2013 Q4 Form 10-K Financial Statement

#000119312515075170 Filed on March 03, 2015

View on sec.gov

Income Statement

Concept 2013 Q4 2013 Q3 2013 Q2
Revenue $199.4M $199.1M $212.6M
YoY Change -34.26% -36.78% -38.03%
Cost Of Revenue $84.60M $90.30M $89.50M
YoY Change -265.23% -23.41% -16.36%
Gross Profit $155.0M $153.9M $166.7M
YoY Change 565.24% -22.35% -13.72%
Gross Profit Margin 77.74% 77.31% 78.42%
Selling, General & Admin $174.7M $181.7M $194.0M
YoY Change -2019.78% -17.37% -6.01%
% of Gross Profit 112.71% 118.06% 116.38%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $16.60M $18.40M $18.90M
YoY Change -21.7% -10.24% -5.5%
% of Gross Profit 10.71% 11.96% 11.34%
Operating Expenses $189.6M $197.2M $209.6M
YoY Change -1263.19% -17.39% -6.22%
Operating Profit -$14.43M -$30.56M -$30.28M
YoY Change -84.24% -22.75% -69.98%
Interest Expense -$100.0K $209.0K $212.0K
YoY Change -150.0% 808.7% 657.14%
% of Operating Profit
Other Income/Expense, Net $200.0K -$117.0K $360.0K
YoY Change -200.0% -131.62% -1.37%
Pretax Income -$40.40M -$55.05M -$49.36M
YoY Change -204.66% 38.99% -51.33%
Income Tax $56.40M -$20.09M -$26.53M
% Of Pretax Income
Net Earnings -$30.61M -$87.06M -$31.39M
YoY Change -50.23% 162.67% -68.68%
Net Earnings / Revenue -15.35% -43.73% -14.77%
Basic Earnings Per Share
Diluted Earnings Per Share -$456.7K -$1.304M -$464.5K
COMMON SHARES
Basic Shares Outstanding 67.15M shares 67.08M shares 67.05M shares
Diluted Shares Outstanding

Balance Sheet

Concept 2013 Q4 2013 Q3 2013 Q2
SHORT-TERM ASSETS
Cash & Short-Term Investments $350.1M $83.10M $229.9M
YoY Change 98.02% -77.74% -37.85%
Cash & Equivalents $318.5M $29.64M $63.73M
Short-Term Investments $31.60M $52.20M $63.90M
Other Short-Term Assets $3.059M $5.885M $7.245M
YoY Change -30.37% 12.87% 17.25%
Inventory $4.593M $7.146M $7.690M
Prepaid Expenses $16.72M $112.8M $96.44M
Receivables $28.00M $41.69M $53.52M
Other Receivables $27.20M $39.80M $40.50M
Total Short-Term Assets $460.0M $557.2M $458.0M
YoY Change -15.37% 2.24% -13.79%
LONG-TERM ASSETS
Property, Plant & Equipment $112.1M $202.1M $246.0M
YoY Change -54.76% -36.34% -24.83%
Goodwill $87.36M $87.36M $132.4M
YoY Change 0.0% -33.75% 1.15%
Intangibles $12.82M $40.39M $56.90M
YoY Change -77.11% -45.45% -23.77%
Long-Term Investments
YoY Change
Other Assets $17.13M $25.92M $28.15M
YoY Change -43.41% -38.72% -30.05%
Total Long-Term Assets $345.0M $247.8M $536.2M
YoY Change -40.42% -58.7% -11.79%
TOTAL ASSETS
Total Short-Term Assets $460.0M $557.2M $458.0M
Total Long-Term Assets $345.0M $247.8M $536.2M
Total Assets $805.0M $805.0M $994.2M
YoY Change -28.29% -29.69% -12.72%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $22.83M $33.72M $31.86M
YoY Change -28.82% -36.65% -16.98%
Accrued Expenses $72.00M $98.70M $129.9M
YoY Change -2.44% 12.29% 41.04%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00 $0.00
YoY Change
Long-Term Debt Due $0.00 $0.00 $0.00
YoY Change -100.0% -100.0% -100.0%
Total Short-Term Liabilities $207.4M $355.9M $278.9M
YoY Change -41.19% 14.53% 3.22%
LONG-TERM LIABILITIES
Long-Term Debt $0.00 $0.00 $0.00
YoY Change
Other Long-Term Liabilities $24.80M $29.79M $29.33M
YoY Change -13.44% -16.99% -20.4%
Total Long-Term Liabilities $142.2M $138.2M $145.6M
YoY Change -10.09% -14.98% -12.55%
TOTAL LIABILITIES
Total Short-Term Liabilities $207.4M $355.9M $278.9M
Total Long-Term Liabilities $142.2M $138.2M $145.6M
Total Liabilities $349.7M $494.1M $424.4M
YoY Change -31.56% 4.39% -2.8%
SHAREHOLDERS EQUITY
Retained Earnings $68.66M $99.26M $186.3M
YoY Change -70.52% -66.27% -43.1%
Common Stock $819.0K $819.0K $818.0K
YoY Change 0.37% 0.37% 0.12%
Preferred Stock
YoY Change
Treasury Stock (at cost) $214.5M $214.5M $214.5M
YoY Change 0.24% 0.24% 0.24%
Treasury Stock Shares 14.72M shares 14.72M shares 14.72M shares
Shareholders Equity $455.4M $491.1M $569.7M
YoY Change
Total Liabilities & Shareholders Equity $805.0M $985.2M $994.2M
YoY Change -28.29% -13.96% -12.72%

Cashflow Statement

Concept 2013 Q4 2013 Q3 2013 Q2
OPERATING ACTIVITIES
Net Income -$30.61M -$87.06M -$31.39M
YoY Change -50.23% 162.67% -68.68%
Depreciation, Depletion And Amortization $16.60M $18.40M $18.90M
YoY Change -21.7% -10.24% -5.5%
Cash From Operating Activities -$8.000M -$10.80M -$52.80M
YoY Change -83.77% -167.92% 6500.0%
INVESTING ACTIVITIES
Capital Expenditures -$3.100M -$9.100M -$5.900M
YoY Change -63.1% -4.21% -23.38%
Acquisitions
YoY Change
Other Investing Activities $177.3M $14.30M -$600.0K
YoY Change 149.02% -49.11% -80.65%
Cash From Investing Activities $174.4M $5.100M -$6.500M
YoY Change 177.71% -72.58% -39.81%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities 200.0K -400.0K -400.0K
YoY Change -101.13% -233.33% -81.82%
NET CHANGE
Cash From Operating Activities -8.000M -10.80M -52.80M
Cash From Investing Activities 174.4M 5.100M -6.500M
Cash From Financing Activities 200.0K -400.0K -400.0K
Net Change In Cash 166.6M -6.100M -59.70M
YoY Change -4066.67% -117.53% 332.61%
FREE CASH FLOW
Cash From Operating Activities -$8.000M -$10.80M -$52.80M
Capital Expenditures -$3.100M -$9.100M -$5.900M
Free Cash Flow -$4.900M -$1.700M -$46.90M
