CAREER EDUCATION CORPORATION the year of the graduate Bear Stearns SMid-Cap Investor Conference November 15, 2006
Safe Harbor Statement This presentation contains certain 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 involve risks and uncertainties that could cause our actual growth, results, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. These risks and uncertainties, the outcome of which could materially and adversely affect our financial condition and operations, include, but are not limited to: future financial and operational results, including the impact of impairment of goodwill and other intangible assets; risks related to our ability to comply with accrediting agency requirements or obtain accrediting agency approvals, including the adverse impact of negative publicity and negative press coverage concerning the continued probation status of American InterContinental University and ongoing review by its accrediting body; risks related to our ability to comply with, and the impact of changes in, legislation and regulations that affect our ability to participate in student financial aid programs; costs, risks and effects of legal and administrative proceedings and investigations and governmental regulations, including the pending Securities and Exchange Commission and Justice Department investigations and, class action, derivative, and other lawsuits; costs and difficulties related to the integration of acquired businesses; risks related to our ability to manage and continue growth; risks related to competition, general economic conditions, and other risk factors relating to our industry and business, as described in our Annual Report on Form 10-K for the year ended December 31, 2005, and from time to time in our other reports filed with the SEC. Except as expressly required by federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of these forward-looking statements to reflect future events, developments, or changed circumstances, or for any other reason.
Company Overview Bob Dowdell President and CEO
Agenda Company and Near-Term Strategy Overview Evolving Business Model Third and Fourth Quarter Initiatives Regulatory Update Near-Term Goals Financial Performance Third Quarter 2006 Results Student Financing Options Pricing Strategic Divestiture of Selected Schools Financial Strengths CEC s Future
Overview - Career Education We are one of the world s leading on-ground and online providers of private, for-profit postsecondary education. Our schools and universities prepare students for professionally and personally rewarding careers through on-ground campuses located throughout the United States and in France, Canada, and the United Kingdom, and fullyonline academic platforms that have no geographic boundaries.
Overview - Global Provider of Education Global presence Facility-based campuses in 4 countries Over 17,000 employees Approximately 100,000 students in 60 countries Degrees (Associates, Bachelors, Masters, Doctorate) and Certificates offered Flexible learning delivery model High-quality educational experience Student-centric support programs
Overview - Diverse Student Demographics 50 45 Age Profile Degree Objective Field of Study 46% 46% 40 35 39% 42% 30 31% 25 20 23% 22% 15 10 15% 14% 14% 5 8% 0 Under 21 21-30 Over 30 Certificate Associate Bachelor Master Doctorate Business Studies Visual Communications Culinary Arts Health Education Information Technology * As of September 30, 2006
Evolving Business Model - High-quality, sustainable growth company High-growth, early stage public company 2006-Beyond Start-up entrepreneurial private company 1998-2005 1994-1997
Evolving Business Model - Rationalizing Assets Announced plans to sell of 13 schools and campuses Gibbs Division (9), Brooks College (2), Lehigh Valley College, McIntosh College Divesting schools that no longer fit the company s long-term direction Focused on what we do best operating high quality, boutique schools with sustainable growth capabilities Better use of our resources to prepare students for careers they are passionate about; maximizing the probability of student success from start through graduation and career placement
Evolving Business Model Portfolio of Educational Offerings Pre-Strategic Divestiture Operating Segments Academy - 10 College - 10 Culinary - 13 Gibbs - 9 Health Ed - 23 INSEEC - 9 University 12 * Post-Strategic Divestiture Operating Segments Academy - 10 College - 6 Culinary - 13 Health Ed - 23 INSEEC - 9 University 12 * 84 on-ground schools; 2 online platforms 71 on-ground schools; 2 online platforms * University includes our two online platforms, AIU Online and CTU Online
Third & Fourth Quarter Initiatives - Leadership Split role of CEO and Chairman of the Board Hired executive search firm Russell Reynolds to conduct search for a CEO Began a search for new Chief Marketing and Admissions Officer Began effort to consolidate similar functions for online and on-ground Positioned Larry Levin, our long-time outside counsel, as interim General Counsel
Third & Fourth Quarter Initiatives - Operational Expanded financing options available to students, having early impacts on our Culinary and Healthcare segment schools Began a program to rationalize our assets Lowered pricing in select schools and programs, resulting in increased starts and show rates Implemented the Preparatory Education Program (PrEP) to support under-prepared students
Regulatory Update - SACS October: Visiting team met with AIU central administration, campus leadership, the AIU governing board and selected CEC representatives Visiting team interviewed 400 faculty, staff and students Visiting team provided AIU with a report they will submit to SACS November: AIU submitted their response and comments to the report December: AIU is expected to learn final results of visit around the time of the SACS annual meeting, which is scheduled to be held on December 11, 2006
Near-term Goals Address productivity among our admissions representatives Initiate a more intensified branding effort Examine pricing and programming issues to ensure we are providing the appropriate competitive value for our students Build upon our successful curricula to offer hybrid and part time initiatives to ensure our academic offerings are flexible and meet the needs and demands of our students
Financial Performance Pat Pesch Executive Vice President and Chief Financial Officer
Third Quarter 2006 Results Consolidated revenue decline of 7.0% from third quarter 2005 Operating profit margin percentage of 6.1%, a 10.7% decrease from third quarter 2005 Decline in operating results represents a continuation of weak operating performance, which has been influenced by: Continued probation status at AIU Reduced pricing for associate degree program at AIU General competitive pressures Operational performance at various underperforming onground schools DOE s restrictions on our ability to open new campuses
Student Financing Options New pricing platform demonstrating early impacts in third quarter 2006 Relaxed strict cosigner requirements Made alterations to the extension of credit Most significant impact in Culinary and Health Education segments due to earlier implementation efforts Weak July start performance Increased starts in August through October period of 7% versus prior year period
Pricing AIU Online associate s degree Reduced pricing by approximately 17% in July Change effective for existing and new students Caused a reduction in revenue of approximately $7 million Promising results via strong improvements in show rates Believe this is an appropriate investment to make in the interest of improving long-term returns Gibbs Reduced pricing at four schools in the range of 12% to 17% in October for individual programs and one at 25% Significant positive impact on October start performance for the selected programs
Strategic Divestiture of Selected Schools Total student population for the 13 selected schools was 9,600 students on October 31, 2006, a 13.0 percent decrease from October 31, 2005 Total starts for the 13 selected schools was 2,310 during third quarter, 2006, a 9.0 percent decrease from third quarter, 2005 Operating losses for the 13 selected schools totaled $48.6 million for 9 months ended September 30, 2006 Operating margins for 9 months ended September 30, 2006 increased from 5% to 9% excluding the 13 selected schools Earnings per share for 9 months ended September 30, 2006 increased from $0.26 per share to $0.57 per share excluding the 13 selected schools
Financial Strengths Strong fundamentals Healthy levels of cash and investments Positive starts in October for the Culinary, Healthcare and Gibbs segments Retention levels up almost 200 basis points, driven by improvements in University segment online schools University segment online operations continue to be profitable with 27% operating margins Capital expenditures as a percent of revenue decreased to under 4.0%
CEC s Future
CEC s Future We are building a top-tier leadership team to take advantage of our strengths and opportunities We are making progress in many areas of our business, such as retention, starts and show rates We are stabilizing our population We are addressing our underperforming programs and schools We are focused on schools that prepare students for careers they are passionate about, using learning delivery models that allow students to fit education into their lifestyles
CAREER EDUCATION CORPORATION