<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 31, 1998
-------------------
Career Education Corporation
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-23245 39-3932190
- ---------------------------- ------------ -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2800 West Higgins Road, Suite 790, Hoffman Estates, IL 60195
------------------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (847) 781-3600
--------------
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The following Financial Statements of Scottsdale Culinary Institute, Inc.
are included on pages F-1 through F-10 of this Form 8-K/A:
Report of Independent Public Accountants
Balance Sheets as of December 31, 1997 and 1996 and June 30, 1998
(unaudited)
Statements of Operations and Retained Earnings for the years ended December
31, 1997 and 1996 and for the six months ended June 30, 1998 and 1997
(unaudited)
Statements of Cash Flows for the years ended December 31, 1997 and 1996 and
for the six months ended June 30, 1998 and 1997 (unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Information.
The following Pro Forma Financial Information is included on pages P-1
through P-4 of this Form 8-K/A:
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits.
2.1* Asset Purchase Agreement dated as of July 1, 1998 by and among
Scottsdale Culinary Institute, Inc., an Arizona corporation, The
Frank G. and Elizabeth S. Leite Revocable Trust dated April 14, 1992,
Frank G. Leite and Elizabeth S. Leite, and SCI Acquisition I, Ltd., a
Delaware corporation.
_______________________________
* Previously filed.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned hereunto duly authorized.
CAREER EDUCATION CORPORATION
By: /s/ JOHN M. LARSON
--------------------------------------------
John M. Larson
President and Chief Executive Officer
Dated: September 29, 1998
-3-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders' of
Scottsdale Culinary Institute, Inc.:
We have audited the accompanying balance sheets of SCOTTSDALE CULINARY
INSTITUTE, INC. (a Delaware corporation) as of December 31, 1997 and 1996, and
the related statements of operations and retained earnings and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Scottsdale Culinary Institute,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 25, 1998
F-1
<PAGE>
SCOTTSDALE CULINARY INSTITUTE, INC.
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31
---------------- June 30
ASSETS 1997 1996 1998
- --------------------------------------------- ------ ------ -----------
<S> <C> <C> <C>
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 288 $ 359 $ 766
Receivables, net of allowance for doubtful
accounts of $5 388 264 375
Inventories and other current assets 63 62 64
------ ------ ------
Total current assets 739 685 1,205
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 201 270 187
OTHER ASSETS 15 14 15
------ ------ ------
TOTAL ASSETS $ 955 $ 969 $1,407
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other
current liabilities $ 199 $ 251 $ 163
Deferred tuition revenue 338 355 299
------ ------ ------
Total current liabilities 537 606 462
LONG-TERM DEBT, net of current portion 17 31 15
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value; 1,000,000 shares
authorized; 51,000 shares issued and
outstanding at December 31, 1997,
December 31, 1996 and June 30, 1998 51 51 51
Additional paid-in capital 145 145 145
Retained earnings 205 136 734
------ ------ ------
Total shareholders' equity 401 332 930
------ ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 955 $ 969 $1,407
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
SCOTTSDALE CULINARY INSTITUTE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Years For the Six Months
Ended December 31 Ended June 30
----------------- ------------------
1997 1996 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
(Unaudited)
REVENUE:
Tuition and registration fees, net $4,428 $3,823 $2,469 $2,272
Other, net 415 408 232 221
------ ------ ------ ------
Total net revenue 4,843 4,231 2,701 2,493
OPERATING EXPENSES:
Educational services and facilities 2,565 2,445 1,168 1,323
General and administrative 1,292 1,097 575 565
Depreciation and amortization 94 107 38 46
Rent paid to related party 62 - 162 -
------ ------ ------ ------
Total operating expenses 4,013 3,649 1,943 1,934
------ ------ ------ ------
Income from operations 830 582 758 559
OTHER INCOME, net 62 33 11 5
------ ------ ------ ------
NET INCOME 892 615 769 564
Retained earnings, beginning of period 136 250 205 136
Distributions to shareholders (823) (729) (240) (206)
------ ------ ------ ------
RETAINED EARNINGS, END OF PERIOD $ 205 $ 136 $ 734 $ 494
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
SCOTTSDALE CULINARY INSTITUTE, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Years Ended For the Six Months
December 31 Ended June 30
--------------------- ---------------------
1997 1996 1998 1997
---------- --------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 892 $ 615 $ 769 $ 564
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 94 107 38 46
Loss on disposal of asset 3 1 - 1
Changes in operating assets and liabilities --
Receivables, net (124) (21) 13 (69)
Inventories and other current assets (1) 7 (1) (2)
Accounts payable, accrued expenses and other current liabilities (44) 95 (36) (29)
Deferred tuition revenue (17) (286) (39) 62
----- ----- ----- -----
Net cash provided by operating activities 803 518 744 573
----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (28) (134) (24) (3)
Other assets (1) 2 - 1
----- ----- ----- -----
Net cash used in investing activities (29) (132) (24) (2)
----- ----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders (823) (729) (240) (206)
Repayments of long-term debt (22) (14) (2) (10)
Proceeds from issuance of long-term debt - 31 - -
----- ----- ----- -----
Net cash used in financing activities (845) (712) (242) (216)
----- ----- ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (71) (326) 478 355
CASH AND CASH EQUIVALENTS, beginning of period 359 685 288 359
----- ----- ----- -----
CASH AND CASH EQUIVALENTS, end of period 288 359 766 714
===== ===== ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest 2 2 16 -
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
SCOTTSDALE CULINARY INSTITUTE, INC.