YoY Change -88.02% -106.69% -779.71%

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CY2014 dei Document Type
DocumentType
10-K
CY2014 dei Entity Registrant Name
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CAREER EDUCATION CORP
CY2014 dei Entity Well Known Seasoned Issuer
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CY2014 dei Trading Symbol
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CECO
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CY2014 dei Entity Filer Category
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CY2014 dei Entity Voluntary Filers
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<div> <p style="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"> <b>1. DESCRIPTION OF THE COMPANY</b></p> <p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman"> The colleges, institutions and universities that are part of the Career Education Corporation (&#x201C;CEC&#x201D;) family offer high-quality education to a diverse student population in a variety of career-oriented disciplines through online, on-ground and hybrid learning program offerings. In addition to its online offerings, Career Education serves students from campuses throughout the United States offering programs that lead to doctoral, master&#x2019;s, bachelor&#x2019;s and associate degrees, as well as to diplomas and certificates.</p> <p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman"> Our institutions include both universities that provide degree programs through the master or doctoral level and colleges that provide programs through the associate and bachelor level. The University group includes American InterContinental University (&#x201C;AIU&#x201D;) and Colorado Technical University (&#x201C;CTU&#x201D;) &#x2013; predominantly serving students online with career-focused degree programs that meet the educational demands of today&#x2019;s busy adults. The Career Colleges group offers career-centered education primarily through ground-based campuses and includes Briarcliffe College, Brooks Institute, Harrington College of Design, Missouri College and Sanford-Brown Institutes and Colleges (&#x201C;SBI&#x201D; and &#x201C;SBC,&#x201D; respectively). Through our colleges, institutions and universities, we are committed to providing high-quality education, enabling students to graduate and pursue rewarding career opportunities.</p> <p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman"> A detailed listing of individual campus locations and web links to Career Education&#x2019;s colleges, institutions and universities can be found at <i>www.careered.com</i>.</p> <p style="margin-top:12pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman"> As used in this Annual Report on Form 10-K, the terms &#x201C;we,&#x201D; &#x201C;us,&#x201D; &#x201C;our,&#x201D; &#x201C;the Company&#x201D; and &#x201C;CEC&#x201D; refer to Career Education Corporation and our wholly-owned subsidiaries. The terms &#x201C;college,&#x201D; &#x201C;institution,&#x201D; and &#x201C;university&#x201D; refer to an individual, branded, proprietary educational institution, owned by us and includes its campus locations. The term &#x201C;campus&#x201D; refers to an individual main or branch campus operated by one of our colleges, institutions or universities.</p> </div>
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<div> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt"> <i>c. Management&#x2019;s Use of Estimates</i></p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%"> The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. (&#x201C;GAAP&#x201D;) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reported period. Significant estimates, among others, include the allowance for doubtful accounts, the allocation of purchase price to the fair value of net assets and liabilities acquired in connection with business combinations, the assumptions surrounding sublease income utilized in determining the fair value of remaining lease obligations, assumptions utilized in calculating income tax related matters including our deferred tax balances and any respective valuation allowance, fair values used in asset impairment evaluations including goodwill, intangible assets, long-lived assets, and held for sale assets and the assumptions used in determining the fair value of accruals for severance and related costs. Although these estimates are based upon management&#x2019;s best knowledge of current events and actions that we may undertake in the future, actual results could differ from these estimates.</p> </div>
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CY2014 dei Document Period End Date
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2014-12-31
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--12-31
CY2014 dei Document Fiscal Year Focus
