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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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”,~~filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act. Yes ¨ No x

Number of shares of registrant’s common stock, par value $0.01, outstanding as of ~~October 31, 2013: 67,153,597~~April 30, 2014: 67,222,997


	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, unrestricted	$	30,924		$	112,880		$	264,188		$	318,761
Restricted cash		12,564			97,878			12,948			12,564
Short-term investments		52,210			63,876			38,326			31,592

Total cash and cash equivalents and short-term investments		95,698			274,634			315,462			362,917
Student receivables, net of allowance for doubtful accounts of $23,172 and $28,172 as of September 30, 2013 and December 31, 2012, respectively		41,694			54,935
Student receivables, net of allowance for doubtful accounts of $19,752 and $21,070 as of March 31, 2014 and December 31, 2013, respectively								31,582			34,498
Receivables, other, net		39,845			2,096			18,331			27,437
Prepaid expenses		112,836			38,296			20,328			20,218
Inventories		7,146			8,437			6,329			6,723
Deferred income tax assets, net		—			7,095			3,606			3,606
Other current assets		5,885			4,393			4,492			3,468
Assets of discontinued operations		254,097			153,675			523			1,150

Total current assets		557,201			543,561			400,653			460,017

NON-CURRENT ASSETS:
Property and equipment, net		202,125			247,976			170,573			182,000
Goodwill		87,356			87,356			87,356			87,356
Intangible assets, net		40,387			56,006			39,850			40,117
Student receivables, net of allowance for doubtful accounts of $8,071 and $11,982 as of September 30, 2013 and December 31, 2012, respectively		5,552			6,832
Student receivables, net of allowance for doubtful accounts of $6,011 and $6,883 as of March 31, 2014 and December 31, 2013, respectively								4,758			5,204
Deferred income tax assets, net		47,932			47,703			10,644			10,644
Other assets, net		25,916			30,276			26,258			17,853
Assets of discontinued operations		18,714			102,993			1,406			1,854

TOTAL ASSETS	$	985,183		$	1,122,703		$	741,498		$	805,045

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings	$	—		$	80,000
Accounts payable		33,723			32,094		$	29,640		$	24,615
Accrued expenses:
Payroll and related benefits		37,285			38,772			31,198			34,172
Advertising and production costs		25,733			20,963			22,297			17,599
Income taxes								603			14,994
Other		61,383			35,060			51,039			41,083
Deferred tuition revenue		69,051			69,806			55,251			60,914
Deferred income tax liabilities, net		32,752			—
Liabilities of discontinued operations		95,975			76,020			15,418			14,055

Total current liabilities		355,902			352,715			205,446			207,432

NON-CURRENT LIABILITIES:
Deferred rent obligations		85,805			94,072			78,104			80,496
Other liabilities		29,794			28,648			27,593			27,619
Liabilities of discontinued operations		22,555			35,478			32,225			34,114

Total non-current liabilities		138,154			158,198			137,922			142,229

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued or outstanding		—			—			—			—
Common stock, $0.01 par value; 300,000,000 shares authorized; 81,876,758 and 81,616,987 shares issued, 67,158,417 and 67,069,734 shares outstanding as of September 30, 2013 and December 31, 2012, respectively		819			816
Common stock, $0.01 par value; 300,000,000 shares authorized; 82,001,778 and 81,889,907 shares issued, 67,196,127 and 67,170,522 shares outstanding as of March 31, 2014 and December 31, 2013, respectively								820			819
Additional paid-in capital		602,735			596,826			602,440			600,904
Accumulated other comprehensive income (loss)		2,798			(4,785	)
Accumulated other comprehensive loss								(531	)		(503	)
Retained earnings		99,264			232,921			10,515			68,658
Cost of 14,718,341 and 14,547,253 shares in treasury as of September 30, 2013 and December 31, 2012, respectively		(214,489	)		(213,988	)
Cost of 14,805,651 and 14,719,385 shares in treasury as of March 31, 2014 and December 31, 2013, respectively								(215,114	)		(214,494	)

Total stockholders’ equity		491,127			611,790			398,130			455,384

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	985,183		$	1,122,703		$	741,498		$	805,045

The accompanying notes are an integral part of these unaudited consolidated financial statements.


