Company Also Announces Extension of Credit Agreement with its
Lender
SCHAUMBURG, Ill.--(BUSINESS WIRE)--
Career Education Corporation (NASDAQ: CECO) today announced that it will
begin a gradual process of discontinuing the operations of its Le Cordon
Bleu North America colleges of culinary arts. Le Cordon Bleu will no
longer enroll new students after the January 2016 student cohort begins
classes. The Company also announced that it has extended its credit
agreement with its lender.
TEACH-OUT OF LE CORDON BLEU
Career Education had previously been engaged in advanced negotiations
with a potential buyer interested in acquiring all of the Company’s Le
Cordon Bleu campuses. These discussions, and discussions with
alternative parties, did not ultimately lead to an agreement the Company
felt was suitable to complete a transfer of ownership that would protect
student, faculty and stockholder interests. The decision to teach out
the Le Cordon Bleu campuses is aligned with the Company’s strategic
decision to divest or teach-out the remaining institutions of its former
Career Colleges segment, which was previously announced in May 2015. As
part of a “teach-out,” students making reasonable academic progress will
have the opportunity to complete their program. All Le Cordon Bleu
campuses are projected to remain open until September 2017.
“New federal regulations make it difficult to project the future for
career schools that have higher operating costs, such as culinary
schools that require expensive commercial kitchens and ongoing food
costs,” said Todd Nelson, president and CEO of Career Education.
“Despite our best efforts to find a new caretaker for these
well-renowned culinary colleges, we could not reach an agreement that we
believe was in the best interests of both our students and our
stockholders. As discussions progressed, we continued to evaluate the
decision taking into consideration factors including the economics
between a sale and teach-out, impacts to students and stockholders and
execution risk. By moving forward with a teach-out process we are better
able to protect student interests and also retain all of the rights that
we currently have to the Le Cordon Bleu brand. We will continue with our
plan to refocus Career Education’s resources on predominantly online
university education as we endeavor to provide students attending
schools in ‘teach-out’ with appropriate resources to complete their
program of study.”
Le Cordon Bleu North America offers hands-on educational programs in
culinary arts, as well as patisserie and baking, to students at 16
campuses located in cities across the United States. It contributed
$128.2 million and $172.6 million of revenue and ($43.5) million and
($66.6) million of operating losses for the nine months ended September
30, 2015 and for the year ended December 31, 2014, respectively. As a
result of the decision to teach-out the Le Cordon Bleu campuses, the
results of operations for these campuses will now be reported within
continuing operations.
The Company expects to record approximately $52 million to $64 million
of restructuring charges related to the teach-out of the Le Cordon Bleu
campuses. These estimated charges are based on several assumptions,
including the timing of campus teach-outs, amount of estimated sublease
income related to our real estate lease obligations and estimated
severance charges based upon timing of staff departures and are subject
to change. These costs primarily relate to severance and retention
charges (approximately $12 million - $14 million); costs associated with
exiting lease obligations, net of estimated sublease income
(approximately $35 million - $40 million); and non-cash long-term asset
impairment charges (approximately $5 million - $10 million). The
impairment charges and severance and related charges will primarily be
recorded during the fourth quarter of 2015 and the lease charges will be
recorded at the time each facility is vacated, which is expected to be
during 2017. These amounts will result in actual cash outlay through
2017 for severance related charges and, for lease obligations, from the
teach-out date through varying dates based on each respective lease end
date, with the latest lease expiring during 2022.
The Company has previously provided certain estimates regarding its
future cash and investments balances, operating margins and adjusted
EBITDA for its Transitional Group reporting segment and discontinued
operations. These estimates assumed a completed sale of the Le Cordon
Bleu campuses, among other things, and therefore the decision to teach
out Le Cordon Bleu impacts the information previously provided and it
should no longer be relied upon. The Company continues to expect to
maintain cash, cash equivalents, restricted cash and investments
balances of approximately $190 million in 2015 excluding the timing
impact of outstanding checks, deposits and other transfers. The Company
continues to expect those balances to decrease in 2016 as compared to
2015, although the Le Cordon Bleu teach-out decision has a favorable
impact to previous 2016 expectations primarily due to the previous
expectation of a payment to the buyer upon the completion of a sale. The
long-term cash impact of a teach-out decision versus a sale decision
depends on our ability to minimize the impacts of the future lease
obligations discussed above. The Company intends to provide updated
information, to the extent deemed appropriate, at the time of its
announcement of the Company’s financial results for the year ended
December 31, 2015.
AMENDED CREDIT AGREEMENT
The Company also announced today that it has executed an amendment to
its agreement with its lender, BMO Harris Bank, which extends the terms
of the Credit Agreement to December 31, 2018 and revises certain
covenants. The amended agreement provides for a $95 million revolving
credit facility which reflects the reduced size of ongoing operations
and the long-term operating cost structure of Career Education’s
business. The cash collateral requirements of the Credit Agreement
remain unchanged.
Nelson concluded, “We are pleased that our lender has recognized the
success that our restructuring and transformational actions have had on
our business and thus has agreed to extend the agreement as well as
modify the covenants associated with our lending agreement to reflect
our ongoing business.”
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,
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 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 “expect,” “estimate,” “believe,” “will,”
“anticipate,” “intend,” “continue” 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. In particular, the
estimates provided above for company-wide cash balances are based on the
following key assumptions and factors, among others: (i) flat-to-modest
total enrollment growth within the University Group over time; (ii)
teach-outs to occur as planned and performance consistent with
historical experience; (iii) achievement of rates of recovery for our
real estate lease obligations which are consistent with historical
experience; (iv) right-sizing of our Corporate expense structure to
serve primarily online institutions; (vi) no material changes in the
legal or regulatory environment; and (v) consistent working capital
movements in line with historical operating trends.Although
these estimates and assumptions are based upon management’s good faith
beliefs regarding current events and actions that we may undertake in
the future, actual results could differ materially from these estimates.
Except as expressly required by the federal securities laws, we
undertake no obligation 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. Risks
and uncertainties, the outcomes of which could have a material and
adverse effect, include, but are not limited to, the following: 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; declines in enrollment; 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 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 and financial responsibility standards prescribed by the U.S.
Department of Education), as well as national and regional 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 fiscal year ended December 31, 2014 and its subsequent filings
with the Securities and Exchange Commission.
View source version on businesswire.com: http://www.businesswire.com/news/home/20151216005338/en/
Investors:
Alpha IR Group
Chris Hodges or Sam Gibbons
(312)
445-2870
[email protected]
or
Media:
Career
Education Corporation
Jeff Cooper
(847) 585-2600
[email protected]
Source: Career Education Corporation