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<div> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 18px"><font style="FONT-FAMILY: Times New Roman" size="2"><b>12. CONTINGENCIES</b></font></p> <!-- xbrl,body --> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 6px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">An accrual for estimated legal fees and settlements of $2.3 million and $20.3 million at December&#xA0;31, 2014 and December&#xA0;31, 2013, respectively, is presented within other current liabilities on our consolidated balance sheets. This decrease was primarily a result of payment of $17.0 million for a legal settlement during 2014 which was included in our accrual balance as of December&#xA0;31, 2013.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">We record a liability when we believe that it is both probable that a loss will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least quarterly, developments in our legal matters that could affect the amount of liability that was previously accrued, and make adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. We may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (1)&#xA0;if the damages sought are indeterminate; (2)&#xA0;if the proceedings are in early stages; (3)&#xA0;if there is uncertainty as to the outcome of pending appeals, motions, or settlements; (4)&#xA0;if there are significant factual issues to be determined or resolved; and (5)&#xA0;if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 18px"><font style="FONT-FAMILY: Times New Roman" size="2"><b>Litigation</b></font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 6px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">We are, or were, a party to the following legal proceedings that we consider to be outside the scope of ordinary routine litigation incidental to our business. Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome of these matters. An unfavorable outcome of any one or more of these matters could have a material adverse impact on our business, results of operations, cash flows and financial position.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 18px"><font style="FONT-FAMILY: Times New Roman" size="2"><b><i>Student Litigation</i></b></font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 6px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2"><i>Enea, et al. v. Career Education Corporation, California Culinary Academy, Inc., SLM Corporation, and Sallie Mae, Inc.</i> Plaintiffs filed this putative class action in the Superior Court State of California, County of San Francisco, on or about June&#xA0;27, 2013. Plaintiffs allege that CCA materially misrepresented the placement rates of its graduates, falsely stated that admission to the culinary school was competitive and that the school had an excellent reputation among restaurants and other food service providers, represented that the culinary schools were well-regarded institutions producing skilled graduates who employers eagerly hired, and lied by telling students that the school provided graduates with career placement services for life. The class purports to consist of persons who executed Parent Plus loans or co-signed loans for students who attended CCA at any time between January&#xA0;1, 2003 and December&#xA0;31, 2008. Plaintiffs seek restitution, damages, civil penalties and attorneys&#x2019; fees.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">Defendants filed a motion to dismiss and to strike class action allegations on October&#xA0;31, 2013. A hearing on the motions was conducted on March&#xA0;14, 2014. Thereafter, the Court issued two separate orders granting the motion to strike the class allegations and the motion to dismiss without leave to amend. Plaintiffs filed a motion seeking leave to file a third amended complaint and/or for reconsideration of the Court&#x2019;s orders. On May&#xA0;9, 2014, the Court denied plaintiffs&#x2019; motion to reconsider its order striking the class allegations and granted plaintiffs leave to file a third amended complaint as to some, but not all, of plaintiffs&#x2019; claims. On May&#xA0;15, 2014, plaintiffs appealed the Court&#x2019;s ruling with respect to the motion to strike the class allegations. The Court has stayed the case pending a ruling on the appeal.</font></p> <p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px"> &#xA0;</p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 0px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">Because of the many questions of fact and law that may arise in the future, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action because, among other things, our potential liability depends on whether a class is certified and, if so, the composition and size of any such class, as well as on an assessment of the appropriate measure of damages if we were to be found liable. Accordingly, we have not recognized any liability associated with this action.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2"><i>Surrett, et al. v. Western Culinary Institute, Ltd. and Career Education Corporation.