ceco-10q_20160630.htm

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.

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 July 29, 2016: 68,458,130

	June 30,			December 31,
	2016			2015
ASSETS	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents, unrestricted	$	49,663		$	66,919
Restricted cash		1,375			49,821
Restricted short-term investments		9,610			-
Short-term investments		140,812			114,901
Total cash and cash equivalents, restricted cash and short-term investments		201,460			231,641
Student receivables, net of allowance for doubtful accounts of $19,233 and $18,013 as of June 30, 2016 and December 31, 2015, respectively		27,502			31,618
Receivables, other, net		781			5,194
Prepaid expenses		16,160			14,380
Inventories		2,107			3,353
Other current assets		1,537			2,523
Assets of discontinued operations		159			254
Total current assets		249,706			288,963

NON-CURRENT ASSETS:
Property and equipment, net		48,574			58,249
Goodwill		87,356			87,356
Intangible assets, net		8,900			9,300
Student receivables, net of allowance for doubtful accounts of $1,775 and $2,216 as of June 30, 2016 and December 31, 2015, respectively		3,333			3,958
Deferred income tax assets, net		130,188			137,716
Other assets		16,043			16,562
Assets of discontinued operations		8,694			8,811
TOTAL ASSETS	$	552,794		$	610,915
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings	$	-		$	38,000
Accounts payable		13,831			25,906
Accrued expenses:
Payroll and related benefits		32,120			38,789
Advertising and marketing costs		10,325			11,788
Income taxes		1,600			1,061
Other		24,701			24,082
Deferred tuition revenue		37,398			40,112
Liabilities of discontinued operations		9,376			13,067
Total current liabilities		129,351			192,805

NON-CURRENT LIABILITIES:
Deferred rent obligations		39,152			45,927
Other liabilities		23,192			25,197
Liabilities of discontinued operations		6,940			9,376
Total non-current liabilities		69,284			80,500

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; 83,431,251 and 82,996,585 shares issued, 68,418,122 and 68,098,654 shares outstanding as of June 30, 2016 and December 31, 2015, respectively		834			830
Additional paid-in capital		612,449			610,784
Accumulated other comprehensive loss		(330	)		(880	)
Accumulated deficit		(42,668	)		(57,518	)
Cost of 15,013,129 and 14,897,931 shares in treasury as of June 30, 2016 and December 31, 2015, respectively		(216,126	)		(215,606	)
Total stockholders' equity		354,159			337,610
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	552,794		$	610,915

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

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

	For the Quarter Ended June 30,						For the Year to Date Ended June 30,
	2016			2015			2016			2015
REVENUE:
Tuition and registration fees	$	181,432		$	215,747		$	379,217		$	441,438
Other		1,194			1,081			2,295			2,404
Total revenue		182,626			216,828			381,512			443,842

OPERATING EXPENSES:
Educational services and facilities		58,062			73,064			119,600			147,958
General and administrative		102,072			145,171			225,635			308,844
Depreciation and amortization		5,202			7,113			11,771			13,899
Asset impairment		-			11,372			237			17,391
Total operating expenses		165,336			236,720			357,243			488,092
Operating income (loss)		17,290			(19,892	)		24,269			(44,250	)

OTHER INCOME (EXPENSE):
Interest income		301			224			566			384
Interest expense		(116	)		(170	)		(352	)		(332	)
Loss on sale of business		-			(917	)		-			(917	)
Miscellaneous (expense) income		(231	)		5			(14	)		(375	)
Total other (expense) income		(46	)		(858	)		200			(1,240	)

PRETAX INCOME (LOSS)		17,244			(20,750	)		24,469			(45,490	)
Provision for (benefit from) income taxes		4,620			(747	)		8,755			(958	)
INCOME (LOSS) FROM CONTINUING OPERATIONS		12,624			(20,003	)		15,714			(44,532	)

LOSS FROM DISCONTINUED OPERATIONS, net of tax		(785	)		(720	)		(864	)		(1,072	)

NET INCOME (LOSS)		11,839			(20,723	)		14,850			(45,604	)

OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
Foreign currency translation adjustments		(97	)		-			96			-
Unrealized gains (losses) on investments		131			(43	)		454			152
Total other comprehensive income (loss)		34			(43	)		550			152
COMPREHENSIVE INCOME (LOSS)	$	11,873		$	(20,766	)	$	15,400		$	(45,452	)

