UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q

(Mark One)

ýTQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008March 31, 2009

or

o£TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____
Commission File Number 000-51371

LINCOLN EDUCATIONAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)

New Jersey57-1150621
(State or other jurisdiction of
incorporation or organization)
(IRS Employer Identification No.)

200 Executive Drive, Suite 34007052
West Orange, NJ(Zip Code)
(Address of principal executive offices) 

(973) 736-9340
(Registrant’s telephone number, including area code)

No change
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ýx  No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o£
Accelerated filer xT
  
Non-accelerated filer o £
(Do not check if a smaller reporting company)
Smaller reporting company o£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o£  No xT

As of November 4, 2008,May 6, 2009, there were 25,458,82126,757,964 shares of the registrant’s common stock outstanding.
 
 
 
 

LINCOLNLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008MARCH 31, 2009



PART I.
FINANCIAL INFORMATION
 
Item 1.
Financial Statements
1
 
Condensed Consolidated Balance Sheets at September 30, 2008March 31, 2009 and December 31, 20072008 (unaudited)
1
 
Condensed Consolidated Statements of OperationsIncome for the three and nine months ended September 30,March 31, 2009 and 2008 and 2007 (unaudited)
3
 
Condensed Consolidated Statement of Changes in Stockholders’ Equity for the ninethree months ended September  30, 2008March 31, 2009 (unaudited)
4
 
Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30,March 31, 2009 and 2008 and 2007 (unaudited)
5
 
Notes to Unaudited Condensed Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1314
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
2120
Item 4.
Controls and Procedures
2220
PART II.
OTHER INFORMATION
2220
Item 1.
Legal Proceedings
2220
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
2220
Item 6.
Exhibits
2220

 

PART I – FINANCIAL INFORMATION

ItemItem 1. Financial Statements

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)

 September 30,  December 31, 
 2008  2007  
March 31,
2009
  
December 31,
2008
 
            
ASSETS            
CURRENT ASSETS:            
Cash $6,145  $3,502 
Accounts receivable, less allowance of $13,269 and $11,244 at September 30, 2008 and December 31, 2007, respectively  25,447   23,286 
Cash and cash equivalents $15,220  $15,234 
Restricted cash  389   383 
Accounts receivable, less allowance of $16,524 and $13,914 at March 31, 2009 and December 31, 2008, respectively  25,268   22,857 
Inventories  3,710   2,540   3,354   3,374 
Deferred income taxes, net  5,086   4,575   6,253   5,627 
Due from federal programs  158   6,087   -   828 
Prepaid expenses and other current assets  2,569   3,771   7,994   2,958 
Total current assets  43,115   43,761   58,478   51,261 
                
PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $82,717 and $82,931 at September 30, 2008 and December 31, 2007, respectively  107,517   106,564 
PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $86,495 and $83,345 at March 31, 2009 and December 31, 2008, respectively  142,093   108,567 
                
OTHER ASSETS:                
Noncurrent accounts receivable, less allowance of $367 and $159 at September 30, 2008 and December 31, 2007, respectively  3,306   1,608 
Noncurrent accounts receivable, less allowance of $844 and $824 at March 31, 2009 and December 31, 2008, respectively  3,377   3,326 
Deferred finance charges  681   827   582   632 
Pension plan assets, net  1,694   1,696 
Deferred income taxes, net  5,893   5,500   5,588   7,080 
Goodwill  82,714   82,714   113,089   91,460 
Other assets, net  3,428   3,513   9,411   5,716 
Total other assets  97,716   95,858   132,047   108,214 
TOTAL ASSETS $248,348  $246,183 
TOTAL $332,618  $268,042 

See notes to unaudited condensed consolidated financial statements.

1

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
(Continued)

 September 30,  December 31, 
 2008  2007  
March 31,
2009
  
December 31,
2008
 
            
LIABILITIES AND STOCKHOLDERS' EQUITY            
CURRENT LIABILITIES:            
Current portion of long-term debt and lease obligations $147  $204  $10,667  $130 
Unearned tuition  35,638   34,810   43,331   38,806 
Accounts payable  13,655   13,721   15,492   12,349 
Accrued expenses  15,778   10,079   14,950   16,239 
Advanced payments from federal funds  173   - 
Income taxes payable  308   1,460   1,558   3,263 
Other short-term liabilities  481   1,439   804   314 
Total current liabilities  66,007   61,713   86,975   71,101 
                
NONCURRENT LIABILITIES:                
Long-term debt and lease obligations, net of current portion  10,075   15,174   37,388   10,044 
Pension plan liabilities, net  3,951   4,335 
Accrued rent  6,068   5,972 
Other long-term liabilities  6,882   6,829   1,959   1,641 
Total liabilities  82,964   83,716   136,341   93,093 
                
COMMITMENTS AND CONTINGENCIES (Note 10)        
COMMITMENTS AND CONTINGENCIES        
                
STOCKHOLDERS' EQUITY:                
Preferred stock, no par value - 10,000,000 shares authorized, no shares issued and outstanding at September 30, 2008 and December 31, 2007  -   - 
Common stock, no par value - authorized 100,000,000 shares at September 30, 2008 and December 31, 2007, issued 26,034,225 shares at September 30, 2008 and 25,888,348 shares at December 31, 2007, outstanding 25,434,225 shares at September 30, 2008 and 25,888,348 shares at December 31, 2008  120,453   120,379 
Preferred stock, no par value - 10,000,000 shares authorized, no shares issued and outstanding at March 31, 2009 and December 31, 2008  -   - 
Common stock, no par value - authorized 100,000,000 shares at March 31, 2009 and December 31, 2008, issued and outstanding 27,244,657 shares at March 31, 2009 and26,088,261 shares at December 31, 2008  135,580   120,597 
Additional paid-in capital  14,838   12,378   15,362   15,119 
Deferred compensation  (3,901)  (3,228)  (3,340)  (3,619)
Treasury stock at cost - 600,000 shares at September 30, 2008 and no shares at December 31, 2007  (6,375)  - 
Treasury stock at cost - 615,000 shares at March 31, 2009 and December 31, 2008  (6,584)  (6,584)
Retained earnings  42,455   35,024   61,042   55,219 
Accumulated other comprehensive loss  (2,086)  (2,086)  (5,783)  (5,783)
Total stockholders' equity  165,384   162,467   196,277   174,949 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $248,348  $246,183 
TOTAL $332,618  $268,042 

See notes to unaudited condensed consolidated financial statements.

2

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(In thousands, except per share amounts)
(Unaudited)

 Three Months Ended  Nine Months Ended 
 September 30,  September 30,  Three Months Ended March 31, 
 2008  2007  2008  2007  2009  2008 
                  
REVENUES $100,481  $86,566  $269,584  $237,480  $118,599  $84,047 
COSTS AND EXPENSES:                        
Educational services and facilities  41,554   37,053   114,109   104,540   48,299   36,629 
Selling, general and administrative  48,485   41,434   141,058   124,075   59,612   46,132 
Loss (gain) on disposal of assets  51   -   91   (15)
Total costs and expenses  90,090   78,487   255,258   228,600 
(Gain) loss on sale of assets  (2)  37 
Total costs & expenses  107,909   82,798 
OPERATING INCOME  10,391   8,079   14,326   8,880   10,690   1,249 
OTHER:                        
Interest income  33   66   96   149   2   45 
Interest expense  (579)  (686)  (1,665)  (1,840)  (1,006)  (504)
Other income  -   26   -   26   8   - 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES  9,845   7,485   12,757   7,215 
INCOME BEFORE INCOME TAXES  9,694   790 
PROVISION FOR INCOME TAXES  4,139   3,115   5,326   3,008   3,871   306 
INCOME FROM CONTINUING OPERATIONS  5,706   4,370   7,431   4,207 
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES  -   (2,331)  -   (5,487)
NET INCOME (LOSS) $5,706  $2,039  $7,431  $(1,280)
NET INCOME $5,823  $484 
Basic                        
Earnings per share from continuing operations $0.23  $0.17  $0.29  $0.17 
Loss per share from discontinued operations  -   (0.09)  -   (0.22)
Net income (loss) per share $0.23  $0.08  $0.29  $(0.05)
Net income per share $0.23  $0.02 
Diluted                        
Earnings per share from continuing operations $0.22  $0.17  $0.29  $0.16 
Loss per share from discontinued operations  -   (0.09)  -   (0.21)
Net income (loss) per share $0.22  $0.08  $0.29  $(0.05)
Net income per share $0.22  $0.02 
Weighted average number of common shares outstanding:                        
Basic  25,088   25,503   25,362   25,482   25,704   25,660 
Diluted  25,810   26,050   26,039   26,029   26,452   26,249 

See notes to unaudited condensed consolidated financial statements.

3

LINCOLNLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except sharesshare amounts)
(Unaudited)

                   Accumulated     Common Stock  
Additional
Paid-in
  Deferred  Treasury  Retained  Accumulated Other Comprehensive    
       Additional           Other     Shares  Amount  Capital  Compensation  Stock  Earnings  Loss  Total 
 Common Stock  Paid-in  Deferred  Treasury  Retained  Comprehensive    
 Shares  Amount  Capital  Compensation  Stock  Earnings  Loss  Total 
BALANCE - January 1, 2008  25,888,348  $120,379  $12,378  $(3,228) $-  $35,024  $(2,086) $162,467 
BALANCE - January 1, 2009  26,088,261  $120,597  $15,119  $(3,619) $(6,584) $55,219  $(5,783) $174,949 
Net income  -   -   -   -   -   7,431   -   7,431   -   -   -   -   -   5,823   -   5,823 
Stock-based compensation expense                                                                
Restricted stock  123,477   -   1,487   (673)  -   -   -   814   -   -   -   279   -   -   -   279 
Stock options  -   -   957   -   -   -   -   957   -   -   258   -   -   -   -   258 
Treasury stock purchases  -   -   -   -   (6,375)  -   -   (6,375)
Tax benefit of options exercised  -   -   16   -   -   -   -   16   -   -   40   -   -   -   -   40 
Sale of common stock,  1,150,000   14,932   -   -   -   -   -   14,932 
net of expenses                                
Net share settlement for equity-based compensation  (3,871)  -   (55)  -   -   -   -   (55)
Exercise of stock options  22,400   74   -   -   -   -   -   74   10,267   51   -   -   -   -   -   51 
BALANCE - September 30, 2008  26,034,225  $120,453  $14,838  $(3,901) $(6,375) $42,455  $(2,086) $165,384 
BALANCE - March 31, 2009  27,244,657  $135,580  $15,362  $(3,340) $(6,584) $61,042  $(5,783) $196,277 

See notes to unaudited condensed consolidated financial statements.