	For the Quarter Ended September 30,						For the Year to Date Ended September 30,						For the Quarter Ended March 31,
	2013			2012			2013			2012			2014			2013
REVENUE:
Tuition and registration fees	$	246,777		$	309,947		$	797,748		$	1,025,014		$	240,071		$	279,910
Other		4,536			6,208			13,160			22,752			3,034			4,540

Total revenue		251,313			316,155			810,908			1,047,766			243,105			284,450

OPERATING EXPENSES:
Educational services and facilities		100,053			117,929			310,948			375,705			86,078			102,757
General and administrative		191,301			219,919			591,382			639,280			189,780			189,597
Depreciation and amortization		17,023			18,749			52,221			55,593			15,052			16,969
Goodwill and asset impairment		11,585			—			15,708			85,464
Asset impairment														67			157

Total operating expenses		319,962			356,597			970,259			1,156,042			290,977			309,480

Operating loss		(68,649	)		(40,442	)		(159,351	)		(108,276	)		(47,872	)		(25,030	)

OTHER (EXPENSE) INCOME:
OTHER INCOME (EXPENSE):
Interest income		194			319			1,199			953			106			245
Interest expense		(209	)		(23	)		(1,127	)		(91	)		(81	)		(706	)
Loss on sale of business		(39	)		—			(6,973	)		—			—			(6,712	)
Miscellaneous (expense) income		(62	)		74			(17	)		7
Miscellaneous income														622			7

Total other (expense) income		(116	)		370			(6,918	)		869
Total other income (expense)														647			(7,166	)

PRETAX LOSS		(68,765	)		(40,072	)		(166,269	)		(107,407	)		(47,225	)		(32,196	)
Benefit from income taxes		(25,333	)		(13,925	)		(70,145	)		(27,959	)

Provision for (benefit from) income taxes														220			(12,402	)

LOSS FROM CONTINUING OPERATIONS		(43,432	)		(26,147	)		(96,124	)		(79,448	)		(47,445	)		(19,794	)

LOSS FROM DISCONTINUED OPERATIONS, net of tax		(43,632	)		(6,999	)		(37,533	)		(1,856	)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, net of tax														(10,698	)		4,591

NET LOSS		(87,064	)		(33,146	)		(133,657	)		(81,304	)		(58,143	)		(15,203	)

OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
OTHER COMPREHENSIVE LOSS, net of tax:
Foreign currency translation adjustments		6,474			743			7,542			(3,553	)		—			(1,743	)
Unrealized gains (losses) on investments		36			(206	)		41			(326	)
Unrealized (losses) gains on investments														(28	)		1

Total other comprehensive income (loss)		6,510			537			7,583			(3,879	)
Total other comprehensive loss														(28	)		(1,742	)

COMPREHENSIVE LOSS	$	(80,554	)	$	(32,609	)	$	(126,074	)	$	(85,183	)	$	(58,171	)	$	(16,945	)

NET LOSS PER SHARE—BASIC and DILUTED:
Loss from continuing operations	$	(0.65	)	$	(0.40	)	$	(1.44	)	$	(1.20	)	$	(0.71	)	$	(0.30	)
Loss from discontinued operations		(0.65	)		(0.10	)		(0.56	)		(0.03	)
(Loss) income from discontinued operations														(0.16	)		0.07

Net loss per share	$	(1.30	)	$	(0.50	)	$	(2.00	)	$	(1.23	)	$	(0.87	)	$	(0.23	)

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and Diluted		66,849			66,100			66,663			66,325			66,994			66,428

The accompanying notes are an integral part of these unaudited consolidated financial statements.


