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Career Education Corp. Message Board

  • golfer18us golfer18us Sep 13, 2013 12:12 PM Flag

    Cash facts

    I love all the stuff on Blum but I thought I'd focus on CECO's cash situation. Someone said a recent article had "bad math". Well, let's just use Yahoo's reported numbers (or you can check the SEC documents yourself). The reality is as follows:

    * CECO was cash flow negative in 2011 and 2012

    * CECO continues to burn cash in 2013 - for the quarters ended 3/31 and 6/30, total corporate cash flow was ($17 million) and ($58 million) respectively

    * According to their last quarterly filing, "unrestricted cash" dropped from $240 million on 12/31/12 to $165 million on 6/30/2013

    Those are the facts associated with their cash situation. Anything else is fiction. What's really troubling is that they have $639 million in lease obligations (based on their last annual filing) and this is a huge fixed cost which is killing margins while sales decline

    While leases are not considered debt by accounting standards, it's a contractual obligation that won't go away unless (1) the lease expires, (2) they negotiate a termination or (3) they reject the lease as part of a bankruptcy filing. The most likely event is the first one however 25% of their leases don't expire until 2018 or beyond based on the chart they provided.

    Unless the government backs off the regulatory issues of Gainful Employment or default rates, or CECO dramatically improves their offerings, this could be an issue. Some will say "gee, it's less than $3 per share" and see it as an opportunity. Maybe it is. But, it could also go lower.

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    • If they continue to burn at the past rate they would be in deep S. The leases are through 2020's. No one knows the enrollments, except those inside. They are closing a bunch of schools by the end of this year. Most of the write offs have been regarding this situation, it should improve next year. I do not see there current cash as a problem, that could change. We shall see, I am long.

      • 1 Reply to pjis4
      • the write-offs are a "non-cash" hit to the P&L....so, yes, they may have a better reported earnings next year when they lap the closed school write-offs, they are still going to be on the hook for paying the cash out to the landlords. Net/net...those write-offs do nothing to change cashflow..unless...the schools burn less cash closed than they did open. Hard to believe they were that bad but it's possible.

 
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