NOTES TO FINANCIAL STATEMENTS
(Information for the Six Months Ended June 30, 1998 and 1997 is Unaudited)
1. DESCRIPTION OF THE BUSINESS
Scottsdale Culinary Institute, Inc. (the "Company" or the "School") was
incorporated in June 1986 for the purpose of operating a school to provide
professional culinary education. The School, located in Scottsdale, Arizona,
provides professional culinary education leading to an Associate of
Occupational Studies degree in Culinary Arts and Sciences and Restaurant
Management. The School also operates a restaurant open to the public.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements and related notes thereto for the six months ended
June 30, 1998 and 1997 are unaudited and have been prepared on the same basis
as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
(consisting of normal recurring adjustments) necessary to present fairly
information set forth herein. Operating results for the six months ended
June 30, 1998 are not necessarily indicative of results that may be expected
for the fiscal year ending December 31, 1998. The principal accounting
policies of the Company are as follows:
Concentration of Credit Risk
The Company extends unsecured credit for tuition to a significant portion of
the students who are in attendance at the School. A substantial portion of
credit extended to students is repaid through the students' participation in
federally funded financial aid programs under Title IV of the Higher
Education Act of 1965, as amended ("Title IV Programs"). Approximately 55%,
58%, 55% and 57% of the Company's net revenue was collected from Title IV
Program funds for the years ended December 31, 1997 and 1996 and for the six
months ended June 30, 1998 and 1997, respectively. The Company generally
completes and approves the financial aid packet of each student who qualifies
for financial aid prior to the student's beginning class in an effort to
enhance the collectibility of its unsecured credit. Transfers of funds from
the financial aid programs to the Company are made in accordance with DOE
requirements. Changes in DOE funding of federal student financial aid
programs could impact the Company's ability to attract students.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash in banks and money market funds.
F-5
<PAGE>
Restricted Cash
Cash received from the U. S. Government under various student aid grant and
loan programs is considered to be restricted. Restricted cash is held in
separate bank accounts and does not become available for general use by the
Company until the financial aid is credited to the accounts of students and
the cash is transferred to an operating account. There is no restricted cash
included in the cash and cash equivalents balance at December 31, 1997,
December 31, 1996 and June 30, 1998.
Inventories
Inventories consisting principally of food and beverage, program materials,
books and supplies are stated at the lower of cost, determined on a first-in,
first-out basis or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
recognized utilizing the straight-line method over the related assets useful
lives. Leasehold improvements and assets recorded under capital leases are
amortized on a straight-line basis over the shorter of the estimated useful
life of the asset or the lease term. The cost basis and estimated useful
lives of property and equipment at December 31, 1997, December 31, 1996 and
June 30, 1998, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31
----------------------- June 30
Asset Description 1997 1996 1998 Life
- -------------------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Classroom equipment and
other instructional materials $469 $492 $478 5-10 years
Leasehold improvements 265 266 280 3-10 years
----------- ----------- ----------
734 758 758
Less -- Accumulated depreciation
and amortization 533 488 571
----------- ----------- ----------
$201 $270 $187
=========== =========== ==========
</TABLE>
The Company reviews long-lived assets for impairment whenever events or
circumstances indicate that carrying amounts may not be recoverable. To
date, no such events or changes in circumstances have occurred. If such
events or changes in circumstances occur, the Company will recognize an
impairment loss if the undiscounted future cash flows expected to be
generated by the asset (or acquired business) are less than the carrying
value of the related asset. The impairment loss would adjust the asset to
its fair value.