</i> On March&#xA0;5, 2008, a complaint was filed in Portland, Oregon in the Circuit Court of the State of Oregon in and for Multnomah County naming Western Culinary Institute, Ltd. (&#x201C;WCI&#x201D;) and the Company as defendants. Plaintiffs filed the complaint individually and as a putative class action and alleged two claims for equitable relief: violation of Oregon&#x2019;s Unlawful Trade Practices Act (&#x201C;UTPA&#x201D;) and unjust enrichment. Plaintiffs filed an amended complaint on April&#xA0;10, 2008, which added two claims for money damages: fraud and breach of contract. Plaintiffs allege WCI made a variety of misrepresentations to them, relating generally to WCI&#x2019;s placement statistics, students&#x2019; employment prospects upon graduation from WCI, the value and quality of an education at WCI, and the amount of tuition students could expect to pay as compared to salaries they could expect to earn after graduation. WCI subsequently moved to dismiss certain of plaintiffs&#x2019; claims under Oregon&#x2019;s UTPA; that motion was granted on September&#xA0;12, 2008. On February&#xA0;5, 2010, the Court entered a&#xA0;formal Order granting class certification on part of&#xA0;plaintiff&#x2019;s UTPA and fraud claims purportedly based on omissions, denying certification of the rest of those claims and denying certification of the breach of contract and unjust enrichment claims.&#xA0;The class consists of students who enrolled at WCI between March&#xA0;5, 2006 and March&#xA0;1, 2010, excluding those who dropped out or were dismissed from the school for academic reasons.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">Plaintiffs filed a&#xA0;fifth amended complaint&#xA0;on December&#xA0;7, 2010, which included individual and class allegations by Nathan Surrett. Class notice was sent on April&#xA0;22, 2011, and the opt-out period expired on June&#xA0;20, 2011.&#xA0;The class consisted of approximately 2,600 members. They are seeking tuition refunds, interest and certain fees paid in connection with their enrollment at WCI.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">On May&#xA0;23, 2012, WCI filed a motion to compel arbitration of claims by 1,062 individual class members who signed enrollment agreements containing express class action waivers. The Court issued an Order denying the motion on July&#xA0;27, 2012. On August&#xA0;6, 2012, WCI filed an appeal from the Court&#x2019;s Order and on August&#xA0;30, 2012, the Court of Appeals issued an Order granting WCI&#x2019;s motion to compel the trial court to cease exercising jurisdiction in the case. The oral argument on the appeal was heard on May&#xA0;9, 2014 and we are awaiting the Court&#x2019;s decision. All proceedings with the trial court have been stayed pending the outcome of the appeal.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">Because of the many questions of fact and law that have already arisen and that may arise in the future, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action because of the inherent difficulty in assessing the appropriate measure of damages and the number of class members who might be entitled to recover damages, if we were to be found liable. Accordingly, we have not recognized any liability associated with this action.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 18px"><font style="FONT-FAMILY: Times New Roman" size="2"><b><i>False Claims Act</i></b></font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 6px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2"><i>United States of America, ex rel. Melissa Simms Powell, et al. v. American InterContinental University, Inc., a Georgia Corporation, Career Education Corp., a Delaware Corporation and John Doe Nos. 1-100.</i> On July&#xA0;28, 2009, we were served with a complaint filed in the U.S. District Court for the Northern District of Georgia, Atlanta Division.&#xA0;The complaint was originally filed under seal on July&#xA0;14, 2008 by four former employees of the Dunwoody campus of our American InterContinental University on behalf of themselves and the federal government. On July&#xA0;27, 2009, the Court ordered the complaint unsealed and we were notified that the U.S. Department of Justice declined to intervene in the action. When the federal government declines to intervene in a False Claims Act action, as it has done in this case, the private plaintiffs (or &#x201C;relators&#x201D;) may elect to pursue the litigation on behalf of the federal government and, if they are successful, receive a portion of the federal government&#x2019;s recovery. The action alleges violations of the False Claims Act and&#xA0;promissory fraud,&#xA0;including allegedly providing false certifications to the federal government regarding compliance with certain provisions of the Higher Education Act and accreditation standards. Relators claim that defendants&#x2019; conduct caused the government to pay federal funds to defendants and to make payments to third-party lenders, which the government would not have made if not for defendants&#x2019; alleged violation of the law. Relators seek treble damages plus civil penalties and attorneys&#x2019; fees. On July&#xA0;12, 2012, the Court granted our motion to dismiss for a lack of jurisdiction, the claims related to incentive compensation and proof of graduation. Thus, the only claim that remained pending against defendants was based on relators&#x2019; contention that defendants misled the school&#x2019;s accreditor, Southern Association of Colleges and Schools, during the accreditation process. On December&#xA0;16, 2013, we filed a motion for summary judgment on a variety of substantive grounds. On September&#xA0;29, 2014, the Court granted our motion for summary judgment and entered judgment in our favor. On October&#xA0;2, 2014, relators filed a notice of appeal.