4

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Nine Months Ended
September 30,
  Three Months Ended March 31, 
 2008  2007  2009  2008 
            
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income (loss) $7,431  $(1,280)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Net income $5,823  $484 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  13,377   11,734   5,249   4,370 
Amortization of deferred finance charges  146   143   50   48 
Deferred income taxes  (904)  (2,416)  (498)  (493)
Loss (gain) on disposal of assets  91   (15)
Impairment of goodwill and long-lived assets  -   3,099 
Fixed asset donations  -   (26)
(Gain) loss on disposition of assets  (2)  37 
Provision for doubtful accounts  15,855   12,639   7,248   4,030 
Stock-based compensation expense  1,771   1,349   537   558 
Tax benefit associated with exercise of stock options  (16)  -   (40)  (2)
Deferred rent  341   451   94   110 
(Increase) decrease in assets:        
(Increase) decrease in assets, net of acquisitions:        
Accounts receivable  (19,714)  (13,247)  (6,813)  (1,219)
Inventories  (1,170)  (256)  155   (42)
Prepaid expenses and other current assets  354   (941)
Prepaid expenses and current assets  (47)  (400)
Due from federal programs  5,929   -   1,001   6,192 
Other assets  2   (250)  (449)  247 
Increase (decrease) in liabilities:        
Increase (decrease) in liabilities, net of acquisitions:        
Accounts payable  2,377   1,321   (2,287)  1,723 
Other liabilities  (1,211)  1,800   53   (487)
Income taxes  (1,136)  (8,529)
Income taxes payable/prepaid  (1,665)  (4,539)
Accrued expenses  5,652   1,919   (4,370)  604 
Unearned tuition  828   1,455   (1,746)  (3,674)
Total adjustments  22,572   10,230   (3,530)  7,063 
Net cash provided by operating activities  30,003   8,950   2,293   7,547 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Restricted cash  -   (612)  356   - 
Capital expenditures  (15,919)  (16,391)  (2,483)  (7,440)
Proceeds from sale of property and equipment  19   - 
Acquisitions, net of cash acquired  (24,933)  - 
Net cash used in investing activities  (15,919)  (17,003)  (27,041)  (7,440)
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from borrowings  23,000   21,500   40,000   7,000 
Payments on borrowings  (28,000)  (16,500)  (30,000)  (5,000)
Proceeds from exercise of stock options  74   145   51   62 
Tax benefit associated with exercise of stock options  16   68   40   2 
Principal payments of capital lease obligations  (156)  (84)
Purchase of treasury stock  (6,375)  - 
Net cash (used in) provided by financing activities  (11,441)  5,129 
NET INCREASE (DECREASE) IN CASH  2,643   (2,924)
CASH—Beginning of period  3,502   6,461 
CASH—End of period $6,145  $3,537 
Net share settlement for equity-based compensation  (55)  - 
Principal payments under capital lease obligations  (234)  (53)
Proceeds from issuance of common stock, net of issuance costs  14,932   - 
Net cash provided by financing activities  24,734   2,011 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS  (14)  2,118 
CASH AND CASH EQUIVALENTS—Beginning of year  15,234   3,502 
CASH AND CASH EQUIVALENTS—End of year $15,220  $5,620 

See notes to unaudited condensed consolidated financial statements.

5

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(Continued)

 
Nine Months Ended
September 30,
  Three Months Ended March 31, 
 2008  2007  2009  2008 
            
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:            
Cash paid during the period for:      
Cash paid during the year for:      
Interest $1,571  $1,770  $533  $484 
Income taxes $7,754  $9,898  $6,617  $5,641 
        
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:        
Fixed assets acquired in capital lease transactions $-  $652 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:        
Cash paid during the period for:        
Fixed assets acquired in noncash transactions $1,505  $1,814  $302  $1,969 

See notes to unaudited condensed consolidated financial statements.

6

LINCOLNLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2009 AND 2008 AND 2007
(In thousands, except share and per share amounts and unless otherwise stated)
(Unaudited)

1.1.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Activities – Lincoln Educational Services Corporation and subsidiaries (the "Company") is a diversified provider of career-oriented post-secondary education. The Company offers recent high school graduates and working adults degree and diploma programs in five principal areas of study: automotive technology, health sciences, skilled trades, business and information technology and hospitality services. The Company currently has 3542 schools in 17 states across the United States.

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Certain information and footnote disclosures normally included in annual financial statements have been omitted or condensed pursuant to such regulations.  These statements, should be read in conjunction with the December 31, 20072008 consolidated financial statements of the Company, and reflect all adjustments, consisting solely of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations, and cash flows for such periods.  The results of operations for the three and nine months ended September 30, 2008March 31, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2008.2009.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries.  All intercompany accounts and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period.  On an ongoing basis, the Company evaluates the estimates and assumptions, including those related to revenue recognition, bad debts, fixed assets, goodwill and other intangible assets, stock-based compensation, income taxes, benefit plans and certain accruals.  Actual results could differ from those estimates.

Stock Based Compensation – The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of SFASStatement of Financial Accounting Standards (“SFAS”) No. 123R, “Share Based Payment.”  The accompanying condensed consolidated statements of operations include compensation expense of approximately $0.6$0.5 million and $0.5$0.6 million for the three months ended September 30,March 31, 2009 and 2008, and 2007, respectively, and $1.8 million and $1.3 million for the nine months ended September 30, 2008 and 2007, respectively.  The Company uses the Black-Scholes valuation model and utilizes straight-line amortization of compensation expense over the requisite service period of the grant.  The Company makes an estimate of expected forfeitures at the time options are granted.

2.2.             RECENT ACCOUNTING PRONOUNCEMENTS

In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 163, “Accounting for Financial Guarantee Insurance Contracts – an interpretation of FASB Statement No. 60,” (“SFAS No. 163”).  SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation.  SFAS No. 163 will be effective for the Company as of January 1, 2009.  The implementation of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” (“SFAS No. 162”).  SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements.  SFAS No. 162 will bewas effective for the Company as of November 15, 2008.  The implementation of this standard is not expected to have material impacthad no effect on the Company’s consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“SFAS No. 161”) – an amendment to FASB Statement No. 133.   SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The Statement will beis effective for the Company as of January 1, 2009. The adoption of the provision of SFAS No. 161 is not expected to have a materialhad no effect on the Company’s consolidated financial statements.

7

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" (“SFAS No. 141R”). The StatementSFAS No. 141R establishes revised principles and requirements for how the Company will recognize and measure assets and liabilities acquired in a business combination. The new standardSFAS 141R requires, among other things, transaction costs incurred in a business combination to be expensed, establishes a new measurement date for valuing acquirer shares issued in consideration for a business combination, and requires the recognition of contingent consideration and pre-acquisition gain and loss contingencies.  SFAS No. 141R will bewas effective for the Company’s business combinations completed on or after January 1, 2009.  TheFor the three months ended March 31, 2009, the Company expects that the adoptionexpensed $0.7 million of SFAS No. 141R could have a material impact on its financial statements when accounting for future material acquisitions.costs incurred related to an acquisition.


In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin (“ARB”) No. 51,"51" (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 will beis effective for the Company as of January 1, 2009.  The adoption of the provision of SFAS No. 160 is not expected to have a material effect on the Company’s consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, (“SFAS No. 159”), providing companies with an option to report selected financial assets and liabilities at fair value.  SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities.  SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the balance sheet.  SFAS No. 159 became effective for the Company as of January 1, 2008; however, the Company did not elect to utilize the option to report selected assets and liabilities at fair value.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. The provisions of SFAS No. 157 became effective for the Company as of January 1, 2008. The adoption of the provision of SFAS No. 157160R had no effect on the Company’s consolidated financial statements.

3.DISCONTINUED OPERATIONS

On July 31, 2007, the Company’s Board of Directors approved a plan to cease operations at three of the Company’s campuses.  As a result of that decision, the Company recognized a non-cash impairment charge related to goodwill at these three campuses of approximately $2.1 million as of June 30, 2007.  Additionally, the Company determined that certain long-lived assets would not be recoverable at June 30, 2007 and recorded a non-cash charge of $0.9 million to reduce the carrying value of these assets to their estimated fair value.

As of September 30, 2007, all operations had ceased at these campuses, and accordingly, the results of operations of these campuses have been reflected in the accompanying statements of operations as “Discontinued Operations” for all periods presented.

8

The following amounts relate to discontinued operations at these three campuses:

  Three Months Ended  Nine Months Ended 
  September 30, 2007  September 30, 2007 
Revenues $727  $4,230 
Operating expenses  (4,775)  (13,760)
   (4,048)  (9,530)
Benefit for income taxes  (1,717)  (4,043)
Loss from discontinued operations $(2,331) $(5,487)

4.3.             WEIGHTED AVERAGE COMMON SHARES

The weighted average number of common shares used to compute basic and diluted income per share for the three and nine months ended September 30,March 31, 2009 and 2008, and 2007, respectively, was as follows:

 Three Months Ended  Nine Months Ended 
 September 30,  September 30,  Three Months Ended March 31, 
 2008  2007  2008  2007  2009  2008 
Basic shares outstanding  25,087,946   25,503,417   25,361,821   25,481,986   25,704,345   25,659,964 
Dilutive effect of stock options  721,765   546,549   677,530   547,302   747,775   589,315 
Diluted shares outstanding  25,809,711   26,049,966   26,039,351   26,029,288   26,452,120   26,249,279 

For the three months ended September 30,March 31, 2009 and 2008, and 2007, options to acquire 546,708280,000 and 691,208 shares, respectively, and for the nine months ended September 30, 2008 and 2007, options to acquire 546,708 and 691,208581,708 shares, respectively, were excluded from the above table as the effect of their inclusion on reported earnings per share would have been antidilutive.

5.4.             BUSINESS ACQUISITIONS

On January 20, 2009, the Company completed the acquisition of six of the seven schools comprising Baran Institute of Technology, Inc. (“BAR”), for approximately $24.9 million in cash, net of cash acquired, subject to further customary post closing adjustments.  BAR consists of seven schools serving approximately 1,800 students as of March 31, 2009 and offers associate and diploma programs in the fields of automotive, skilled trades, health sciences and culinary arts.  The six schools the Company acquired on January 20, 2009 are Baran Institute of Technology in East Windsor, Connecticut (“BIT”), Connecticut Culinary Institute in Hartford, Connecticut (“CCIH”), Connecticut Culinary Institute in Suffield, Connecticut (“CCIS”), Americare School of Nursing in Fern Park, Florida (“ASNF”), Americare School of Nursing in St. Petersburg, Florida (“ASNS”), and Engine City Technical Institute in South Plainfield, New Jersey (“ECTI”), see Note 13.  The Company also acquired the membership interests of Hartford Urban Ventures, LLC and certain assets and assumed certain liabilities of Educational Properties, LLC, which provide support services to BAR.  In connection with these acquisitions, the Company recorded a charge of approximately $0.7 million for the three months ended March 31, 2009 to reflect the expenses related to the acquisitions.