F-6
<PAGE>
Revenue Recognition
Revenue is derived primarily from courses taught at the School. Tuition
revenue is recognized on a straight-line basis during the period of
instruction provided by the School. Other revenues consist of restaurant
revenues and are recognized as services are performed. If a student
withdraws, future revenue is reduced by the amount of refund due to the
student. Refunds are calculated in accordance with federal, state and
accrediting agency standards. Deferred tuition revenue represents the
portion of tuition payments received but not earned and is reflected as a
current liability on the balance sheet as such amount is expected to be
earned within the next year.
Marketing and Advertising Costs
Marketing and advertising costs are expensed as incurred. Marketing and
advertising costs included in general and administrative expenses were
approximately $191,000, $221,000, $113,000 and $93,000 for the years ended
December 31, 1997 and 1996 and the six months ended June 30, 1998 and 1997,
respectively.
Income Taxes
The Company has elected to be treated as an S Corporation under the
provisions of Subchapter S of the Internal Revenue Code. Accordingly, the
shareholders of the Company are responsible for the federal taxes arising
from its operations. Therefore, no provision or liability for federal income
taxes has been included in these financial statements.
Use of Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reported period. Actual results could differ from these estimates.
3. LINE OF CREDIT
At December 31, 1997 and December 31, 1996, the Company had available a line
of credit providing for borrowings of up to $200,000, bearing interest at
the bank's reference rate plus 1.5%. The note contains certain financial
covenants and is guaranteed by the shareholders. The note was not utilized
at December 31, 1997 and December 31, 1996, and expired in April 1998.
F-7
<PAGE>
4. COMMITMENTS AND CONTINGENCIES
Regulatory
The Company has federal financial assistance programs that are subject to
ongoing program reviews by the DOE and Title IV program audits by external
auditors. Based upon the results of such audits and reviews, the Company may
have to repay funds previously granted to its students through loans and
grants, and pay interest, fines and/or penalties. Management believes such
amounts would be minimal and does not expect them to have a material effect
on the results of operations of the Company.
The Company is also required to meet certain financial and other standards
in order to qualify to participate in Title IV programs. These include
maintaining an acid test ratio (defined as cash, cash equivalents, and
current accounts receivable to current liabilities) of at least 1:1, having
a positive tangible net worth at the end of each fiscal year, to collect
less than 85% of its education revenues from Title IV funds on an annual
basis, not to have cumulative net operating losses during the most recent
fiscal years that result in a decline of more than 10% of the Company's
tangible net worth at the beginning of that two-year period, and a student
default rate on their federal loans of not more than 25% for any three-year
consecutive period, amongst others.
Leases
The Company leases equipment under capital leases expiring at various dates
through 2002. In addition, the Company leases its school facility and
certain equipment under noncancellable operating leases expiring at various
dates through 2008. Rent expense, exclusive of taxes, insurance and
maintenance of the facility and equipment for the years ended December 31,
1997 and 1996 and the six months ended June 30, 1998 and 1997 was
approximately $436,000, $369,000, $191,000 and $220,000, respectively.
F-8
<PAGE>
Future minimum lease payments under these capital and operating leases as of
June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases Total
------- ---------- ----------
<S> <C> <C> <C>
Remainder of 1998 $ 3,153 $ 166,742 $ 169,895
1999 6,304 320,307 326,611
2000 6,304 318,792 325,096
2001 6,304 318,792 325,096
2002 3,341 318,792 322,133
2003 - 318,066 318,066
2004 and thereafter - 1,205,750 1,205,750
------- ---------- ----------
25,406 $2,967,241 $2,992,647
Less - portion attributable to interest 6,904 ========== ==========
-------
Principal payments 18,502
Less - Current portion 3,527
-------
$14,975
=======
</TABLE>
Litigation
The Company is subject to occasional lawsuits, investigations and claims
arising out of the normal conduct of its business. At June 30, 1998, the
Company is not a party to any material legal action.
5. RELATED-PARTY TRANSACTIONS
Effective October 15, 1997, the Company leases its office and school space
from an affiliated company operated by the Company's shareholders. Total
rent expense under this agreement was approximately $62,000 and $162,000 for
the year ended December 31, 1997 and the six months ended June 30, 1998,
respectively. In addition, the Company loaned the affiliated company $6,500.
This amount is included in receivables at December 31, 1997.
As of June 30, 1998, the Company has guaranteed a $750,000 bank loan of an
affiliated company. The Company's equipment serves as collateral for the
loan.