NET INCOME (LOSS) PER SHARE - BASIC and DILUTED:
Income (loss) from continuing operations	$	0.18		$	(0.29	)	$	0.23		$	(0.66	)
Loss from discontinued operations		(0.01	)		(0.02	)		(0.01	)		(0.01	)
Net income (loss) per share	$	0.17		$	(0.31	)	$	0.22		$	(0.67	)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		68,368			67,893			68,261			67,714
Diluted		69,015			67,893			68,627			67,714

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

	For the Year to Date Ended June 30,
	2016			2015

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	14,850		$	(45,604	)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Asset impairment		237			17,391
Depreciation and amortization expense		11,771			13,899
Bad debt expense		14,769			9,138
Compensation expense related to share-based awards		1,391			1,470
Loss on sale of businesses, net		-			917
(Gain) loss on disposition of property and equipment		(238	)		3
Changes in operating assets and liabilities		(36,733	)		(23,809	)
Net cash provided by (used in) operating activities		6,047			(26,595	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments		(93,689	)		(33,707	)
Sales of available-for-sale investments		58,330			36,051
Purchases of property and equipment		(1,970	)		(4,994	)
Proceeds on the sale of assets		3,400			-
Payments of cash upon sale of businesses		(62	)		(2,018	)
Net cash used in investing activities		(33,991	)		(4,668	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock		278			939
Payment on borrowings		(38,000	)		(10,000	)
Change in restricted cash		48,446			9,500
Net cash provided by financing activities		10,724			439

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS:		(36	)		258

NET DECREASE IN CASH AND CASH EQUIVALENTS		(17,256	)		(30,566	)
CASH AND CASH EQUIVALENTS, beginning of the period		66,919			93,832
CASH AND CASH EQUIVALENTS, end of the period	$	49,663		$	63,266

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

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.

Additionally, CEC is in the process of teaching out campuses within our Transitional Group and Culinary Arts segments. Students enrolled at these campuses are afforded the reasonable opportunity to complete their program of study prior to the final teach-out date.

A 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, for-profit 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.

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 and year to date ended June 30, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016.

The unaudited condensed consolidated financial statements presented herein include the accounts of Career Education Corporation and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

Our reporting segments are determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280 – Segment Reporting and are based upon how the Company analyzes performance and make decisions. We organize our business across four reporting segments: CTU, AIU (comprises University Group); Culinary Arts and Transitional Group (comprises Career Schools Group). Campuses included in our Transitional Group and Culinary Arts segments are currently being taught out and no longer enroll new students. These campuses employ a gradual teach-out process, enabling them to continue to operate while current students have a reasonable opportunity to complete their course of study. All prior periods have been recast to reflect our segments on a comparable basis.

During the second quarter of 2016, the Company completed the teach-out of three Transitional Group campuses: Collins College, International Academy of Design & Technology Sacramento and Sanford-Brown Institute New York, which continue to be reported within the Transitional Group as of June 30, 2016 in accordance with ASC Topic 360 – Property, Plant and Equipment, which limits discontinued operations reporting.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU require a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected and credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. For all public business entities, ASU 2016-13 is effective for annual periods and interim periods beginning after December 15, 2019; early adoption is permitted for all organizations for annual periods and interim periods beginning after December 15, 2018. We are currently evaluating this guidance and believe the adoption will not significantly impact the presentation of our financial condition, results of operations and disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU simplified several aspects of accounting for share-based payment award transactions including income tax consequences, classification of excess tax benefits on the statement of cash flows, classification of employee taxes paid on the statement of cash flows when the employer withholds shares, forfeiture policy election and payroll minimum statutory tax withholding. For all public business entities, ASU 2016-09 is effective for annual periods and interim periods beginning after December 15, 2016. We are currently evaluating this guidance and believe the adoption will significantly impact the presentation of our financial condition, results of operations and disclosures.