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">Because of the many questions of fact and law that may arise on appeal, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action because the complaint does not seek a specified amount of damages and it is unclear how damages would be calculated, if we were to be found liable. Moreover, the case presents novel legal issues. Accordingly, we have not recognized any liability associated with this action.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2"><i>United States of America, ex rel. Brent M. Nelson v. Career Education Corporation, Sanford-Brown, Ltd., and Ultrasound Technical Services, Inc.</i> On April&#xA0;18, 2013, defendants were served with an amended complaint filed in the U.S. District Court for the Eastern District of Wisconsin.&#xA0;The original complaint was filed under seal on July&#xA0;30, 2012 by a former employee of Sanford-Brown College Milwaukee on behalf of himself and the federal government. On February&#xA0;27, 2013, the Court ordered the complaint unsealed and we were notified that the U.S. Department of Justice declined to intervene in the action. After the federal government declined to intervene in this case, the relator elected to pursue the litigation on behalf of the federal government. If he is successful he would receive a portion of the federal government&#x2019;s recovery. An amended complaint was filed by the relator on April&#xA0;12, 2013 and alleges violations of the False Claims Act, including allegedly providing false certifications to the federal government regarding compliance with certain provisions of the Higher Education Act and accreditation standards. Relator claims that defendants&#x2019; conduct caused the government to pay federal funds to defendants, and to make payments to third-party lenders, which the government would not have made if not for defendants&#x2019; alleged violation of the law. Relator seeks treble damages plus civil penalties and attorneys&#x2019; fees. On June&#xA0;11, 2013, defendants filed a motion to dismiss the case on a variety of grounds. The Court ruled on that motion, dismissing CEC from the case and dismissing several of the relator&#x2019;s factual claims. On November&#xA0;27, 2013, Sanford Brown, LTD., and Ultrasound Technical Services, Inc., the remaining Company defendants, filed a motion to dismiss the case for lack of subject matter jurisdiction due to prior public disclosures of the relator&#x2019;s alleged claims. On March&#xA0;17, 2014, the Court granted this motion in part, limiting the timeframe and geographical scope of the relator&#x2019;s claims. On June&#xA0;13, 2014, the Court granted the remaining Company defendants&#x2019; motion for summary judgment and entered judgment in their favor. On July&#xA0;9, 2014, relator filed a notice of appeal. The oral argument on the appeal was heard on January&#xA0;8, 2015, and we are awaiting the Court&#x2019;s decision.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">Because of the many questions of fact and law that may arise on appeal, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action because the complaint does not seek a specified amount of damages and it is unclear how damages would be calculated, if we were to be found liable. Accordingly, we have not recognized any liability associated with this action.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2"><i>United States of America, ex rel. Ann Marie Rega v. Career Education Corporation, et al.</i> On May&#xA0;16, 2014, Relator Ann Marie Rega, a former employee of Sanford-Brown Iselin, filed an action in the U.S. District Court for the District of New Jersey against the Company and almost all of the Company&#x2019;s individual schools on behalf of herself and the federal government. She alleges claims under the False Claims Act, including allegedly providing false certifications to the federal government regarding compliance with certain provisions of the Higher Education Act and accreditation standards. Relator claims that defendants&#x2019; conduct caused the government to pay federal funds to defendants, and to make payments to third-party lenders, which the government would not have made if not for defendants&#x2019; alleged violation of the law. Relator seeks treble damages plus civil penalties and attorneys&#x2019; fees. Relator failed to comply with the statutory requirement that all False Claims Act cases be filed under seal. On June&#xA0;16, 2014, defendants filed a motion to dismiss the complaint with prejudice as to relator for failure to file her complaint under seal in accordance with the requirements of the False Claims Act. The motion is fully briefed and the parties are awaiting a ruling from the Court.