	For the Year to Date Ended September 30,						For the Quarter Ended March 31,
	2013			2012			2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(133,657	)	$	(81,304	)	$	(58,143	)	$	(15,203	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Goodwill and asset impairment		15,708			85,661
Loss on sale of student receivables		—			930
Adjustments to reconcile net loss to net cash used in operating activities:
Asset impairment								67			157
Depreciation and amortization expense		56,619			60,555			15,431			19,295
Bad debt expense		22,028			28,967			5,852			6,702
Compensation expense related to share-based awards		5,119			7,302			1,341			1,775
Loss on sale of business		6,973			—			—			6,712
Loss on disposition of property and equipment		103			293			26			94
Changes in operating assets and liabilities		(50,735	)		(69,910	)		6			(33,729	)

Net cash (used in) provided by operating activities		(77,842	)		32,494
Net cash used in operating activities								(35,420	)		(14,197	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments		(40,842	)		(117,188	)		(29,810	)		(13,540	)
Sales of available-for-sale investments		52,485			146,873			14,320			13,465
Purchases of property and equipment		(16,602	)		(29,496	)		(3,468	)		(4,077	)
Proceeds on the sale of assets		(2,525	)		—
Business acquisition, net of acquired cash		—			(3,094	)
Payments of cash upon sale of business								—			(1,947	)
Other		31			(1,533	)		—			(1	)

Net cash used in investing activities		(7,453	)		(4,438	)		(18,958	)		(6,100	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock		—			(56,431	)
Issuance of common stock		792			1,262			196			304
Payments of assumed loans upon business acquisition		—			(318	)
Payments of contingent consideration		—			(5,818	)
Payment on borrowings		(80,000	)		—			—			(80,000	)
Change in restricted cash		85,314			—			(384	)		86,470
Payments of capital lease obligations		(210	)		(741	)		—			(74	)

Net cash provided by (used in) financing activities		5,896			(62,046	)

Net cash (used in) provided by financing activities								(188	)		6,700

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS:		1,518			(3,774	)		10			(3,194	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(77,881	)		(37,764	)		(54,556	)		(16,791	)
DISCONTINUED OPERATIONS CASH ACTIVITY INCLUDED ABOVE:
Add: Cash balance of discontinued operations, beginning of the period		127,742			154,668			182			127,925
Less: Cash balance of discontinued operations, end of the period		131,817			109,683			199			114,428
CASH AND CASH EQUIVALENTS, beginning of the period		112,880			125,924			318,761			112,697

CASH AND CASH EQUIVALENTS, end of the period	$	30,924		$	133,145		$	264,188		$	109,403

The accompanying notes are an integral part of these unaudited consolidated financial statements.

The colleges, ~~schools~~institutions and universities that are part of the Career Education Corporation (“CEC”) family offer high-quality education to a diverse student population ~~across the world~~ in a variety of career-oriented disciplines through online, on-ground and hybrid learning program offerings. ~~The more than 90~~In addition to its online offerings, Career Education serves students from campuses ~~that serve these students are located~~ throughout the United States ~~and in France and Monaco, and offer~~offering programs that lead to doctoral, master’s, bachelor’s and associate degrees, as well as to diplomas and ~~diploma and certificate programs.~~certificates.

~~We are an industry leader whose institutions are recognized globally. Those~~Our institutions include ~~among others,~~both universities that provide degree programs through the master or doctoral level and colleges that provide programs through the associate and bachelor level. The University group includes American InterContinental University (“AIU”)~~; Brooks Institute;~~ and Colorado Technical University (“CTU”);—predominantly serving students online with career-focused degree programs that meet the educational demands of today’s busy adults. The Career Schools group offers career-centered education primarily through ground-based campuses and includes Briarcliffe College, Brooks Institute, Harrington College of ~~Design; INSEEC Group (“INSEEC”) Schools; International University of Monaco (“IUM”); International Academy of~~ Design, ~~& Technology (“IADT”);~~ Le Cordon Bleu North America (“LCB”);, Missouri College and Sanford-Brown Institutes and Colleges (“SBI” and ~~“SBC”,~~“SBC,” respectively). Through our ~~schools,~~colleges, institutions and universities, we are committed to providing high-quality education, enabling students to graduate and pursue rewarding career opportunities.