In March 2016, the FASB issued ASU No. 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The amendments in this ASU eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investments, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method was in effect during all previous periods. The amendments require an equity method investor to add the cost of acquisition and requires available-for-sale equity securities that qualify for the equity method of accounting to recognize earnings as unrealized holding gain or loss in accumulated other comprehensive income. For all entities, ASU 2016-07 is effective for annual periods and interim periods beginning after December 15, 2016. 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 February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The core principle of Topic 842 is that lessees should recognize the assets and liabilities that arise from leases. All leases create an asset and liability for the lessee in accordance with FASB Concept Statements No. 6 Elements of Financial Statements, and, therefore, recognition of those lease assets and liabilities represents an improvement over previous GAAP. The accounting applied for lessors largely remained unchanged. The amendment in this ASU requires recognition of a lease liability and a right to use asset at the commencement date. For all public business entities, ASU 2016-02 is effective for annual periods and interim periods beginning after December 15, 2018; early adoption is permitted. We are currently evaluating this guidance and believe the adoption will significantly impact the presentation of our financial condition, results of operations and disclosures.

In July 2015, the FASB issued 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 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 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 the presentation of 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 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. Subsequently, FASB issued four additional Updates to the guidance as follows: 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. In March 2016, the FASB issued ASU 2016-08, providing clarity to improve operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, to add further guidance on identifying performance obligations and the licensing implementation while retaining the related core principles for those areas. In May 2016, the FASB issued ASU 2016-12, amendments to provide clarity on the objective of the collectability criterion, permit an entity to exclude amounts collected from customers for all sales taxes from the transaction price,

specify a measurement date for non-cash consideration, provide a practical expedient permitting an entity to reflect the aggregate effect of all modifications, clarify a completed contract during transition and clarify disclosure requirements for retrospectively applied guidance in Topic 606. 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 the presentation of our financial condition, results of operations and disclosures.

As of June 30, 2016, the results of operations for campuses that have ceased operations prior to 2015 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. Since the January 2015 effective date of the updated guidance within ASC Topic 360, we have not had any campuses that met the criteria to be considered a discontinued operation.

The summary of unaudited results of operations for our discontinued operations for the quarters and years to date ended June 30, 2016 and 2015 were as follows (dollars in thousands):

Assets and liabilities of discontinued operations on our condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 include the following (dollars in thousands):

	June 30,		December 31,
	2016		2015
Assets:
Current assets:
Receivables, net	$	159	$	254
Total current assets		159		254
Non-current assets:
Other assets, net		603		720
Deferred income tax assets, net		8,091		8,091
Total assets of discontinued operations	$	8,853	$	9,065
Liabilities:
Current liabilities:
Accounts payable and accrued expenses	$	2	$	528
Remaining lease obligations		9,374		12,539
Total current liabilities		9,376		13,067
Non-current liabilities:
Remaining lease obligations		6,775		9,212
Other		165		164
Total liabilities of discontinued operations	$	16,316	$	22,443

A number of the campuses that ceased operations prior to January 1, 2015 have remaining lease obligations that expire over time with the latest expiration in 2020. 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 on our condensed consolidated balance sheets, for the quarters and years to date ended June 30, 2016 and 2015 were as follows (dollars in thousands):

Investments consist of the following as of June 30, 2016 and December 31, 2015 (dollars in thousands):

	June 30, 2016
			Gross Unrealized
	Cost		Gain		(Loss)			Fair Value
Short-term investments (available for sale):
Non-governmental debt securities	$	105,475	$	69	$	(33	)	$	105,511
Treasury and federal agencies		35,260		47		(6	)		35,301
Total short-term investments		140,735		116		(39	)		140,812
Restricted short-term investments (available for sale):
Non-governmental debt securities		9,610		-		-			9,610
Long-term investments (available for sale):
Municipal bond		7,850		-		(476	)		7,374
Total investments (available for sale)	$	158,195	$	116	$	(515	)	$	157,796

	December 31, 2015
			Gross Unrealized
	Cost		Gain		(Loss)			Fair Value
Short-term investments (available for sale):
Municipal bonds	$	1,500	$	-	$	(11	)	$	1,489
Non-governmental debt securities		76,999		-		(242	)		76,757
Treasury and federal agencies		36,779		3		(127	)		36,655
Total short-term investments		115,278		3		(380	)		114,901
Long-term investments (available for sale):
Municipal bond		7,850		-		(476	)		7,374
Total investments (available for sale)	$	123,128	$	3	$	(856	)	$	122,275

In the table above, unrealized holding gains (losses) as of June 30, 2016 relate to short-term investments that have been in a continuous unrealized gain (loss) position for less than one year. The table also includes an unrealized holding loss, greater than one year, which relates to our long-term investment in a municipal bond, which is an auction rate security (“ARS”).