On December 1, 2008, the Company acquired all of the rights, title and interest in the assets of Briarwood College (“BRI”) for approximately $10.6 million, net of cash acquired.  Briarwood is regionally accredited by the New England Association of Schools and Colleges, and currently offers two bachelor’s degree programs to approximately 600 students as of March 31, 2009 from Connecticut and surrounding states.

The consolidated financial statements include the results of operations from the respective acquisition dates. The purchase price has been preliminarily allocated to identifiable net assets with the excess of the purchase price over the estimated fair value of the net assets acquired recorded as goodwill.  The allocation may be revised when the Company receives final information including appraisals, valuations and other analyses related to certain intangible assets.


The following table summarizes the estimated fair value of assets acquired and liabilities related to acquisitions:

  BAR January 20, 2009  BRI December 1, 2008 
       
Restricted cash $362  $- 
Current assets, excluding cash acquired (1)  7,734   195 
Property, equipment and facilities  36,307   1,265 
Goodwill  21,581   8,794 
Identified intangibles:        
Student contracts  800   348 
Trade name  715   - 
Accreditation  -   1,000 
Curriculum  700   1,300 
Non-compete  1,500   - 
Other long-term assets  844   21 
Current liabilities assumed  (18,160)  (1,539)
Long-term liabilities assumed  (27,450)  (816)
Cost of acquisition, net of cash acquired $24,933  $10,568 

(1) Current assets, excluding cash acquired for BAR includes estimated amounts due from the seller in accordance with the stock purchase agreement.

5.             GOODWILL AND OTHER INTANGIBLE ASSETS

The Company accounts for its goodwill and intangible assets in accordance with SFAS No. 141R and SFAS No. 142, “Goodwill and Other Intangible Assets.”  The Company reviews intangible assets for impairment when indicators of impairment exist.  Annually, or more frequently, if necessary, the Company evaluates goodwill for impairment, with any resulting impairment reflected as an operating expense.

There were no changesChanges in the carrying amount of goodwill from December 31, 20072008 through September 30, 2008.March 31, 2009 are as follows (in thousands):

Goodwill balance as of December 31, 2008 $91,460 
Goodwill adjustments (1)  48 
Goodwill acquired pursuant to business acquisition-BAR  21,581 
Goodwill balance as of March 31, 2009 $113,089 

(1) Goodwill adjustments relate to the settlement of the final purchase price of BRI.

9

Intangible assets, which are included in other assets in the accompanying condensed consolidated balance sheets, consist of the following:

   September 30, 2008  December 31, 2007     At March 31, 2009  At December 31, 2008 
 
Weighted
Average
Amortization
Period (years)
  
Gross
Carrying
Amount
  
 
Accumulated
Amortization
  
Net
Carrying
Amount
  
Gross
Carrying
Amount
  
 
Accumulated
Amortization
  
Net
Carrying
Amount
  Weighted Average Amortization Period (years)  Gross Carrying Amount  Accumulated Amortization  Net Carrying Amount  Gross Carrying Amount  Accumulated Amortization  Net Carrying Amount 
Student contracts 1  $2,215  $2,215  $-  $2,215  $2,212  $3   2  $3,363  $2,384  $979  $2,563  $2,230  $333 
Trade name Indefinite   1,688   -   1,688   1,270   -   1,270 
Trade name Indefinite   1,270   -   1,270   1,270   -   1,270   6   297   10   287   -   -   - 
Accreditation Indefinite   307   -   307   307   -   307  Indefinite   1,307   -   1,307   1,307   -   1,307 
Curriculum 10   700   261   439   700   208   492   10   2,700   363   2,337   2,000   289   1,711 
Non-compete 5   201   95   106   201   65   136   3   1,701   220   1,481   201   105   96 
Total    $4,693  $2,571  $2,122  $4,693  $2,485  $2,208      $11,056  $2,977  $8,079  $7,341  $2,624  $4,717 

The increase in student contracts, trade name, curriculum and non-compete assets was due to the acquisition of BAR on January 20, 2009.

Amortization of intangible assets was approximately $27$353 thousand and $90$30 thousand for the three months ended September 30,March 31, 2009 and 2008, and 2007, respectively, and $86 thousand and $281 thousand for the nine months ended September 30, 2008 and 2007, respectively.

9

The following table summarizes the estimated future amortization expense:

Year Ending December 31,   
2009 $1,176 
2010  1,309 
2011  836 
2012  341 
2013  303 
Thereafter  1,119 
     
  $5,084 

6.             LONG-TERM DEBT AND LEASE OBLIGATIONS

Long-term debt and lease obligations consist of the following:

Year Ending December 31,   
2008 $28 
2009  110 
2010  110 
2011  86 
2012  70 
Thereafter  142 
  $546 
  
March 31,
2009
  
December 31,
2008
 
Credit agreement (a) $10,000  $- 
Finance obligation (b)  9,672   9,672 
Notes payable (with rates ranging from 7.8% to 10.2%)  554   - 
Capital lease - property (c)  27,353   - 
Capital leases-equipment (with rates ranging from 8.4% to 8.7%)  476   502 
   48,055   10,174 
Less current maturities  (10,667)  (130)
  $37,388  $10,044 

6.LONG-TERM DEBT

(a) The Company has a credit agreement with a syndicate of banks which expires on February 15, 2010.  Under the terms of the credit agreement, the syndicate provided the Company with a $100 million credit facility.  The credit agreement permits the issuance of up to $20 million in letters of credit, the amount of which reduces the availability of permitted borrowings under the agreement.  At the time of entering into the credit agreement, the Company incurred approximately $0.8 million of deferred finance charges.  At September 30, 2008,March 31, 2009, the Company had outstanding letters of credit aggregating $4.1$5.6 million which were primarily comprised of letters of credit for the Department of Education and real estate leases.

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The obligations of the Company under the credit agreement are secured by a lien on substantially all of the assets of the Company and its subsidiaries and any assets that it or its subsidiaries may acquire in the future, including a pledge of substantially all of the subsidiaries’ common stock.  Outstanding borrowings bear interest at the rate of adjusted LIBOR plus 1.0% to 1.75%, as defined, or a base rate (as defined in the credit agreement).  In addition to paying interest on outstanding principal under the credit agreement, the Company and its subsidiaries are required to pay a commitment fee to the lender with respect to the unused amounts available under the credit agreement at a rate equal to 0.25% to 0.40% per year, as defined.

As of December 31, 2007,2008, the Company had $5.0 millionno amounts outstanding under its credit agreement.  During the ninethree months ended September 30, 2008,March 31, 2009, the Company borrowed an additional $23.0a total of $40.0 million and repaid $28.0$30.0 million under its credit agreement.  As of September 30, 2008,March 31, 2009, the Company had no$10.0 million outstanding borrowings under its credit agreement.  Interest rates on the loans during the first quarter of 2009 ranged from 3.46%1.52% to 5.00%3.25%.

The credit agreement contains various covenants, including a number of financial covenants.  Furthermore, the credit agreement contains customary events of default as well as an event of default in the event of the suspension or termination of Title IV Program funding for the Company’s and its subsidiaries' schools aggregating 10% or more of the Company’s EBITDA (as defined) or its consolidated total assets and such suspension or termination is not cured within a specified period.  As of September 30, 2008,March 31, 2009, the Company was in compliance with the financial covenants contained in the credit agreement.

7.(b) The Company completed a sale and a leaseback of several facilities on December 28, 2001. The Company retained a continuing involvement in the lease and as a result it is prohibited from utilizing sale-leaseback accounting. Accordingly, the Company has treated this transaction as a finance lease. The lease expiration date is December 31, 2016.

(c) As part of the acquisition of BAR the Company assumed real estate capital leases related to ASNF and CCIH.  These leases bear interest at 8% and expire in 2032 and 2031, respectively.

7.             EQUITY

The Company has two stock incentive plans:  a Long-Term Incentive Plan (the “LTIP”) and a Non-Employee Directors Restricted Stock Plan (the “Non-Employee Directors Plan”).

Under the LTIP, certain employees received an award of restricted shares of common stock totaling 200,000 shares, valued at $2.9 million, on October 30, 2007; 80,000 shares, valued at $1.0 million, on February 29, 2008; 8,000 shares, valued at $0.1 million, on May 2, 2008; and 8,000 shares, valued at $0.1 million, on May 5, 2008.  As of March 31, 2009, there were a total of 296,000 restricted shares awarded and 56,000 shares vested under the LTIP.  The restricted shares vest ratably on the first through fifth anniversary of the grant date; however, there is no vesting period on the right to vote or the right to receive dividends on these restricted shares.  The recognized restricted stock expense for the three and nine months ended September 30,March 31, 2009 and 2008 was $0.2 million and $0.6$0.2 million, respectively. The deferred compensation or unrecognized restricted stock expense under the LTIP as of September 30,March 31, 2009 and December 31 2008 was $3.4 million.$3.0 million and $3.2 million, respectively.

Pursuant to the Non-Employee Directors Plan, each non-employee director of the Company receives an annual award of restricted shares of common stock on the date of the Company’s annual meeting of shareholders.  The number of shares granted to each non-employee director is based on the fair market value of a share of common stock on that date.  The restricted shares vest ratably on the first through third anniversary of the grant date; however, there is no vesting period on the right to vote or the right to receive dividends on these restricted shares. As of September 30, 2008,March 31, 2009, there were a total of 84,954 shares awarded and 37,77240,138 shares vested under the Non-Employee Directors Plan. The recognized restricted stock expense for the three months ended September 30,March 31, 2009 and 2008 and 2007 was $0.1 million and $0.09 million, respectively, and for the nine months ended September 30, 2008 and 2007 was $0.2 million and $0.2$0.1 million, respectively. The deferred compensation or unrecognized restricted stock expense under the Non-Employee Directors Plan as of September 30,March 31, 2009 and December 31, 2008 and 2007 was $0.5$0.3 million and $0.6$0.4 million, respectively.

10

On April 1, 2008, the Company’s Board of Directors approved the repurchase of up to 1,000,000 shares of its common stock over the period of one year.  The purchases willmay be made in the open market or in privately negotiated transactions from time to time as permitted by securities laws and other legal requirements.  The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors.  The program may be suspended or discontinued at any time.  During the three months ended June 30, 2008, the Company repurchased 600,000 shares of its common stock for approximately $6.4 million at an average price of $10.63 per share.  The Company did not repurchase any shares of its common stock during the three months ended September 30, 2008.March 31, 2009.

In 2008 and 2009, the Company completed a net share settlement for 13,512 and 3,871 restricted shares, respectively, on behalf of some employees that participate in the LTIP upon the vesting of the restricted shares pursuant to the terms of the LTIP.  The net share settlement was in connection to taxes incurred on restricted shares that vested and were transferred to the employee during 2008 and/or 2009, creating taxable income for the employee.   The Company has agreed to pay these taxes on behalf of the employees in return for the employee returning an equivalent value of restricted shares to the Company.  This transaction resulted in a decrease of approximately $0.2 million and $0.1 million in 2008 and 2009, respectively, to equity on the consolidated balance sheets as the cash payment of the taxes effectively was a repurchase of the restricted shares granted in previous years.