~~For more information, see our website at~~~~www.careered.com~~~~. The website includes a~~A detailed listing of individual campus locations and web links to ~~our~~Career Education’s colleges, ~~schools~~institutions and ~~universities.~~universities can be found atwww.careered.com.

As used in this Quarterly Report on Form 10-Q, the terms ~~“we”, “us”, “our”,~~“we,” “us,” “our,” “the Company” and “CEC” refer to Career Education Corporation and our wholly-owned subsidiaries. The terms ~~“school”~~“college”, “institution” and “university” refer to an individual, branded, proprietary educational institution, owned by us and includes its campus locations. The term “campus” refers to an individual main or branch campus operated by one of our ~~schools~~colleges, institutions or universities.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the quarter ~~and year to date~~ ended ~~September 30, 2013~~March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2013.~~2014.

The unaudited consolidated financial statements presented herein include the accounts of ~~CEC.~~CEC and our wholly-owned subsidiaries (collectively “CEC”). All intercompany transactions and balances have been eliminated.

~~During~~Effective January 2014, we have changed our segment reporting to align with the ~~third quarter of 2013,~~manner in which we made the decision to commit to a plan to sell our International Schools, which are comprised of the Paris-based INSEEC Group and the International University of Monaco. As a result of the decision to sell our International Schools, the assets and liabilities of the entities to be sold are classified as held for sale within discontinued operations as of September 30, 2013. All prior period financials have been recast to be comparable to the current period.

~~The results of our International Schools~~ are now ~~reported within discontinued operations due to our decision in~~managing the ~~third quarter of 2013 to commit to a plan to sell these assets. We have six remaining reporting segments:~~business. Our reportable segments are: CTU, AIU (comprises University Schools); ~~Health Education,~~Career Colleges, Culinary Arts ~~Design & Technology~~ (comprises Career Schools); and Transitional Schools. ~~The campuses~~Our Career Colleges reporting segment is a combination of our previously reported Health Education and Design & Technology segments. These were combined as a part of our overall brand consolidation strategy. Campuses included ~~within the~~in our Transitional Schools segment are currently being taught out and no longer enroll new students. These campuses employ a gradual teach-out process, enabling them to continue to operate while current students complete their

course of ~~study; they no longer enroll new students.~~study. The results of operations for campuses within the Transitional Schools segment will be reported within continuing operations for all periods presented until they complete their teach-out. As campuses within Transitional Schools cease operations, the results of ~~operations~~operation for all periods presented will be reflected within discontinued operations. During

the first quarter of 2014, the Company completed the teach-out of the following Sanford-Brown campuses: Austin, Collinsville, Cranston, Dearborn, Grand Rapids, Indianapolis, Portland, Tinley Park and Trevose. As a result, all current and prior periods reflect these campuses as components of discontinued operations. All prior period results have been recast to reflect our reporting segments on a comparable basis.

AsIn the fourth quarter of ~~April 1,~~ 2013, we completed the sale of our ~~AIU campus in London, England. AIU London is considered to be part~~International Segment. Accordingly, the results of operations of the ~~AIU asset group and as such the sale has been~~International Segment are reported within ~~continuing~~discontinued operations. Prior period financial statements and the related notes herein, including segment reporting, have been recast to include the results of operations ~~in accordance with~~and financial condition of the International Segment as a component of discontinued operations. See Note 4 “Discontinued Operations” of the notes to our unaudited consolidated financial statements.

In April 2014, the Financial Accounting Standards Board (“FASB”) ~~Accounting Standards Codification (“ASC”) Topic 205 –~~~~Presentation of Financial Statements~~. We received no consideration for the sale of AIU London resulting in a fair market value of zero and recorded a loss on sale of $7.0 million for the year to date ended September 30, 2013. This loss is reported within other (expense) income on our unaudited consolidated statements of loss and comprehensive loss. The terms of the sales agreement provided that we make payments to the buyer in consideration of negative working capital and obligate us to make payments to offset future rent payments made by the buyer related to leases assigned to the buyer; accordingly, these amounts were included in the loss calculation. Also included in the loss on the sale was approximately $3.3 million of expense related to the cumulative translation loss resulting from the effects of foreign currency on AIU London’s balance sheet as of the date of sale. This loss had previously been recorded within accumulated other comprehensive loss as a component of stockholders’ equity.