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">Because the matter is in its early stages and because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action because the complaint does not seek a specified amount of damages and it is unclear how damages would be calculated, if we were to be found liable. Moreover, the case presents novel legal issues. Accordingly, we have not recognized any liability associated with this action.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 18px"><font style="FONT-FAMILY: Times New Roman" size="2"><b><i>Employment Litigation</i></b></font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 6px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2"><i>Wilson, et al. v. Career Education Corporation</i>. On August&#xA0;11, 2011, Riley Wilson, a former admissions representative based in Minnesota, filed a complaint in the U.S. District Court for the Northern District of Illinois. The two-count complaint asserts claims of breach of contract and unjust enrichment arising from our decision to terminate our Admissions Representative Supplemental Compensation (&#x201C;ARSC&#x201D;) Plan. In addition to his individual claims, Wilson also seeks to represent a nationwide class of similarly situated admissions representatives who also were affected by termination of the plan. On October&#xA0;6, 2011, we filed a motion to dismiss the complaint. On April&#xA0;13, 2012, the Court granted our motion to dismiss in its entirety and dismissed plaintiff&#x2019;s complaint for failure to state a claim. The Court dismissed this action with prejudice on May&#xA0;14, 2012. On June&#xA0;11, 2012, plaintiff filed a notice of appeal with the U.S. Court of Appeals for the Seventh Circuit appealing the final judgment of the trial court. Briefing was completed on October&#xA0;30, 2012, and oral argument was held on December&#xA0;3, 2012. On August&#xA0;30, 2013, the Seventh Circuit affirmed the district court&#x2019;s ruling on plaintiff&#x2019;s unjust enrichment claim but reversed and remanded for further proceedings on plaintiff&#x2019;s breach of contract claim. On September&#xA0;13, 2013, we filed a petition for rehearing to seek review of the panel&#x2019;s decision on the breach of contract claim and for certification of question to the Illinois Supreme Court, but the petition was denied.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">The case now is on remand to the district court for further proceedings on the sole question of whether CEC&#x2019;s termination of the ARSC Plan violated the implied covenant of good faith and fair dealing. CEC has answered the complaint, and the parties have commenced fact discovery as to the issue of liability. The Court has ordered the parties to complete fact discovery as to that issue by January&#xA0;30, 2015 and to file summary judgment motions by March&#xA0;24, 2015.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">Because the matter is in its early stages and because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action. Accordingly, we have not recognized any liability associated with this action.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 18px"><font style="FONT-FAMILY: Times New Roman" size="2"><b><i>Other Litigation</i></b></font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 6px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">In addition to the legal proceedings and other matters described above, we are also subject to a variety of other claims, suits and investigations that arise from time to time out of the conduct of our business, including, but not limited to, claims involving students or graduates and routine employment matters. While we currently believe that such claims, individually or in aggregate, will not have a material adverse impact on our financial position, cash flows or results of operations, these other matters are subject to inherent uncertainties, and management&#x2019;s view of these matters may change in the future. Were an unfavorable final outcome to occur in any one or more of these matters, there exists the possibility of a material adverse impact on our business, reputation, financial position, cash flows, and the results of operations for the period in which the effect becomes probable and reasonably estimable.