On February 18, 2009, the Company issued 1.15 million shares of common stock in a public offering and received net proceeds of approximately $14.9 million, after deducting underwriting commissions and offering expenses of approximately $1.2 million.
Fair Value of Stock Options

The fair value of the stock options used to compute stock-based compensation is the estimated present value at the date of grant using the Black-Scholes option pricing model.  The weighted average fair values of options granted during 20082009 were $6.69$7.34 using the following weighted average assumptions for grants:

September 30, 2008
Expected volatility57.23%
Expected dividend yield0%
Expected life (term)6 Years
Risk-free interest rate2.76% - 3.29%
Expected forfeiture rate20.00%
  March 31, 2009 
Expected volatility  51.95%
Expected dividend yield  0%
Expected life (term) 6 Years 
Risk-free interest rate  2.29%
Weighted-average exercise price during the year $14.36 


The following is a summary of transactions pertaining to the option plans:stock options:

  
 
 
 
Shares
  
Weighted
Average
Exercise Price
Per Share
 
Weighted
Average
Remaining
Contractual
Term
 
 
Aggregate
Intrinsic
Value
 
Outstanding as of December 31, 2007  1,512,163  $9.65     
Granted  145,500   11.97     
Cancelled  (74,000)  15.81     
Exercised  (22,400)  3.34   $219 
Outstanding as of September 30, 2008  1,561,263   9.67  5.39 years  7,564 
              
Exercisable as of September 30, 2008  1,146,625   8.15  4.39 years  7,242 
  Shares  Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term Aggregate intrinsic Value (in thousands) 
Outstanding December 31, 2008  1,474,215  $9.98 5.25 years  6,808 
Granted  27,000   14.36      
Canceled  (13,000)  13.10      
Exercised  (10,267)  4.98    48 
              
Outstanding March 31, 2009  1,477,948   10.07 5.08 years  12,727 
              
Exercisable as of March 31, 2009  1,227,237   9.21 4.44 years  11,627 

As of September 30, 2008,March 31, 2009, the pre-tax compensation expense for all unvested stock option awards was $1.5$1.0 million.  This amount will be expensed over the weighted-average period of approximately 1.02.1 years.

The following table presents a summary of stock options outstanding:

   At March 31, 2009 
   Stock Options Outstanding  Stock Options Exercisable 
Range of Exercise Prices  Shares  Contractual Weighted Average life (years)  
Weighted Average
Price
  Shares  
Weighted Exercise
Price
 
$3.10   620,407   2.78  $3.10   620,407  $3.10 
$4.00-$13.99   290,333   8.23   11.81   143,182   11.66 
$14.00-$19.99   449,708   6.13   15.22   368,548   14.98 
$20.00-$25.00   117,500   5.36   22.88   95,100   23.08 
                       
     1,477,948   5.08   10.07   1,227,237   9.21 
   September 30, 2008 
   Stock Options Outstanding  Stock Options Exercisable 
 
 
Range of Exercise Prices
  
 
 
Shares
  
Contractual
Weighted
Average Life
(years)
  
 
Weighted
Average Price
  
 
 
Shares
  
 
Weighted
Exercise Price
 
$1.55   50,898   0.72  $1.55   50,898  $1.55 
 3.10 �� 630,157   3.28   3.10   630,157   3.10 
 4.00-13.99   333,500   8.60   11.47   78,678   9.88 
 14.00-19.99   429,208   6.40   15.26   299,492   15.09 
 20.00-25.00   117,500   5.86   22.88   87,400   23.10 
     1,561,263   5.39   9.67   1,146,625   8.15 


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8.SLM FINANCIAL CORPORATION LOAN AGREEMENT

The Company entered into a tiered discount loan program agreement, effective September 1, 2007, with SLM Financial Corporation (“SLM”) to provide up to $16.0 million of private non-recourse loans to qualifying students.  Under this agreement, the Company was required to pay SLM either 20% or 30% of all loans disbursed, depending on each student borrower’s credit score.  The Company was billed at the beginning of each month based on loans disbursed during the prior month. For the nine months ended September 30, 2008, $0.5 million of loans were disbursed, resulting in a $0.1 million loss on sale of receivables.  Loss on sale of receivables is included in selling, general and administrative expenses in the accompanying statements of operations.

In January 2008, SLM notified the Company that it was terminating its tiered discount loan program, effective February 18, 2008.  The termination of this agreement did not have a significant impact on the Company’s financial condition.

9.8.          INCOME TAXES

The effective tax rate for the three months ended September 30,March 31, 2009 and 2008 was 39.9% and 2007 was 42.0% and 41.6%, respectively, and for the nine months ended September 30, 2008 and 2007 was 41.7% and 41.7%38.7%, respectively.

10.9.          CONTINGENCIES

Litigation and Regulatory Matters – In the ordinary conduct of its business, the Company is subject to periodic lawsuits, investigations and claims, including, but not limited to, claims involving students or graduates and routine employment matters. Although the Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it, the Company does not believe that any currently pending legal proceeding to which it is a party will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

11.10.          PENSION PLAN

The Company sponsors a noncontributory defined benefit pension plan covering substantially all of the Company’s union employees.  Benefits are provided based on employees’ years of service and earnings.  This plan was frozen on December 31, 1994 for non-union employees.  While the Company does not expect to make any contributions to the plan in 2008, after considering the funded statusThe total amount of the Company’s contributions paid under its pension plan movements inwas $0.6 million and $0 for the discount rate, investment performancethree months ended March 31, 2009 and related tax consequences, the Company may choose to make contributions to the plan in any given year.2008, respectively.  The net periodic benefit cost was $36$245 thousand for the three months ended September 30, 2008.March 31, 2009.  The net periodic benefit income was $11$17 thousand for the three months ended September 30, 2007.  The net periodic benefit cost was $2 thousandMarch 31, 2008.

11.          RELATED PARTY

As part of the acquisition of BAR, the Company entered into an operating lease with Educational Properties, LLC, for the nine months ended September 30, 2008.  The net periodic benefit income was $33 thousandBIT facility located at 1760 Mapleton Avenue, Suffield, Connecticut.  Bradley Baran is a member of Educational Properties, LLC and is currently an employee of the nine months ended September 30, 2007.Company.

12.12.          OTHER ASSETS

The Company acquired 100% of the membership units of Hartford Urban Ventures, LLC, which has a 5% ownership interest in CCI/85 Sigourney, LLC.  The Company leases from CCI/85 Sigourney, LLC, under a capital lease, the CCI facility located at 85 Sigourney Street, Hartford, Connecticut.  The investment of $0.3 million is included in other assets in the condensed consolidated balance sheet at March 31, 2009.

13.          SUBSEQUENT EVENT

On October 14, 2008,April 20, 2009, the Company has entered into a definitive purchase agreement to acquire Briarwoodacquired the seventh Baran school, Clemens College, for approximately $11.4 million in cash. Briarwood is regionally accredited by the New England Association of Schools and Colleges and currently offers two Bachelor's degree programs and 31 Associate's degree programs to approximately 700 students from Connecticut and surrounding states. Briarwood is located on a 33-acre campus in Southington, Connecticut, a suburb of Hartford, and offers on-campus housing for its students. For its fiscal year ending June 30, 2008, Briarwood generated $9.2 million in revenue.$2.8 million.  The purchase agreement includes certain purchase price adjustments and ismay be subject to regulatory approvalsrevisions when the Company receives final information including appraisals, valuations and customary closing conditions.  The transaction is expected to close during December 2008.other analyses.

1213

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion may contain forward-looking statements regarding us, our business, prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2007,2008, as filed with the Securities and Exchange Commission (“SEC”) and in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.  We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise.  Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.

The interim financial statements filed on this Form 10-Q and the discussions contained herein should be read in conjunction with the annual financial statements and notes included in our Form 10-K for the year ended December 31, 2007,2008, as filed with the SEC, which includes audited consolidated financial statements for our three fiscal years ended December 31, 2007.2008.

General

We are a leading and diversified for-profit provider of career-oriented post-secondary education. We offer recent high school graduates and working adults degree and diploma programs in five areas principal of study: automotive technology, health sciences, skilled trades, business and information technology and hospitality services. Each area of study is specifically designed to appeal to and meet the educational objectives of our student population, while also satisfying the criteria established by various industries,industry and employers and state and federal accrediting bodies. We believe that diversification limits our dependence on any one industry for enrollment growth or placement opportunities and broadens our opportunity to introduce new programs. As of September 30, 2008, 22,404March 31, 2009, 25,588 students were enrolled at our 3542 campuses across 17 states. Our campuses primarily attract students from their local communities and surrounding areas, although our destination schools attract students from across the United States, and in some cases, from other countries.

Discontinued Operations

On July 31, 2007, our Board of Directors approved a plan to cease operations at three of our campuses.  As a result of that decision, we recognized a non-cash impairment charge related to goodwill at these three campuses of approximately $2.1 million as of June 30, 2007.  Additionally, we determined that certain long-lived assets would not be recoverable at June 30, 2007 and recorded a non-cash charge of $0.9 million to reduce the carrying value of these assets to their estimated fair value.

As of September 30, 2007, all operations had ceased at these campuses, and accordingly, the results of operations of these campuses have been reflected in the accompanying statements of operations as “Discontinued Operations” for all periods presented.

The following amounts relate to discontinued operations at these three campuses:

  Three Months Ended  Nine Months Ended 
  September 30, 2007  September 30, 2007 
Revenues $727  $4,230 
Operating expenses  (4,775)  (13,760)
   (4,048)  (9,530)
Benefit for income taxes  (1,717)  (4,043)
Loss from discontinued operations $(2,331) $(5,487)
abroad.

Critical Accounting Policies and Estimates

Our discussions of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period.  On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, bad debts, fixed assets, goodwill and other intangible assets, income taxes and certain accruals.  Actual results could differ from those estimates.  The critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting policies.  In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not result in significant management judgment in the application of such principles. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result from the result derived from the application of our critical accounting policies. We believe that the following accounting policies are most critical to us in that they represent the primary areas where financial information is subject to the application of management’s estimates, assumptions and judgment in the preparation of our consolidated financial statements.


Revenue recognition.  Revenues are derived primarily from programs taught at our schools.  Tuition revenues, textbook sales and one-time fees, such as nonrefundable application fees and course material fees, are recognized on a straight-line basis over the length of the applicable program, which is the period of time from a student’s start date through his or her graduation date, including internships or externships that take place prior to graduation.  If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded.  Refunds are calculated and paid in accordance with federal, state and accrediting agency standards.  Other revenues, such as tool sales and contract training revenues are recognized as goods are delivered or services are performed.  On an individual student basis, tuition earned in excess of cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as unearned tuition.