~~In July 2013, the FASB~~ issued Accounting Standards Update (“ASU”) No. ~~2013-11,~~2014-08,~~Income Taxes (Topic 740):~~ Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an ~~Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.~~Entity.This ASU ~~standardizes the financial statement presentation~~limits discontinued operations reporting to disposals of components of an ~~unrecognized tax benefit when~~entity that represent strategic shifts that have (or will have) a ~~net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists; it does~~major effect on an entity’s operations and financial results. In addition, the amendments in this ASU require expanded disclosures for discontinued operations as well as for disposals that do not ~~require new recurring disclosures. ASU 2013-11 requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements~~qualify as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward unless specific criteria exist, in which case the unrecognized tax benefit should be presented as a liability and should not be combined with deferred tax assets.discontinued operations. For public entities, ASU ~~2013-11~~2014-08 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, ~~2013; early~~2014. Early adoption is ~~permitted. The amendments should be applied prospectively to all unrecognized tax benefits~~permitted for disposals that ~~exist at the effective date; retrospective application is permitted.~~have not been reported in financial statements previously issued. We are currently evaluating ~~this guidance and do not believe~~the impact that the adoption of ASU 2014-08 will ~~significantly impact the presentation of~~have on our financial condition, results of ~~operation~~operations and disclosures.

~~In March 2013,~~We have evaluated and adopted the guidance of the following ASUs issued by the FASB ~~issued ASU No. 2013-05,~~Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in ~~a Foreign Entity.~~ASU 2013-05 provides guidance on releasing cumulative translation adjustments (“CTA”) when an entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity, and also provides guidance on releasing CTA in partial sales of equity method investments and in step acquisitions. For public entities, ASU 2013-05 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. If early adoption is elected, the guidance in this ASU should be applied as of the beginning of the entity’s fiscal year of adoption. We are currently evaluating this guidance and do not believe the adoption will significantly impact the presentation of our financial condition, results of operation and disclosures.

~~In February 2013, the FASB issued ASU No. 2013-04,~~~~Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date.~~The guidance in ASU 2013-04 requires entities to measure obligations resulting from joint and several liability arrangements, for which the total obligation amount is fixed at the reporting date, as the sum of the

amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount it expects to pay on behalf of its co-obligors. ASU 2013-04 also specifies disclosure requirements. For public entities, ASU 2013-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and should be applied retrospectively to all prior periods presented for obligations resulting from joint and several liability arrangements that exist at the beginning of the entity’s fiscal year of adoption. Early adoption is permitted. We have adopted this guidance which2013; adopting these ASUs did not materially impact the presentation of our financial condition, results of ~~operation~~operations and ~~disclosures.~~disclosures:

~~In February 2013, the FASB issued ASU No. 2013-02,~~~~Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.~~The amendments in this ASU require entities to provide information about amounts reclassified out of accumulated other comprehensive income by component, and to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, or cross-reference to other disclosures, based on certain criteria. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012; early adoption is permitted. We have adopted this guidance which did not materially impact the presentation of our financial condition, results of operation and disclosures.

~~In addition, we have evaluated and adopted the guidance of ASU No. 2012-02,~~~~Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment~~~~issued in July 2012~~. The amendments in this ASU give entities the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that an indefinite-lived intangible asset is impaired. If impairment is indicated, the fair value of the indefinite–lived intangible asset should be determined and the quantitative impairment test should be performed by comparing the fair value with the carrying amount in accordance with Subtopic 350-30; if impairment is not indicated, the entity is not required to take further action. The adoption of this ASU did not impact the presentation of our financial condition, results of operation and disclosures.