Our unrestricted non-governmental debt securities primarily consist of corporate bonds and commercial paper. Our treasury and federal agencies primarily consist of U.S. Treasury bills and federal home loan debt securities. We do not intend to sell our investments in these securities and it is not likely that we will be required to sell these investments before recovery of the amortized cost basis.

Our restricted short-term investments are comprised entirely of certificates of deposit, which secure our letters of credit. Prior to the second quarter of 2016, these funds were held as cash by the letter of credit issuer and reported by the Company as restricted cash on our condensed consolidated balance sheets.

Our ARS is comprised of debt obligations issued by states, cities, counties and other governmental entities, which earn federally tax-exempt interest. Our ARS has a stated term to maturity of greater than one year, and as such, we classify our investment in ARS as non-current on our condensed consolidated balance sheets within other assets. Auctions can “fail” when the number of sellers of the security exceeds the buyers for that particular auction period. In the event that an auction fails, the interest rate resets at a rate based on a formula determined by the individual security. The ARS for which auctions have failed continues to accrue interest and is auctioned on a set interval until the auction succeeds, the issuer calls the security, or it matures. As of June 30, 2016, we have determined this investment is at risk for impairment due to the nature of the liquidity of the market over the past several years. Cumulative unrealized losses as of June 30, 2016 amount to $ 0.5 million and are reflected within accumulated other comprehensive loss as a component of stockholders’ equity. We believe this impairment is temporary, as we do not intend to sell the investment and it is unlikely we will be required to sell the investment before recovery of its amortized cost basis.

FASB ASC Topic 820 – Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of June 30, 2016, we held investments that are required to be measured at fair value on a recurring basis. These investments (available-for-sale) consist of non-governmental debt securities, treasury and federal agencies and municipal bonds that are publicly traded and our investment in an ARS. Available for sale securities included in Level 1 are valued at quoted prices in active markets for identical assets and liabilities. Available for sale securities included in Level 2 are estimated based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Our investment in an ARS is categorized as Level 3 and fair value is estimated utilizing a discounted cash flow analysis as of June 30, 2016 which considers, among other items, the collateralization underlying the security investment, the credit worthiness of the counterparty, the time of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction. The auction event for our ARS investment has failed for multiple years. The security was also compared, when possible, to other observable market data with similar characteristics.

Investments measured at fair value on a recurring basis subject to the disclosure requirements of FASB ASC Topic 820 – Fair Value Measurements at June 30, 2016 and December 31, 2015 were as follows (dollars in thousands):

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)

Large accelerated filer		o		Accelerated filer	x
Non-accelerated filer		o (Do not check if a smaller reporting company)		Smaller reporting company	o



		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets	1

	Unaudited Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (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	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	37

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 5.	Other Information	39
Item 6.	Exhibits	39

SIGNATURES		40

	Balance, Beginning of Period		Charges Incurred ⁽¹⁾			Net Cash Payments			Other		Balance, End of Period
For the quarter ended June 30, 2016	$	17,669	$	743		$	(2,263	)	$	-	$	16,149
For the quarter ended June 30, 2015	$	31,605	$	157		$	(3,769	)	$	-	$	27,993
For the year to date ended June 30, 2016	$	21,751	$	401		$	(6,003	)	$	-	$	16,149
For the year to date ended June 30, 2015	$	37,616	$	(413	)	$	(9,210	)	$	-	$	27,993

	As of June 30, 2016
	Level 1		Level 2		Level 3		Total
Municipal bonds	$	-	$	-	$	7,374	$	7,374
Non-governmental debt securities		35,368		79,753		-		115,121
Treasury and federal agencies		-		35,301		-		35,301
Totals	$	35,368	$	115,054	$	7,374	$	157,796

	As of December 31, 2015
	Level 1		Level 2		Level 3		Total
Municipal bonds	$	-	$	1,489	$	7,374	$	8,863
Non-governmental debt securities		-