Allowance for uncollectible accounts.  Based upon our experience and judgment, we establish an allowance for uncollectible accounts with respect to tuition receivables.  We use an internal group of collectors, augmented by third-party collectors as deemed appropriate, in our collection efforts.  In establishing our allowance for uncollectible accounts, we consider, among other things, a student’s status (in-school or out-of-school), whether or not additional financial aid funding will be collected from Title IV Programs or other sources, whether or not a student is currently making payments and overall collection history.  Changes in trends in any of these areas may impact the allowance for uncollectible accounts.  The receivables balances of withdrawn students with delinquent obligations are reserved based on our collection history.  Although we believe that our reserves are adequate, if the financial condition of our students deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be necessary, which will result in increased selling, general and administrative expenses in the period such determination is made.


Our bad debt expense as a percentage of revenues for the three months ended September 30,March 31, 2009 and 2008 was 6.1% and 2007 was 6.3% and 5.3%, respectively, and for the nine months ended September 30, 2008 and 2007 was 5.9% and 5.2%4.8%, respectively. Our exposure to changes in our bad debt expense could impact our operations. A 1% increase in our bad debt expense as a percentage of revenues for the three months ended September 30,March 31, 2009 and 2008 and 2007 would have resulted in an increase in bad debt expense of $1.0$1.2 million and $0.9 million, respectively, and for the nine months ended September 30, 2008 and 2007 would have resulted in an increase in bad debt expense of $2.7 million and $2.4$0.8 million, respectively.

Because a substantial portion of our revenues is derived from Title IV programs, any legislative or regulatory action that significantly reduces the funding available under Title IV programs or the ability of our students or schools to participate in Title IV programs could have a material effect on our ability to realize our receivables.

Goodwill. We test our goodwill for impairment annually, or whenever events or changes in circumstances indicate impairment may have occurred, by comparing its fair value to its carrying value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If we determine that impairment has occurred, we are required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill and other indefinite-lived intangible assets, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact these judgments in the future and require an adjustment to the recorded balances.

Goodwill represents a significant portion of our total assets. As of September 30, 2008,March 31, 2009, goodwill represented approximately $83.0$113.1 million, or 33.3%34.0%, of our total assets. At December 31, 2007,2008, we tested our goodwill for impairment utilizing a market capitalization approach and determined that there was no impairment of our goodwill.  No events have occurred subsequently that would have required retesting.

Stock-based compensation.  We currently account for stock-based employee compensation arrangements in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share Based Payment.”  We use a fair value-based method of accounting for options as prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation.”

Bonus costs.  We accrue the estimated cost of our bonus programs using current financial and statistical information as compared to targeted financial achievements and key performance objectives.  Although we believe our estimated liability recorded for bonuses is reasonable, actual results could differ and require adjustment of the recorded balance.


Effect of Inflation

Inflation has not had a material effect on our operations.

Recent Accounting Pronouncements

In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 163, “Accounting for Financial Guarantee Insurance Contracts – an interpretation of FASB Statement No. 60,” (“SFAS No. 163”).  SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation.  SFAS No. 163 will be effective for us as of January 1, 2009.  The implementation of this standard is not expected to have a material impact on our consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” (“SFAS No. 162”).  SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements.  SFAS No. 162 will bewas effective for us as of November 15, 2008.  The implementation of this standard is not expected to have a material impacthad no effect on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,”(“ (“SFAS No. 161”)– an amendment to FASB Statement No. 133.   SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The Statement will beis effective for us as of January 1, 2009. The adoption of the provision of SFAS No. 161 is not expected to have a materialhad no effect on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations”Combinations" (“SFAS No. 141R”). The StatementSFAS No. 141R establishes revised principles and requirements for how we will recognize and measure assets and liabilities acquired in a business combination. The new standardSFAS No. 141R requires, among other things, transaction costs incurred in a business combination to be expensed, establishes a new measurement date for valuing acquirer shares issued in consideration for a business combination, and requires the recognition of contingent consideration and pre-acquisition gain and loss contingencies.  SFAS No. 141R will bewas effective for our business combinations completed on or after January 1, 2009.  We expect thatFor the adoptionthree months ended March 31, 2009, we expensed $0.7 million of SFAS No. 141R could have a material impact on our financial statements when accounting for future material acquisitions.costs incurred related to an acquisition.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, (“SFAS No. 160”), an amendment of Accounting Research Bulletin (“ARB”) No. 51"(“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 will beis effective for us as of January 1, 2009. The adoption of the provision of SFAS No. 160 is not expected to have a material effect on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, (“SFAS No. 159”), providing companies with an option to report selected financial assets and liabilities at fair value.  SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities.  SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of our choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the balance sheet.  SFAS No. 159 became effective for us as of January 1, 2008; however, we did not elect to utilize the option to report selected assets and liabilities at fair value.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. The provisions of SFAS No. 157 became effective for us as of January 1, 2008. The adoption of the provision of SFAS No. 157 had no effect on our consolidated financial statements.


Results of Operations

Certain reported amounts in our analysis have been rounded for presentation purposes.

The following table sets forth selected consolidated statements of operations data as a percentage of revenues for each of the periods indicated:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  Three Months Ended March 31, 
 2008  2007  2008  2007  2009  2008 
Revenues  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%
Costs and expenses:                        
Educational services and facilities  41.4%  42.8%  42.3%  44.0%  40.7%  43.6%
Selling, general and administrative  48.3%  47.9%  52.3%  52.2%  50.3%  54.9%
Total costs and expenses  89.7%  90.7%  94.6%  96.2%  91.0%  98.5%
Operating income  10.3%  9.3%  5.4%  3.8%  9.0%  1.5%
Interest expense, net  (0.5%)  (0.7%)  (0.6%)  (0.7%)  -0.8%  -0.5%
Income from continuing operations before income taxes  9.8%  8.6%  4.8%  3.1%  8.2%  1.0%
Provision (benefit) for income taxes  4.1%  3.6%  2.0%  1.3%
Provision for income taxes  3.3%  0.4%
Income from continuing operations  5.7%  5.0%  2.8%  1.8%  4.9%  0.6%

Three Months Ended September 30, 2008March 31, 2009 Compared to Three Months Ended September 30, 2007March 31, 2008

RevenuesRevenues..    Revenues increased by $13.9$34.6 million, or 16.1%41.1%, to $100.5$118.6 million for the quarter ended September 30, 2008March 31, 2009 from $86.6$84.0 million for the quarter ended September 30, 2007.  TheMarch 31, 2008. Approximately $11.6 million of this increase was a result of our acquisitions of Briarwood College on December 1, 2008 and Baran Institute of Technology, Inc. on January 20, 2009 (the “Acquisitions”).  Excluding the Acquisitions, the increase in revenues for the quarter was primarily attributable to a 13.6%22.4% increase in average student population, which increased to 20,66522,597 for the quarter ended September 30, 2008,March 31, 2009 from 18,18518,459 for the quarter ended September 30, 2007.  Revenues were also favorably impacted by tuition increases, which averaged from 3.0% to 3.5% during the quarter and increases in tool sales and interest income collected on student loans, which increased by $0.2 million and $0.2 million, respectively, as compared to the third quarterMarch 31, 2008.  The remainder of 2007. For the quarter ended September 30, 2008, average revenue per student increased 2.1% as compared to the third quarter of 2007, primarilythis increase was due to tuition increases during the quarter, offset by a shift in student population to students enrolled in lower tuition programs.increases.  For a general discussion of trends in our student enrollment, see “Seasonality and Trends” below.

Educational services and facilities expensesexpenses..   Our educational services and facilities expenses for the quarter ended September 30, 2008 were $41.6 million, representing an increase of $4.5increased by $11.7 million, or 12.1%31.9%, as compared to $37.1$48.3 million for the quarter ended September 30, 2007.March 31, 2009 from $36.6 million for the quarter ended March 31, 2008. The Acquisitions accounted for $6.4 million, or 54.7%, of this increase. Excluding the Acquisitions, the increase in educational services and facilities expenses was primarily due to instructional expenses which increased by $2.7 million, or 14.0%, and books and tooltools expenses, which increased by $1.8$1.9 million, or 9.8%, and $1.2 million, or 18.8%43.5%, respectively, over the same quarter in 2007, resulting from an 8.6%2008. This increase was attributable to a 35.1% increase in student starts duringfor the thirdfirst quarter of 20082009 as compared to the thirdfirst quarter of 2007in 2008 and as a result of the overall increase in student population and higher tool sales asduring the first quarter of 2009 compared to the thirdfirst quarter of 2007.  We2008.  On a same school basis, we began the third quarter of 20082009 with approximately 2,4003,000 more students than we had on JulyJanuary 1, 2007.   The remainder2008, and as of the increase in educationalMarch 31, 2009, our population on a same school basis was approximately 4,500 higher than as of March 31, 2008.  Educational services and facilities expenses was due to facilities expenses, which increased by approximately $1.5 million over the same quarter in 2007.   This increase in facilities expense was primarily due to a $0.6 million increase in depreciation expense resulting from capital expenditures during 2007 and the first nine months of 2008.  Capital expenditures during these periods included the renovation and conversion of our former auto school in Grand Prairie, Texas to a skilled trades school, the opening of a culinary school at our Columbia, Maryland campus and the opening of our new campus, Aliante, in North Las Vegas, Nevada. The remainder of the increase in facilities expenses was primarily due to a $0.5 increase in repairs and maintenance at our campuses, and higher utility and property taxes at our campuses. Asas a percentage of revenues educational services and facilities expensesdecreased to 40.7% for the thirdfirst quarter of 2008 decreased to 41.4%2009 from 42.8%43.6% for the thirdfirst quarter of 2007.2008.

Selling, general and administrative expensesexpenses..    Our selling, general and administrative expenses for the quarter ended September 30, 2008March 31, 2009 were $48.5$59.6 million, representing an increase of $7.1$13.5 million, or 17.0%29.2%, as compared to $41.4from $46.1 million for the quarter ended September 30, 2007.  TheMarch 31, 2008. Approximately $6.4 million, or 47.4%, of this increase was attributable to the Acquisitions. Excluding the Acquisitions, the increase in our selling, general and administrative expenses duringfor the periodquarter ended March 31, 2009 was primarily due toto: (a) a $0.5$0.6 million, or 14.0%16.1%, increase in student services,services; (b) a $1.5$1.4 million, or 9.0%8.1%, increase in sales and marketing expensesmarketing; and (c) a $5.0 million, or 24.0%20.3%, increase in administrative expenses for the quarter ended September 30, 2008 as compared to the quarter ended September 30, 2007.  March 31, 2008.