As of ~~September 30, 2013,~~March 31, 2014, the results of operations for campuses that ~~are held for sale or that~~ have ceased operations or schools that were sold, and are considered distinct operations as defined under FASB ASC Topic ~~205 –~~205—Presentation of Financial Statements, are presented within discontinued operations.

During the ~~third~~first quarter of ~~2013,~~2014, we ~~made~~completed the ~~decision~~teach-out of nine campuses (see Note 2, “Basis of Presentation” of the notes to ~~commit to a plan of sale of our International Schools. Accordingly, the assets and liabilities for these schools are included in the assets and liabilities of discontinued operations on~~ our unaudited consolidated ~~balance sheets~~financial statements). All current and prior period financial statements include the results of operations ~~are reported within~~and financial position for these campuses as components of discontinued operations. As we anticipate the sale of these assets to be completed within one year, we have recorded the assets and liabilities related to these schools within current assets and liabilities of discontinued operations as of September 30, 2013.

The summary of unaudited results of operations for our discontinued operations for the quarters ended March 31, 2014 and ~~years to date ended September 30,~~ 2013 ~~and 2012~~ were as follows (dollars in thousands):

Assets and liabilities of discontinued operations on our unaudited consolidated balance sheets as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 include the following (dollars in thousands):


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Assets:
Current assets:
Cash and cash equivalents	$	—	$	63	$	199	$	182
Receivables, net		232		571		237		368
Other current assets		50		247		87		600
Deferred income tax assets, net		3,447		3,447
Assets held for sale		250,368		149,347

Total current assets		254,097		153,675		523		1,150

Non-current assets:
Property and equipment, net		5		276		12		396
Deferred income tax assets		17,446		17,446
Other assets, net		1,263		1,604		1,394		1,458
Assets held for sale		—		83,667

Total assets of discontinued operations	$	272,811	$	256,668	$	1,929	$	3,004

Liabilities:
Current liabilities:
Accounts payable	$	239	$	32
Accrued expenses		143		710
Accounts payable and accrued expenses					$	216	$	790
Deferred tuition revenue		—		142		—		217
Remaining lease obligations		12,575		9,174		15,202		13,048
Liabilities held for sale		83,018		65,962

Total current liabilities		95,975		76,020		15,418		14,055

Non-current liabilities:
Remaining lease obligations		22,354		33,103		32,225		30,852
Other		201		223		—		3,262
Liabilities held for sale		—		2,152

Total liabilities of discontinued operations	$	118,530	$	111,498	$	47,643	$	48,169

~~The major components of assets and liabilities held for sale presented above were (dollars in thousands):~~

A number of the campuses that ceased operations have remaining lease obligations that expire over time with the latest expiration in ~~2019.~~2020. A liability is recorded representing the fair value of the remaining lease obligation at the time the space is no longer being utilized. Changes in our future remaining lease obligations, which are reflected within current and non-current liabilities of discontinued operations on our unaudited consolidated balance sheets, for the quarters ended March 31, 2014 and ~~years to date ended September 30,~~ 2013 ~~and 2012,~~ were as follows (dollars in thousands):

Cash and cash equivalents from our continuing operations consist of the following as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Cash	$	19,062	$	112,759	$	175,739	$	155,756
Corporate bonds						1,006		—
Money market funds		11,862		121		87,443		163,005

Cash and cash equivalents, unrestricted		30,924		112,880		264,188		318,761

Restricted cash		12,564		97,878		12,948		12,564

Total cash and cash equivalents	$	43,488	$	210,758	$	277,136	$	331,325

Restricted cash balances asprovide securitization for our outstanding letters of ~~September 30, 2013 and December 31, 2012 are comprised of (dollars in thousands):~~credit.