6. EMPLOYEE BENEFIT PLAN
The Company maintains a contributory profit sharing plan established
pursuant to the provisions of Section 401(k) of the Internal Revenue Code
that provides retirement benefits for eligible employees of the Company.
This plan requires matching contributions to eligible employees. The
Company's matching contributions were approximately $12,500, $9,600, $9,300
and $0 for the years ended December 31, 1997 and 1996 and the six months
ended June 30, 1998 and 1997, respectively.
F-9
<PAGE>
7. SUBSEQUENT EVENT
On July 31, 1998, SCI Acquisition, Ltd., a wholly owned subsidiary of Career
Education Corporation ("CEC"), purchased certain assets and assumed certain
liabilities of the Company for a sales price, subject to certain
adjustments, of approximately $9,500,000. Subsequent to the purchase, SCI
Acquisition, Ltd. changed its name to Scottsdale Culinary Institute, Ltd.
F-10
<PAGE>
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements of
Career Education Corporation and subsidiaries ("the Company" or "CEC") give
effect to the acquisition of Scottsdale Culinary Institute, Inc. ("SCI"). The
unaudited pro forma financial statements are filed by way of an amendment to the
Company's Current Report on Form 8-K filed on August 14, 1998 which described
the acquisition of SCI.
The unaudited pro forma condensed consolidated balance sheet as of June 30, 1998
and the unaudited pro forma condensed consolidated statements of operations of
the Company for the year ended December 31, 1997 and the six months ended June
30, 1998 give effect to the acquisition. The acquisition is being accounted for
as a purchase and the transaction is treated as if it had occurred on June 30,
1998 in the unaudited pro forma condensed consolidated balance sheet and as of
January 1, 1997 for the unaudited pro forma condensed consolidated statements of
operations. The unaudited pro forma condensed consolidated balance sheet as of
June 30, 1998 and the unaudited pro forma condensed consolidated statement of
operations for the six months ended June 30, 1998 were prepared from the
unaudited historical balance sheets and statements of operations of the Company
and SCI. The unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1997 was prepared from the audited historical
statements of operations of the Company and SCI.
All interim financial data used to develop the unaudited pro forma condensed
consolidated balance sheet and unaudited pro forma condensed consolidated
statements of operations are unaudited, but in the opinion of management,
reflect all adjustments necessary (consisting only of normal recurring entries)
for a fair presentation thereof. The unaudited pro forma condensed consolidated
financial statements are presented for illustrative purposes only and are not
necessarily indicative of the consolidated financial position or consolidated
results of operations of the Company that would have been reported had the
acquisition occurred on the dates indicated, nor do they represent a forecast of
the consolidated financial position of the Company for any future date or the
consolidated results of operations of the Company in the future. Furthermore, no
effect has been given in the pro forma statements of operations for synergies or
cost savings, if any, that may be realized through the combination of the
Company and SCI.
As stated above, the unaudited pro forma condensed consolidated financial
statements reflect the acquisition using the purchase method of accounting. The
acquired assets and liabilities of SCI are stated at values representing a
preliminary allocation of the purchase price based upon the estimated fair
market values at the date of acquisition. The final purchase accounting
allocations will be determined based on the final appraised values, which could
differ from the estimates used herein.
The following unaudited pro forma condensed consolidated financial statements
and accompanying notes are qualified in their entirety by reference to, and
should be read in conjunction with, the Company's Management's Discussion and
Analysis of Financial Condition and Results of Operations included in its Annual
Report on Form 10-K for the year ended December 31, 1997, its Quarterly Report
on Form 10-Q for the six month period ended June 30, 1998, the audited financial
statements of SCI as of December 31, 1997 and the unaudited financial statements
of SCI as of June 30, 1998, both of which are also included within this
amendment to the Company's Form 8-K filed on August 14, 1998.