The increase in student services was primarily due to increases in compensation and benefit expenses additionalattributable to increased financial aid and career services personnel attributed toas a result of the larger student population during the thirdfirst quarter of 20082009 as compared to the thirdfirst quarter of 20072008.   The increase in administrative expenses during the first quarter of 2009 as wellcompared to the first quarter of 2008 was primarily due to: (a) a $2.3 million increase in personnel costs, relating to annual compensation increases, increased incentive compensation and increased cost of benefits provided to employees; (b)  a $1.9 million increase in bad debt expense; and (c) $0.7 million of  acquisition costs incurred in the first quarter of 2009 related to our acquisition of Baran Institute of Technology, Inc. (“BAR”) in accordance with SFAS No. 141R. As a percentage of revenues, selling, general and administrative expenses for the first quarter of 2009 decreased to 50.3% from 54.9% for the first quarter of 2008.

For the quarter ended March 31, 2009, including the Acquisitions, our bad debt expense as a percentage of revenue was 6.1% as compared to 4.8% for the incremental costs associated withsame quarter in 2008.  This increase was primarily attributable to higher accounts receivable due to an increase of 33.7% in average student population for the first quarter of 2009 as compared to the first quarter of 2008.  The number of days sales outstanding at March 31, 2009 decreased to 21.7 days, compared to 23.9 days at March 31, 2008. This decrease is primarily attributable to our efforts to centralize the back office process with respect to financial aid.  During 2008, we began a pilot program to centralize the back office administration of our financial aid department in an effort to improve the effectiveness and timeliness of our financial aid processing. The increase in sales and marketing expenses was due to annual compensation increases to sales representatives, the hiring of additional sales representatives and increased call center support as compared to the third quarter of 2007, coupled with increased investments in marketing to continue to grow our student population. The increase in administrative expenses was primarily due to (a) a $2.4 million increase in compensation and benefits, resulting from annual compensation increases, including increases in employee bonuses and stock compensation expense and the increased cost of benefits provided to employees; (b) a $1.7 million increase in bad debt expense; (c) $0.4 million of expenses incurred in connection with two registrations statements on Form S-3, filed with the SEC during 2008 and certain other related expenses; and (d) a $0.2 million increase in software maintenance expenses resulting from increased software licenses for our student management system. As a percentage of revenues, selling, general and administrative expenses for the third quarter of 2008 increased to 48.3% from 47.9% for the third quarter of 2007.


For the quarter ended September 30, 2008, our bad debt expense as a percentage of revenue was 6.3% as compared to 5.3% for the same quarter in 2007.  This increase was primarily attributable to higher accounts receivable due to a 16.1% increase in revenues during the third quarter of 2008 as compared to the third quarter of 2007.  The number of days sales outstanding at September 30, 2008 increased to 26.3 days compared to 22.8 days at September 30, 2007.  The increase in days sales outstanding is primarily attributable to our decision to internally finance the gap in student tuition for which students are unable to obtain third-party financing.  As of September 30, 2008,March 31, 2009, we had madeoutstanding loan commitments to our students of $22.3$23.6 million as compared to $20.1 million and $15.7$24.8 million at June 30, 2008 and December 31, 2007, respectively.2008.  Loan commitments, net of interest that would be due on the loans through maturity, were $15.4$16.2 million at September 30, 2008March 31, 2009 as compared to $13.7 million and $10.8$17.0 million at June 30, 2008 and December 31, 2007, respectively.2008.

Net interest expenseexpense..    Our net interest expense for the quarter ended September 30, 2008March 31, 2009 was $1.0 million, an increase of $0.5 million, representing a decrease of $0.1 million, as compared to $0.6from $0.5 million for the quarter ended September 30, 2007.March 31, 2008.  This increase of $0.5 million is attributable to real estate capital leases assumed in connection with the Acquisitions. Excluding the Acquisitions our net interest expense for the quarter ended March 31, 2009 was primarily due to a decrease in our average outstanding borrowings under our credit agreement. As of September 30, 2008, we had no outstanding borrowings under our credit agreementessentially flat as compared to $5.0 million outstanding under our credit agreement as of September 30, 2007.the quarter ended March 31, 2008.

Income taxestaxes..    Our provision for income taxes for the quarter ended September 30, 2008March 31, 2009 was $4.1$3.9 million, or 42.0%39.9% of pretax income, as compared to $3.1$0.3 million, or 41.6%38.7% of pretax income for the quarter ended September 30, 2007.March 31, 2008. The increase in our effective tax rate for the quarter ended September 30, 2008March 31, 2009 was primarily attributable to shifts ina state taxable income among various states.  

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Revenues.  Revenues increased by $32.1 million, or 13.5%, to $269.6 million for the nine months ended September 30, 2008 from $237.5 million for the nine months ended September 30, 2007.  The increase in revenues for the period was primarily attributable to an 11.8% increase in average student population, which increased to 19,221 for the nine months ended September 30, 2008, from 17,192 for the nine months ended September 30, 2007.  Revenues were also favorably impacted during the period by tuition increases, which averaged from 3.0% to 3.5% during the quarter and increases in tool sales and interest income collected on student loans, which increased by $0.7 million and $0.7 million, respectively, from the nine months ended September 2007.   For the nine months ended September 30, 2008, average revenue per student increased 1.5% from nine months ended September 2007, primarily due to tuition increases during the quarter, offset by a shift in our student population to students enrolled in lower tuition programs.  For a general discussion of trends in our student enrollment, see “Seasonality and Trends” below.

Educational services and facilities expenses.  Our educational services and facilities expenses for the nine months ended September 30, 2008 were $114.1 million, representing an increase of $9.6 million, or 9.2%, as compared to $104.5 million for the nine months ended September 30, 2007. The increase in educational services and facilities expenses was due to instructional expenses and books and tools expenses, which increased by $4.4 million, or 8.0%, and $2.4 million, or 17.8%, respectively, over the same period in 2007, reflecting a 11.3% increase in student starts during the nine months ended September 30, 2008 as compared to the same period in 2007 and as a result of the overall increase in student population and higher tool sales as compared to the nine months ended September 30, 2007.   We began 2008 with approximately 1,400 more students than we had on January 1, 2007 and as of September 30, 2008 our population was approximately 2,941 higher than as of September 30, 2007.   The remainder of the increase in educational services and facilities expenses was due to facilities expenses, which increased by approximately $2.8 million over the same period in 2007.  This increase was primarily due to an increase in depreciation expense of $2.2 million resulting from increased levels of capital expenditures during 2007 and the first nine months of 2008 versus the comparable periods in prior years.  The remainder of the increase was due to higher utility, rent and repairs and maintenance expenses at our campuses.  These expenditures included the renovation and conversion of our former auto school in Grand Prairie, Texas to a skilled trades school, the opening of a culinary school at our Columbia, Maryland campus as well as the opening of our new campus, Aliante, in North Las Vegas, Nevada. As a percentage of revenues, educational services and facilities expenses for the nine months ended September 30, 2008 decreased to 42.3% from 44.0% for the same period in 2007.


Selling, general and administrative expenses.  Our selling, general and administrative expenses for the nine months ended September 30, 2008 were $141.1 million, representing an increase of $17.0 million, or 13.7%, as compared to $124.1 million for the nine months ended September 30, 2007.  The increase in our selling, general and administrative expenses during the period was primarily due to a $1.3 million, or 11.9%, increase in student services, a $3.0 million, or 5.9%, increase in sales and marketing and a $12.7 million, or 20.3%, increase in administrative expenses for the nine months ended September 30, 2008 as compared to the same period in 2007.  The increase in student services was primarily due to increases in compensation and benefit expenses attributed to additional financial aid and career services personnel as a result of a larger student population during the nine months ended September 30, 2008 as compared to the same period in 2007. In addition, we began a pilot program to centralize the back office administration of our financial aid department in an effort to improve the effectiveness of our financial aid processing.  This resulted in the hiring of additional financial aid representativestax adjustment made during the first nine monthsquarter of 2008.  The increase in sales and marketing expense was due to annual compensation increases to sales representatives, the hiring of additional sales representatives and increased call center support for the nine months ended September 30, 2008 as compared to the prior year period coupled with increased investments in marketing to continue to grow our student population. The increase in administrative expenses was primarily due to (a) a $6.5 million increase in compensation and benefits, resulting from annual compensation increases, including increases in employee bonuses and stock compensation expense and the increased cost of benefits provided to employees; (b)  a $3.6 million increase in bad debt expense; (c) $0.2 million refunded to the U.S. Department of Education resulting from a program review at Southwestern College; (d) a $0.7 million increase in software maintenance expenses resulting from increased software licenses for our student management system; and (e) $0.7 million of expenses incurred in connection with two registration statements on Form S-3, filed with the SEC during 2008 and certain other related expenses.  As a percentage of revenues, selling, general and administrative expenses for the nine months ended September 30, 2008 was 52.3%, essentially unchanged from the same period in 2007.

For the nine months ended September 30, 2008, our bad debt expense as a percentage of revenue was 5.9% as compared to 5.2% for the same period in 2007.  This increase was primarily attributable to higher accounts receivable due to an increase in average student population during the nine months ended September 30, 2008 as compared to the same period in 2007 of 11.8%.  The number of days sales outstanding for the nine months ended September 30, 2008 increased to 29.2 days compared to 24.7 days for the same period in 2007 primarily due to our decision to internally finance the gap in student tuition for which students are unable to obtain third-party financing.

Net interest expense.  Our net interest expense for the nine months ended September 30, 2008 decreased slightly to $1.6 million from $1.7 million for the same period in 2007 due to lower average borrowings outstanding during the period. 

Income taxes.  Our provision for income taxes for the nine months ended September 30, 2008 was $5.3 million, or 41.7% of pretax income, as compared to $3.0 million, or 41.7% of pretax income, for the same period in 2007.

Liquidity and Capital Resources

Our primary capital requirements are for facility expansion and maintenance, acquisitions and the development of new programs.  Our principal sources of liquidity have been cash provided by operating activities and borrowings under our credit agreement.