Investments from our continuing operations consist of the following as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


	September 30, 2013									March 31, 2014
			Gross Unrealized									Gross Unrealized
	Cost		Gain		(Loss)			Fair Value		Cost		Gain		(Loss)			Fair Value
Short-term investments (available for sale):
Commercial paper										$	15,641	$	—	$	(5	)	$	15,636
Corporate bonds											5,443		—		(7	)		5,436
U.S. Treasury bills	$	52,202	$	8	$	—		$	52,210		17,253		1		—			17,254
															��
Total short-term investments											38,337		1		(12	)		38,326

Long-term investments (available for sale):
Corporate bonds											8,723		—		(17	)		8,706
Municipal bond		7,850		—		(468	)		7,382		7,850		—		(476	)		7,374

Total long-term investments											16,573		—		(493	)		16,080

Total investments (available for sale)	$	60,052	$	8	$	(468	)	$	59,592	$	54,910	$	1	$	(505	)	$	54,406


	December 31, 2012
			Gross Unrealized
	Cost		Gain		(Loss)			Fair Value
Short-term investments (available for sale):
U.S. Treasury bills	$	63,879	$	4	$	(7	)	$	63,876
Long-term investments (available for sale):
Municipal bond		7,850		—		(468	)		7,382

Total investments (available for sale)	$	71,729	$	4	$	(475	)	$	71,258


	December 31, 2013
			Gross Unrealized
	Cost		Gain		(Loss)			Fair Value
Short-term investments (available for sale):
U.S. Treasury bills	$	31,591	$	1	$	—		$	31,592
Long-term investments (available for sale):
Municipal bond		7,850		—		(476	)		7,374

Total investments (available for sale)	$	39,441	$	1	$	(476	)	$	38,966

In the table above, unrealized holding ~~losses~~gains/(losses) as of ~~September 30, 2013~~March 31, 2014 relate to short-term investments and our long term investment in corporate bonds that have been in a continuous unrealized ~~loss~~gain/(loss) position for less than one year. The table also includes an unrealized holding ~~loss,~~losses, greater than one year, that ~~relates~~relate to our long-term investment in a municipal bond, which is an

auction rate security (“ARS”). When evaluating our ~~investment~~investments for possible impairment, we review factors such as the length of time and extent to which fair value has been less than the cost basis, the financial condition of the investee, and our ability and intent to hold the investment for a period of time that may be sufficient for anticipated recovery in fair value. The unrealized loss attributable to our municipal bond at ~~September 30, 2013~~March 31, 2014 is attributable to the continued lack of activity in the ARS market, exposing this investment to liquidity risk.

Our municipal bond is comprised of debt obligations issued by states, cities, counties and other governmental entities, which earn federally tax-exempt interest. Our investment in ARS has a stated term to maturity of greater than one year, and as such, we classify our investment in ARS as non-current on our unaudited consolidated balance sheets within other assets. Auctions can “fail” when the number of sellers of the security exceeds the buyers for that particular auction period. In the event that an auction fails, the interest rate resets at a rate based on a formula determined by the individual security. The ARS for which auctions have failed continues to accrue interest and is auctioned on a set interval until the auction succeeds, the issuer calls the security, or it matures. As of ~~September 30, 2013,~~March 31, 2014, we have determined this investment is at risk for impairment due to the nature of the liquidity of the market over the past year. Cumulative unrealized losses as of ~~September 30, 2013~~March 31, 2014 amount to $0.5 million and are reflected within accumulated other comprehensive ~~income (loss)~~loss as a component of stockholders’ equity. We believe this impairment is temporary, as we do not intend to sell the investment and it is unlikely we will be required to sell the investment before recovery of its amortized cost basis.