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 18px"><font style="FONT-FAMILY: Times New Roman" size="2"><b>State Investigations</b></font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 6px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">The Attorney General of Connecticut is serving as the point of contact for inquiries received from the attorneys general of the following 16 states:&#xA0;Arkansas, Arizona, Connecticut, Idaho, Iowa, Kentucky, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania, Washington (January 24, 2014); Illinois (December 9, 2011); Tennessee (February 7, 2014), Hawaii (May 28, 2014 ) and New Mexico (May 2014) (these 16 attorneys general are collectively referred to as the &#x201C;Multi-State AGs&#x201D;). In addition, the Company has received inquiries from the attorneys general of Florida (November 5, 2010), Massachusetts (September 27, 2012), Colorado (August 27, 2013) and Minnesota (September 18, 2014). The inquiries are civil investigative demands or subpoenas which relate to the investigation by the attorneys general of whether the Company and its schools have complied with certain state consumer protection laws, and generally focus on the Company&#x2019;s practices relating to the recruitment of students, graduate placement statistics, graduate certification and licensing results and student lending activities, among other matters. Depending on the state, the documents and information sought by the attorneys general in connection with their investigations cover time periods as early as 2006 to the present. The Company intends to cooperate with the states involved with a view towards resolving these inquiries as promptly as possible. In this regard, over the past several months the Company has participated in several meetings with representatives of the Multi-State AGs about the Company&#x2019;s business and to engage in a dialogue towards a resolution of these inquiries.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">We cannot predict the scope, duration or outcome of these attorney general investigations.&#xA0;At the conclusion of any of these matters, the Company or certain of its schools may be subject to claims of failure to comply with state laws or regulations and may be required to pay significant financial penalties and/or curtail or modify their operations. Other state attorneys general may also initiate inquiries into the Company or its schools. If any of the foregoing occurs, our business, reputation, financial position, cash flows and results of operations could be materially adversely affected. Based on information available to us at present, we cannot reasonably estimate a range of potential monetary or non-monetary impact these investigations might have on the Company because it is uncertain what remedies, if any, these regulators might ultimately seek in connection with these investigations.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 18px"><font style="FONT-FAMILY: Times New Roman" size="2"><b>Regulatory Matters</b></font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 6px"><font style="FONT-FAMILY: Times New Roman" size="2"><b><i>ED Inquiry and HCM1 Status</i></b></font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 6px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">In December 2011, the U.S. Department of Education (&#x201C;ED&#x201D;) advised the Company that it is conducting an inquiry concerning possible violations of ED misrepresentation regulations related to placement rates reported by certain of the Company&#x2019;s institutions to accrediting bodies, students and potential students. This inquiry stems from the Company&#x2019;s self-reporting to ED of its internal investigation into student placement determination practices at the Company&#x2019;s Health Education segment campuses and review of placement determination practices at all of the Company&#x2019;s other domestic campuses in 2011. The Company has been cooperating with ED in connection with this inquiry. If ED determines that the Company or any of its institutions violated ED misrepresentation regulations with regard to the publication or reporting of placement rates or other disclosures to students or prospective students or finds any other basis in the materials we are providing, ED may revoke, limit, suspend, delay or deny the institution&#x2019;s or all of the Company&#x2019;s institutions Title IV eligibility, or impose fines. In addition, a majority of the Company&#x2019;s institutions are currently in the process of seeking recertification from ED to participate in Title IV Programs. We cannot predict whether, or to what extent, ED&#x2019;s inquiry might impact this recertification process.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 12px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">In December 2011, ED also moved all of the Company&#x2019;s institutions from the &#x201C;advance&#x201D; method of payment of Title IV Program funds to cash monitoring status (referred to as Heightened Cash Monitoring 1, or HCM1, status). Although the Company&#x2019;s prior practices substantially conformed to the requirements of this more restrictive method of drawing down students&#x2019; Title IV Program funds, if ED finds violations of the HEA or related regulations, ED may impose monetary or program level sanctions, impose some period of delay in the Company&#x2019;s receipt of Title IV funds or transfer the Company&#x2019;s schools to the &#x201C;reimbursement&#x201D; or Heightened Cash Monitoring 2 (&#x201C;HCM2&#x201D;) methods of payment of Title IV Program funds. While on HCM2 status, an institution must disburse its own funds to students, document the students&#x2019; eligibility for Title IV Program funds and comply with certain waiting period requirements before receiving such funds from ED, which results in a significant delay in receiving those funds. The process of re-establishing a regular schedule of cash receipts for the Title IV Program funds if ED places our schools on &#x201C;reimbursement&#x201D; or HCM2 payment status could take several months, and would require us to fund ongoing operations substantially out of existing cash balances. If our existing cash balances are insufficient to sustain us through this transition period, we would need to pursue other sources of liquidity, which may not be available or may be costly.