The following chart summarizes the principal elements of our cash flows (in thousands):flows:

 Three Months Ended March 31, 
 
Nine Months Ended
September 30,
  2009  2008 
 2008  2007  (In thousands) 
Net cash provided by operating activities $30,003  $8,950  $2,293  $7,547 
Net cash used in investing activities $(15,919) $(17,003) $(27,041) $(7,440)
Net cash (used in) provided by financing activities $(11,441) $5,129 
Net cash provided by financing activities $24,734  $2,011 

At September 30, 2008,March 31, 2009, we had $15.2 million in cash of $6.1 million, representing an increase of approximately $2.6 million as compared to $3.5 million as ofand cash equivalents, essentially flat with cash and cash equivalents at December 31, 2007.2008.  Historically, we have financed our operating activities and organic growth primarily through cash generated from operations.  We have financed acquisitions primarily through borrowings under our credit facility and cash generated from operations.  During the first nine monthsquarter of 2008,2009, we borrowed $23.0$40.0 million and subsequently repaid $28.0$30.0 million underto finance our credit facility.acquisition of BAR and to finance our working capital needs.  We currently anticipate that we will be able to meet both our short-term cash needs, as well as our need to fund operations and meet our obligations beyond the next twelve months with cash generated by operations, existing cash balances and, if necessary, borrowings under our credit agreement.facility. In addition,February 2009, we sold common stock in the future,a public offering and received net proceeds of approximately $14.9 million.  The proceeds of this offering were used to repay borrowings under our credit facility.  In addition, we may also consider accessing the financial markets in the future as a source of liquidity for capital requirements, acquisitions and general corporate purposes to the extent such requirements are not satisfied by cash on hand, borrowings under our credit facility or operating cash flows.  However, we cannot assure you that we will be able to raise additional capital on favorable terms, if at all.  At September 30, 2008,March 31, 2009, we had net borrowings available under our $100 million credit agreement of approximately $95.9$84.4 million, including a $15.9$14.4 million sub-limit on letters of credit.

  The line of credit matures on February 15, 2010.
18

Our primary source of cash is tuition collected from the students. The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The largest of these programs are Title IV Programs which represented approximately 80%79% of our cash receipts relating to revenues in 2007.2008. Students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV Programs and loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student's academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student's academic year. Certain types of grants and other funding are not subject to a 30-day delay. Our programs range from 14 to 105102 weeks. In certain instances, if a student withdraws from a program prior to a specified date, any paid but unearned tuition or prorated Title IV financial aid is refunded according to state and federal regulations.


As a result of the significance of the Title IV funds received by our students, we are highly dependent on these funds to operate our business. Any reduction in the level of Title IV funds that our students are eligible to receive or any impact on our ability to be able to receive Title IV funds would have a significant impact on our operations and our financial condition.  See “Risk Factors” in Item 1A, included in our Annual Report on Form 10-K for the year ended December 31, 2007.

On October 14, 2008, we have entered into a definitive purchase agreement to acquire Briarwood College for approximately $11.4 million in cash. Briarwood is regionally accredited by the New England Association of Schools and Colleges and currently offers two Bachelor's degree programs and 31 Associate's degree programs to approximately 700 students from Connecticut and surrounding states. Briarwood is located on a 33-acre campus in Southington, Connecticut, a suburb of Hartford, and offers on-campus housing for its students. For its fiscal year ending June 30, 2008, Briarwood generated $9.2 million in revenue.  The purchase agreement includes certain purchase price adjustments and is subject to regulatory approvals and customary closing conditions.  The transaction is expected to close during December 2008.

Cash Flow Operating Activities

Net cash provided by operating activities was $30.0$2.3 million for the nine monthsquarter ended September 30, 2008March 31, 2009 compared to $9.0$7.5 million for the nine monthsquarter ended September 30, 2007.March 31, 2008.  The $21.0$5.2 million increase in cash provided by operating activitiesdecrease was primarily due to an increasea decrease in net incometiming of approximately $8.7 million for the nine months ended September 30, 2008 from the nine months ended September 30, 2007; approximately $5.9 million increase in cash received from federal fund programs of $5.2 million coupled with higher tax payments of $1.0 million and a reduction of approximately $2.1 million in cash paid for income taxes foroffset by other working capital items during the nine monthsquarter ended September 30, 2008March 31, 2009 as compared to the nine monthsquarter ended September 30, 2007. The remainder of the increase was primarily due to increases in cash provided by other working capital items.March 31, 2008.

Cash Flow Investing Activities

Net cash used in investing activities decreasedincreased by $1.1$19.6 million to $15.9$27.0 million for the nine monthsquarter ended September 30, 2008March 31, 2009 from $17.0$7.4 million for the nine monthsquarter ended September 30, 2007.  OurMarch 31, 2008. This increase was primarily attributable to a $24.9 million increase in cash used towards the BAR acquisition offset by a $5.0 million decrease in investing activities was primarily relatedcapital expenditures for the quarter ended March 31, 2009 as compared to purchases of property and equipment.the same quarter in 2008.  Our capital expenditures primarilymainly resulted from facility expansion, leasehold improvements, and investments in classroom and shop technology.

Capital expenditures are expected to continue to increase in the remainder of 20082009 as we upgrade and expand current equipment and facilities or open new facilities to meet increased student enrollments. We anticipate capital expenditures to range between 6%5% and 7%6% of revenues in 20082009 and expect to fund these capital expenditures with cash generated from operating activities and, if necessary, with borrowings under our credit agreement.

Cash Flow Financing Activities

Net cash used in financing activities was $11.4 million for the nine months ended September 30, 2008, as compared to net cash provided by financing activities of $5.1was $24.7 million for the nine monthsquarter ended September 30, 2007.March 31, 2009, as compared to $2.0 million for the quarter ended March 31, 2008.  This decreaseincrease was primarily due to $14.9 million received from the Company’s sale of $16.6 millioncommon stock in a public offering and the remainder of this increase was attributable to an increase in repayments ofnet borrowings of $11.5$10.0 million and repurchases ofto fund our common stock for $6.4 million partially offset by an increase in our borrowings under our credit agreement of $1.5 million for the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007.  Due to normal seasonal patterns, our student population is generally at the lowest level during the first half of the year and increases during the second half of the year.  As a result, during the first half of the year, we typically borrow funds to finance our operations and repay those funds in the second half of the year.BAR acquisition.

On April 1, 2008, our Board of Directors approved the repurchase of up to 1,000,000 shares of our common stock over the period of one year.  During the quarter ended June 30, 2008, we repurchased 600,000 shares of our common stock for approximately $6.4 million.  We did not repurchase any shares of our common stock during the three months ended September 30, 2008.


Under the terms of our credit agreement, the lending syndicate provided us with a $100 million credit facility withfor a term of five years.years which expires in February 2010.  The credit agreement permits the issuance of letters of credit of up to $20 million, the amount of which reduces the availability of permitted borrowings under the agreement.

The following table sets forth our long-term debt (in thousands):

 At September 30,  At December 31, 
 2008  2007  
March 31,
2009
  
December 31,
2008
 
Credit agreement $-  $5,000  $10,000  $- 
Finance obligation  9,672   9,672   9,672   9,672 
Automobile loans  -   16 
Capital leases (with rates ranging from 2.9% to 8.5%)  550   690 
Notes payable (with rates ranging from 7.8% to 10.2%)  554   - 
Capital lease - property  27,353   - 
Capital leases-equipment (with rates ranging from 8.4% to 8.7%)  476   502 
Subtotal  10,222   15,378   48,055   10,174 
Less current maturities  (147)  (204)  (10,667)  (130)
Total long-term debt $10,075  $15,174  $37,388  $10,044 


Contractual Obligations

Long-term Debt.  As of September 30, 2008,March 31, 2009, our long term debt consisted of amounts borrowed under our credit agreement, the finance obligation in connection with our sale-leaseback transaction in 2001, notes payable, and amounts due under capital lease obligations.

Lease Commitments.  We lease offices, educational facilities and equipment for varying periods through the year 2023 at basicbase annual rentals (excluding taxes, insurance, and other expenses under certain leases).

The following table contains supplemental information regarding our total contractual obligations as of September 30, 2008,March 31, 2009, measured from the end of our fiscal year, December 31, 20072008 (in thousands):

 Payments Due by Period  Payments Due by Period 
 
Total
  
Less than
1 year
  
1-3 years
  
4-5 years
  
After 5 years
  Total  Less than 1 year  2-3 years  4-5 years  After 5 years 
Credit agreement $-  $-  $-  $-  $-  $10,000  $10,000  $-  $-  $- 
Capital leases (including interest)  720   67   322   331   -   62,170   2,554   5,143   5,059   49,414 
Notes payable (including interest)  602   358   231   13   - 
Operating leases  125,581   16,294   27,163   24,527   57,597   144,893   17,917   32,344   29,210   65,422 
Rent on finance obligation  11,511   1,381   2,763   2,763   4,604   11,169   1,426   2,852   2,852   4,039 
Total contractual cash obligations $137,812  $17,742  $30,248  $27,621  $62,201  $228,834  $32,255  $40,570  $37,134  $118,875 

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of September 30, 2008,March 31, 2009, except for our letters of credit of $4.1$5.6 million which are primarily comprised of letters of credit for the DOE and security deposits in connection with certain of our real estate leases. These off-balance sheet arrangements do not adversely impact our liquidity or capital resources.

Seasonality and Trends

Our net revenues and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population. Student population varies as a result of new student enrollments, graduations and student attrition and seasonal enrollment patterns.attrition. Historically, our schools have experiencedhad lower student populations in our first and second quarters and largerwe have experienced large class starts in the third and fourth quarters as well as higherand student attrition in the first half of the year. Our second half growth is largely dependent on a successful high school recruiting season. We recruit our high school students several months ahead of their scheduled start dates, and thus, while we have visibility on the number of students who have expressed interest in attending our schools, we cannot predict with certainty the actual number of new student enrollments and the related impact on revenues.revenue. Our expenses, however, do not vary significantly over the course of athe year with changes in our student population and net revenues. During the first half of the year, we make significant investments in marketing, staff, programs and facilities to ensure that we meet our second half of the year targets and, as a result, such expenses do not fluctuate significantly on a quarterly basis. To the extent new student enrollments, and related revenues, in the second half of the year fall short of our estimates, our operating results could suffer. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change however, as a result of new school openings, new program introductions, and increased enrollments of adult students and/or acquisitions.  We have achieved positive organic growth for five consecutive quarters since the second half of 2007 and into the third quarter of 2008.  We began the third quarter of 2008 with approximately 2,400 more students than we had on July 1, 2007, which we attribute primarily to improved execution resulting from the growth initiatives we introduced in the third quarter of 2006 and to some extent from the counter-cyclicality of our business.    

Similar to many other public for-profit post secondary education companies, in the recent past, the increase in our average undergraduate enrollments hadin 2007 and 2006 did not metmeet our anticipated growth rates. As a result of the slow downslowdown in 2005, we entered 2006 with fewer students enrolled than we had in January of 2005. This trend continued throughout 2006 and resulted in a shortfall in the enrollments we were expecting in the second half of 2006 and especially in the third quarter which has accounted for a majority of our yearly starts. As a result we also entered 2007 with fewer students enrolled than we had in January 2006.   This trend continued throughduring the first half of 2007 and reversed itself in the latter half of the year as we benefited from the 2007 high school recruiting season.