P-1
<PAGE>
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
CEC SCI Pro Forma Consolidated
ASSETS Historical Historical Adjustments Pro Forma
- ----------------------------------------------------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,774 $ 766 $ (500)(1) $ 18,040
Receivables, net 11,563 375 - 11,938
Other current assets 4,530 64 - 4,594
-------- ------ ------- --------
Total current assets 33,867 1,205 (500) 34,572
PROPERTY AND EQUIPMENT, net 44,026 187 1,705 (2) 45,918
INTANGIBLE ASSETS, net 37,693 - 7,534 (1) 45,227
OTHER ASSETS 854 15 - 869
-------- ------ ------- --------
TOTAL ASSETS $116,440 $1,407 $ 8,739 $126,586
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------
CURRENT LIABILITIES:
<S> <C> <C> <C> <C>
Accounts payable, accrued expenses and other
current liabilities $ 15,042 $ 163 $ 669 (3) $ 15,874
Deferred tuition revenue 5,302 299 - 5,601
-------- ------ ------ --------
Total current liabilities 20,344 462 669 21,475
LONG-TERM DEBT, net of current portion 16,464 15 9,000 (1) 25,479
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 71 51 (51)(1) 71
Additional paid-in capital 94,958 145 (145)(1) 94,958
Accumulated other comprehensive income (500) - - (500)
Accumulated deficit (14,897) 734 (734)(1) (14,897)
-------- ------ ------ --------
Total stockholders' equity 79,632 930 (930) 79,632
-------- ------ ------ --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $116,440 $1,407 $8,739 $126,586
======== ====== ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
P-2
<PAGE>
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
CEC SCI Pro Forma Consolidated
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE:
Tuition and registration fees, net $59,944 $2,469 $ - $62,413
Other, net 4,978 232 - 5,210
------- ------ ------- -------
Total net revenue 64,922 2,701 - 67,623
OPERATING EXPENSES:
Educational services and facilities 26,835 1,330 - 28,165
General and administrative 30,133 575 - 30,708
Depreciation and amortization 6,125 38 128(4) 6,291
Compensation expense related to the offering 1,961 - - 1,961
------- ------ ------- -------
Total operating expenses 65,054 1,943 128 67,125
------- ------ ------- -------
Income (loss) from operations (132) 758 (128) 498
INTEREST INCOME (EXPENSE), net (740) 11 (416)(5) (1,145)
------- ------ ------- -------
Income (loss) before provision (benefit) for income taxes (872) 769 (544) (647)
PROVISION (BENEFIT) FOR INCOME TAXES (366) - 95 (6) (271)
------- ------ ------- -------
NET INCOME (LOSS) $ (506) $ 769 $ (639) $ (376)
======= ====== ======= =======
NET INCOME (LOSS) PER SHARE:
Basic $ (0.08) $ (0.06)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 6,072 6,072
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
CEC SCI Pro Forma Consolidated
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE:
Tuition and registration fees, net $74,842 $4,428 $ - $79,270
Other, net 7,756 415 - 8,171
------- ------ ------- -------
Total net revenue 82,598 4,843 - 87,441
OPERATING EXPENSES:
Educational services and facilities 34,620 2,627 - 37,247
General and administrative 37,542 1,292 - 38,834
Depreciation and amortization 8,121 94 239 (4) 8,454
------- ------ ------- -------
Total operating expenses 80,283 4,013 239 84,535
------- ------ ------- -------
Income from operations 2,315 830 (239) 2,906
INTEREST INCOME (EXPENSE), net (3,108) 62 (833)(5) (3,879)
------- ------ ------- -------
Income (loss) before provision (benefit) for income taxes (793) 892 (1,072) (973)
BENEFIT FOR INCOME TAXES (331) - (78)(6) (409)
------- ------ ------- -------
NET INCOME (LOSS) $ (462) $ 892 $ (994) $ (564)
======= ====== ======= =======
NET INCOME (LOSS) PER SHARE:
Basic $ (0.60) $ (0.73)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 768 768
</TABLE>
The accompanying notes are an integral part of these statements.
P-3
<PAGE>
CAREER EDUCATION CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following adjustments were recorded in the unaudited pro forma condensed
consolidated financial statements:
1) Gives effect to CEC's purchase price of SCI consisting of a $500,000
cash payment and the issuance of a $9,000,000 note payable to the
former owners of SCI and resulting goodwill of approximately
$7,534,000 from the acquisition.
2) To adjust the historical value of acquired fixed assets to their
fair value based upon preliminary appraised values.
3) Represents amount due to the former owners of SCI of approximately
$319,000 as a result of purchase price adjustments and an accrual of
approximately $350,000 for acquisition related fees.
4) To record depreciation of property and equipment, based on
preliminary appraised values and their remaining estimated useful
lives (which range from 5 to 10 years) in excess of the historical
amounts. Also gives effect to the amortization of goodwill (over an
estimated useful life of 40 years) from the purchase of SCI of
approximately $196,000 and $98,000 for the year ended December 31,
1997 and the six months ended June 30, 1998, respectively.
5) To record interest expense related to the $9,000,000 note payable to
the former owners of SCI at an assumed borrowing rate of 9.25% for
the year ended December 31, 1997 and the six months ended June 30,
1998.
6) Reflects an adjustment to record a provision for income taxes at an
effective income tax rate of 42%.
P-4
