities for our LCB campuses which are presented within assets and liabilities held for sale on our condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014. See Note 6 “Assets Held for Sale” for further details.

7


Remaining Lease Obligations

A number of the campuses that ceased operations prior to January 1, 2015 or vacated real estate properties for our LCB campuses held for sale, have remaining lease obligations that expire over time with the latest expiration in 2021. A liability is recorded representing the fair value of the remaining lease obligation at the time the space is no longer being utilized. Changes in our future remaining lease obligations, which are reflected within current and non-current liabilities of discontinued operations and within liabilities held for sale on our unaudited condensed consolidated balance sheets, for the quarters and years to date ended September 30, 2015 and 2014 were as follows (dollars in thousands):

 

 

 

Balance,

Beginning

of Period

 

 

Charges

Incurred (1)

 

 

Net Cash

Payments

 

 

Other (2)

 

 

Balance,

End of

Period

 

For the quarter ended September 30, 2015

 

$

29,588

 

 

$

60

 

 

$

(3,456

)

 

$

50

 

 

$

26,242

 

For the quarter ended September 30, 2014

 

$

52,597

 

 

$

121

 

 

$

(7,091

)

 

$

336

 

 

$

45,963

 

For the year to date ended September 30, 2015

 

$

39,869

 

 

$

(641

)

 

$

(13,612

)

 

$

626

 

 

$

26,242

 

For the year to date ended September 30, 2014

 

$

46,755

 

 

$

13,540

 

 

$

(19,881

)

 

$

5,549

 

 

$

45,963

 

 

 

(1)

Includes charges for newly vacated spaces and subsequent adjustments for accretion, revised estimates and variances between estimated and actual charges, net of any reversals for terminated lease obligations.

(2)

Includes existing prepaid rent and deferred rent liability balances for newly vacated spaces that are netted with the losses incurred in the period recorded.

 

 

6. ASSETS HELD FOR SALE

As of September 30, 2015, the Company continues to believe the sale of our Le Cordon Bleu Culinary Arts campuses, which decision was announced in the fourth quarter of 2014, will occur within the current reporting year or we will have an executed agreement pending regulatory approval. The assets and liabilities for the LCB campuses are included within assets and liabilities held for sale on our condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014. The sale of the LCB campuses met the criteria to be treated as discontinued operations under ASC Topic 360. Accordingly, the results of operations are reported within discontinued operations in the unaudited condensed consolidated statements of loss and comprehensive loss. As we anticipate the sale of these assets to be completed within one year of the decision to sell, we have recorded the assets and liabilities related to these institutions within current assets and liabilities held for sale as of September 30, 2015.

Results of Operations

         The summary of unaudited results of operations for our assets held for sale for the quarters and years to date ended September 30, 2015 and 2014 were as follows (dollars in thousands):

 

Reported within loss from discontinued operations for our LCB campuses

 

 

 

For the Quarter Ended September 30,

 

 

For the Year to Date Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

 

$

41,410

 

 

$

44,499

 

 

$

128,170

 

 

$

129,312

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Educational services and facilities

 

 

20,687

 

 

 

21,750

 

 

 

59,745

 

 

 

61,055

 

General and administrative

 

 

20,473

 

 

 

29,546

 

 

 

68,804

 

 

 

96,894

 

Depreciation and amortization

 

 

 

 

 

4,282

 

 

 

1

 

 

 

12,860

 

Asset impairment

 

 

33,446

 

 

 

1,523

 

 

 

43,133

 

 

 

8,923

 

Total operating expenses

 

 

74,606

 

 

 

57,101

 

 

 

171,683

 

 

 

179,732

 

Operating loss

 

$

(33,196

)

 

$

(12,602

)

 

$

(43,513

)

 

$

(50,420

)

 

During the third quarter of 2015, we revalued our LCB campuses held for sale in accordance with ASC Topic 360 – Property, Plant and Equipment, and as a result recorded an impairment charge of $33.4 million. The determination of estimated fair value was based upon the receipt of indications of interest and this fair value measurement is categorized as Level 3 per ASC Topic 820, as little or no market data exists for these assets.

8


Assets and Liabilities of Assets Held for Sale

Assets and liabilities of assets held for sale on our condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014 include the following (dollars in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets:

 

 

 

 

 

 

 

 

Receivables, net

 

$

6,719

 

 

$

8,303

 

Property and equipment, net

 

 

40,646

 

 

 

42,521

 

Other intangible assets

 

 

18,400

 

 

 

18,400

 

Other assets

 

 

6,600

 

 

 

7,622

 

Valuation allowance (1)

 

 

(43,126

)

 

 

 

Total assets held for sale

 

$

29,239

 

 

$

76,846

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

9,712

 

 

$

12,410

 

Deferred revenue

 

 

17,857

 

 

 

17,001

 

Remaining lease obligations

 

 

1,625

 

 

 

2,253

 

Other liabilities

 

 

15,993

 

 

 

18,693

 

Total liabilities held for sale

 

$

45,187

 

 

$

50,357

 

 

 

(1)

During the third quarter of 2015, the valuation allowance against our LCB assets held for sale was adjusted to $43.1 million to reflect the updated fair value for the LCB asset held for sale.

 

 

7. INVESTMENTS

Investments consist of the following as of September 30, 2015 and December 31, 2014 (dollars in thousands):

 

 

 

September 30, 2015

 

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

 

 

Cost

 

 

Gain

 

 

(Loss)

 

 

Fair Value

 

Short-term investments (available for sale):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

2,795

 

 

$

 

 

$

(27

)

 

$

2,768

 

Non-governmental debt securities

 

 

86,932

 

 

 

11

 

 

 

(115

)

 

 

86,828

 

Treasury and federal agencies

 

 

27,179

 

 

 

21