As a result of soft organic enrollment trends that we had experienced, we instituted numerous initiatives and took steps to address and optimize our internal operations.  These initiatives, coupled with the counter cyclicality of our programs which thrive during a weak economy, have now produced ten consecutive quarters of positive student start growth and seven consecutive quarters of enrollment growth, culminating in a 35.1% student start growth in the first quarter of 2007 and2009.  This has resulted in us entering 2009 with approximately 3,100 more students on a shortfall insame school basis than we had on January 1, 2008.  Because our expectedrevenue stream is closely related to our enrollments, during the first quarter of 2007.  The slowdown that has occurred in the for-profit post secondary education sector appears to have had a greater impact on companies, like ours, that are more dependent on their on-ground business as opposed to on-line students.  Wewe believe that the slow down can be attributed to many factors, including (a) the economy; (b) the availability of student financing; (c) the dependency on television to attract students to our school; (d) turnover of our sales representatives;this will result in meaningful revenue and (e) increased competitionnet income growth in the marketplace.  These trends reversed in the second quarter of 2007.2009.

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We believe that our growth initiatives and the steps we have taken as well as our program diversification have positioned us well to produce positive growth over the long-term.

Start-ups, campus expansions and acquisitions also negatively impact operating income.  We incur sales and marketing costs as well as campus personnel costs in advance of the opening of each campus.  Typically we begin to incur such costs approximately 15 months in advance of the campus opening with the majority of such costs being incurred in the nine-month period prior to a campus opening. 

Update Regarding Regulatory and Accreditation Matters

In a letter received from the Accrediting Commission of Career Schools and Colleges of Technology (“ACCSCT”), dated July 7, 2008, we were informed of a “show cause” action regarding our Lincoln Technical Institute institution in Philadelphia, PA.  An institution under “show cause” is required to satisfy its accrediting agency within a prescribed period, typically 18 months, that it has satisfactorily resolved the deficiency.  We responded to ACCSCT’s “show cause” request in September 2008 and the motion to vacate the “show cause” order will be reviewed at ACCSCT’s November 2008 meeting.

Recent Regulatory Developments

On August 14, 2008, the Higher Education Authority (“HEA”) was reauthorized when President Bush signed into law the Higher Education Opportunity Act, Public Law 110-315, reauthorizing the Title IV HEA programs through at least June 30, 2015. The recently passed HEA reauthorization revises the 90/10 Rule, revises the calculation of an institution’s cohort default rate, requires additional disclosures and certifications with respect to non-Title IV alternative loans, prohibits certain activities or relations between lenders and schools to discourage preferential treatment of lenders based on factors not in students’ best interests, and makes other changes.

Under the HEA reauthorization, an institution that derives more than 90% of its total revenue from the Title IV programs for two consecutive fiscal years becomes immediately ineligible to participate in the Title IV programs and may not reapply for eligibility until the end of two fiscal years. Effective July 1, 2008, the annual Stafford loans available for undergraduate students under the Federal Family Education Loan Program (“FFEL”) increased. This loan limit increase, coupled with recent increases in grants from the Pell program and other Title IV loan limits, will result in some of our schools experiencing an increase in the revenues they receive from the Title IV programs. The HEA reauthorization provides some relief from this effect by excluding portions of the loan limit increase from the Title IV component of the 90/10 rule calculation.

Under the HEA reauthorization, an institution’s cohort default rate is redefined to be based on the rate at which its former students default on their FFEL loans over a period of time that is one year longer than the period of time during which rates currently are calculated. As a result, most institutions’ respective cohort default rates are expected to increase on the effective date of the provision, which first would apply to cohort default rates calculated after October 1, 2011. The HEA reauthorization also redefines the cohort default three-year threshold as 30% for the year when the HEA reauthorization becomes effective, compared to the present 25% threshold.
Item 3.3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks as part of our on-going business operations.  We have a credit agreement with a syndicate of banks.  Our obligations under the credit agreement are secured by a lien on substantially all of our assets and our subsidiaries and any assets that we or our subsidiaries may acquire in the future, including a pledge of substantially all of our subsidiaries’ common stock. Outstanding borrowings bear interest at the rate of adjusted LIBOR plus 1.0% to 1.75%, as defined, or a base rate (as defined in the credit agreement).  As of September 30, 2008,March 31, 2009, we had no$10.0 million outstanding borrowings under our credit agreement.

  The interest rate under this borrowing was 1.52% at March 31, 2009.
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Because we had noBased on our outstanding borrowings, under our credit agreement on September 30, 2008, a change of one percent in the interest rate would not cause a change in our interest expense.expense of approximately $0.1 million, or less than $.01 per basic share, on an annual basis.  Changes in interest rates could have an impact on our operations, which are greatly dependent on students’ ability to obtain financing.  Any increaseIncreases in interest rates could greatly impact our ability to attract students and have an adverse impact on the results of our operations.

The remainder of our interest rate risk is associated with miscellaneous capital equipment leases and notes payable, which are not significant.
 
Item 4.  CONTROLS CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.  Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this report, have concluded that our disclosure controls and procedures are adequate and effective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specificspecified by Securities and Exchange Commissions’ Rules and Forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting.  There were no changes made during our most recently completed fiscal quarter in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II. OTHER INFORMATION
 
ItemItem 1.  LEGAL PROCEEDINGS

In the ordinary conduct of our business, we are periodically subject to lawsuits, investigations and claims, including, but not limited to, claims involving students or graduates and routine employment matters.  Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have a material adverse effect on our business or financial condition, results of operations or cash flows.

ItemItem 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We did not repurchase any shares of our common stock during the three months ended September 30, 2008.March 31, 2009.

ItemItem 6.  EXHIBITS

EXHIBIT INDEX

The following exhibits are filed with or incorporated by reference into this Form 10-Q.


Exhibit
Number
Description
  
3.1Amended and Restated Certificate of Incorporation of the Company (1).
  
3.2Amended and Restated By-laws of the Company (2).
  
4.1Stockholders’ Agreement, dated as of September 15, 1999, among Lincoln Technical Institute, Inc., Back to School Acquisition, L.L.C. and Five Mile River Capital Partners LLC (1).

4.2 
4.2Letter agreement, dated August 9, 2000, by Back to School Acquisition, L.L.C., amending the Stockholders’ Agreement (1).
  
4.3Letter agreement, dated August 9, 2000, by Lincoln Technical Institute, Inc., amending the Stockholders’ Agreement (1).

4.4Management Stockholders Agreement, dated as of January 1, 2002, by and among Lincoln Technical Institute, Inc., Back to School Acquisition, L.L.C. and the Stockholders and other holders of options under the Management Stock Option Plan listed therein (1).
  
4.5Assumption Agreement and First Amendment to Management Stockholders Agreement, dated as of December 20, 2007, by and among Lincoln Educational Services Corporation, Lincoln Technical Institute, Inc., Back to School Acquisition, L.L.C. and the Management Investors parties therein (6).
  
4.6Registration Rights Agreement between the Company and Back to School Acquisition, L.L.C. (2).
  
4.7Specimen Stock Certificate evidencing shares of common stock (1).
  
10.1Credit Agreement, dated as of February 15, 2005, among the Company, the Guarantors from time to time parties thereto, the Lenders from time to time parties thereto and Harris Trust and Savings Bank, as Administrative Agent (1).
  
10.2Amended and Restated Employment Agreement, dated as of February 1, 2007, between the Company and David F. Carney (3).
  
10.3Amendment to Amended and Restated Employment Agreement, dated as of January 14, 2009, between the Company and David F. Carney (8).
10.4Separation and Release Agreement, dated as of October 15, 2007, between the Company and Lawrence E. Brown (4).
  
10.410.5Amended and Restated Employment Agreement, dated as of February 1, 2007, between the Company and Scott M. Shaw (3).
  
10.510.6Amendment to Amended and Restated Employment Agreement, dated as of January 14, 2009, between the company and Scott M. Shaw (8).
10.7
Amended and Restated Employment Agreement, dated as of February 1, 2007, between the Company and Cesar Ribeiro (3).
 
  
10.610.8Amendment to Amended and Restated Employment Agreement, dated as of January 14, 2009, between the company and Cesar Ribeiro (8).
10.9Amended and Restated Employment Agreement, dated as of February 1, 2007, between the Company and Shaun E. McAlmont (3).
  
10.710.10Amendment to Amended and Restated Employment Agreement, dated as of January 14, 2009, between the company and Shaun E. McAlmont (8).
10.11Lincoln Educational Services Corporation 2005 Long Term Incentive Plan (1).
  
10.810.12Lincoln Educational Services Corporation 2005 Non Employee Directors Restricted Stock Plan (1).
  
10.910.13Lincoln Educational Services Corporation 2005 Deferred Compensation Plan (1).
  
10.1010.14Lincoln Technical Institute Management Stock Option Plan, effective January 1, 2002 (1).
  
10.1110.15Form of Stock Option Agreement, dated January 1, 2002, between Lincoln Technical Institute, Inc. and certain participants (1).

10.16 
10.12Form of Stock Option Agreement under our 2005 Long Term Incentive Plan (7).
  
10.1310.17Form of Restricted Stock Agreement under our 2005 Long Term Incentive Plan (7).
  
10.1410.18Management Stock Subscription Agreement, dated January 1, 2002, among Lincoln Technical Institute, Inc. and certain management investors (1).
  
10.1510.19Stockholder’s Agreement among Lincoln Educational Services Corporation, Back to School Acquisition L.L.C., Steven W. Hart and Steven W. Hart 2003 Grantor Retained Annuity Trust (2).
  
10.1610.20Stock Purchase Agreement, dated as of March 30, 2006, among Lincoln Technical Institute, Inc., and Richard I. Gouse, Andrew T. Gouse, individually and as Trustee of the Carolyn Beth Gouse Irrevocable Trust, Seth A. Kurn and Steven L. Meltzer (5).
  
10.21Stock Purchase Agreement, dated as of January 20, 2009, among Lincoln Technical Institute, Inc., NN Acquisition, LLC, Brad Baran, Barbara Baran, UGP Education Partners, LLC, UGPE Partners Inc. and Merion Investment Partners, L.P (8).
10.22Stock Purchase Agreement, dated as of January 20, 2009, among Lincoln Technical Institute, Inc., NN Acquisition, LLC, Brad Baran, Barbara Baran, UGP Education Partners, LLC, Merion Investment Partners, L.P. and, for certain limited purposes only, UGPE Partners Inc (8).
31.1 *
Certification of ChairmanPresident & Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.2 *
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
32 *
Certification of ChairmanPresident & Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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(1)Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-123664).

(2)Incorporated by reference to the Company’s Form 8-K dated June 28, 2005.

(3)Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2006.

(4)Incorporated by reference to the Company’s Form 8-K dated October 15, 2007.

(5)Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended March 31, 2006.

(6)Incorporated by reference to the Company’s Registration Statement on Form S-3 (Registration No. 333-148406).

(7)Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2007.

(8)Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2008.

*Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 LINCOLN EDUCATIONAL SERVICES CORPORATION
    
    
Date: November 6, 2008May 8, 2009By:
/s/ Cesar Ribeiro
  Cesar Ribeiro
  Chief Financial Officer
  (Duly Authorized Officer, Principal Accounting and Financial Officer)

 
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