</font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 18px"><font style="FONT-FAMILY: Times New Roman" size="2"><b><i>OIG Audit</i></b></font></p> <p style="MARGIN-BOTTOM: 0px; MARGIN-TOP: 6px; TEXT-INDENT: 4%"> <font style="FONT-FAMILY: Times New Roman" size="2">Our schools and universities are also subject to periodic audits by various regulatory bodies, including the U.S. Department of Education&#x2019;s Office of Inspector General (&#x201C;OIG&#x201D;).&#xA0;The OIG audit services division commenced a compliance audit of CTU in June 2010, covering the period July&#xA0;5, 2009 to May&#xA0;16, 2010, to determine whether CTU had policies and procedures to ensure that CTU administered Title IV Program and other federal program funds in accordance with applicable federal law and regulation.&#xA0;On January&#xA0;13, 2012, the OIG issued a draft report identifying three findings, including one regarding the documentation of attendance of students enrolled in online programs and one regarding the calculation of returns of Title IV Program funds arising from student withdrawals without official notice to the institution. CTU submitted a&#xA0;written response to the OIG, contesting these findings, on March&#xA0;2, 2012. CTU disagreed with the OIG&#x2019;s proposed determination of what constitutes appropriate documentation or verification of online academic activity during the time period covered by the audit. CTU&#x2019;s response asserted that this finding was based on the retroactive application of standards adopted as part of the program integrity regulations that first went into effect on July&#xA0;1, 2011. The OIG final report, along with CTU&#x2019;s response to the draft report, was forwarded to ED&#x2019;s Office of Federal Student Aid on September&#xA0;21, 2012. On October&#xA0;24, 2012, CTU provided a further response challenging the findings of the report directly to ED&#x2019;s Office of Federal Student Aid. As a result of ED&#x2019;s review of these materials, on January&#xA0;31, 2013, CTU received a request from ED that it perform two file reviews to determine potential liability on two discrete issues associated with one of the above findings. The first file review relates to any potential aid awarded to students who engaged in virtual classroom attendance activities prior to the official start date of a course and for which no further attendance was registered during the official class term. The second file review relates to students that were awarded and paid Pell funds for enrollment in two concurrent courses, while only registering attendance in one of the two courses. The Company completed these file reviews and provided supporting documentation to ED on April&#xA0;10, 2013. As of December&#xA0;31, 2014, the Company has a $0.8 million reserve recorded related to this matter.</font></p> </div>
CY2014 us-gaap Number Of Reportable Segments
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4 Segment
CY2014 us-gaap Prior Period Reclassification Adjustment Description
PriorPeriodReclassificationAdjustmentDescription
<div> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt"> <i>b. Reclassifications</i></p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%"> During 2014, we announced the teach-out of three additional Sanford-Brown campuses: Chicago, Las Vegas and Orlando. These campuses are now included in the Transitional Group segment. During the current year, we also completed the teach-out of 20 Transitional Group campuses and one CTU campus as well as sold two campuses (one previously reported in the Career Colleges segment and one previously reported in the Transitional Group segment). As a result, all current and prior periods reflect the sold and fully taught out campuses as components of discontinued operations.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%"> Additionally, during the fourth quarter of 2014, our Board of Directors approved a plan to sell our 16 Culinary Arts campuses (&#x201C;LCB&#x201D;). Our decision to pursue the divestiture of LCB was the result of an ongoing portfolio review undertaken to evaluate the strategic direction of the Company. As a result of the decision to sell LCB, the assets and liabilities of the entities to be sold are classified as held for sale within discontinued operations as of December&#xA0;31, 2014.</p> <p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%"> All prior period results have been recast to reflect our reporting segments on a comparable basis.</p> </div>
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