FASB ASC Topic ~~820 –~~820—Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active ~~markets;~~markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of ~~September 30, 2013,~~March 31, 2014, we held investments that are required to be measured at fair value on a recurring basis. These investments (available-for-sale) consist of commercial paper, corporate bonds and U.S. ~~Treasury~~treasury bills that are publicly traded and for which market prices are readily ~~available.~~

available, and our investment in a municipal bond. Available for sale securities included in Level 2 are estimated based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. As of ~~September 30, 2013,~~March 31, 2014, we reclassified our investments in U.S. Treasury bills from Level 1 classification to Level 2. The fair value for these investments was not based on identical assets as of March 31, 2014 which resulted in this reclassification. Our investment in a municipal bond is ~~classified~~categorized as ~~available-for-sale~~Level 3 and ~~reflected at fair value. The auction event for this investment has failed for multiple years. The~~ fair value ~~of this security~~ is estimated utilizing a discounted cash flow analysis as of ~~September 30, 2013. This analysis~~March 31, 2014 which considers, among other items, the collateralization underlying the security investment, the credit worthiness of the counterparty, the timing of expected future cash flows, and the expectation of the

next time the security is expected to have a successful auction. The auction event for our municipal bond investment has failed for multiple years. This security was also compared, when possible, to other observable market data with similar characteristics.

Investments measured at fair value on a recurring basis subject to the disclosure requirements of FASB ASC Topic 820—Fair Value Measurementsat ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 were as follows (dollars in thousands):


									As of March 31, 2014
									Level 1		Level 2		Level 3		Total
Commercial paper									$	—	$	15,636	$	—	$	15,636
Corporate bonds										—		14,142		—		14,142
U.S. Treasury bills										—		17,254		—		17,254
Municipal bond										—		—		7,374		7,374

Totals									$	—	$	47,032	$	7,374	$	54,406


	As of December 31, 2012								As of December 31, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
U.S. Treasury bills	$	63,876	$	—	$	—	$	63,876	$	31,592	$	—	$	—	$	31,592
Municipal bond		—		—		7,382		7,382		—		—		7,374		7,374

Totals	$	63,876	$	—	$	7,382	$	71,258	$	31,592	$	—	$	7,374	$	38,966

The following table presents a rollforward of our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined in FASB ASC Topic 820 for the ~~year to date~~quarter ended ~~September 30, 2013~~March 31, 2014 (dollars in thousands):

During the fourth quarter of ~~2012,~~2013, we entered into a ~~revolving credit facility pursuant to a~~$70.0 million Amended and Restated Credit Agreement (the “Credit Agreement”) with BMO Harris Bank N.A., in its capacities as the initial lender and letter of credit issuer thereunder and the administrative agent for the lenders which from time to time may be parties to the Credit Agreement. The revolving credit facility under the Credit Agreement is scheduled to mature on ~~January 31, 2014.~~June 30, 2016. As of ~~September 30, 2013,~~March 31, 2014, there were no outstanding borrowings under the ~~Credit Agreement.~~revolving credit facility.

Student receivables represent funds owed to us in exchange for the educational services provided to a student. Student receivables are reflected net of an allowance for doubtful accounts and net of deferred tuition revenue. Student receivables, net are reflected on our unaudited consolidated balance sheets as components of both current and non-current assets. We do not accrue interest on past due student receivables; interest is recorded only upon collection.

Generally, a student receivable balance is written off once it reaches greater than 90 days past due. Although we analyze past due receivables, it is not practical to provide an aging of our non-current student receivable balances as a result of the methodology utilized in determining our earned student receivable balances. Student receivables are recognized on our unaudited consolidated balance sheets as they are deemed earned over the course of a student’s program and/or term, and therefore cash collections are not applied against specifically dated transactions.

~~We do not accrue interest on past due student receivables; interest is recorded only upon collection. Interest rates are determined at the time a payment plan is extended to a student.~~

Our standard student receivable allowance estimation methodology considers a number of factors that, based on our collection experience, we believe have an impact on our repayment risk and ability to collect student receivables. Changes in the trends in any of these factors may impact our estimate of the allowance for doubtful accounts. These factors include, but are not limited to: internal repayment history, repayment practices of previous extended payment programs and information provided by a third-party institution who previously offered similar extended payment programs, changes in the current economic, legislative or regulatory environments and credit worthiness of our students. These factors are monitored and assessed on a regular basis. Overall, our allowance estimation process for student receivables is validated by trending analysis and comparing estimated and actual performance. The repayment risk associated with student receivables under extended payment plans is generally higher than those not related to extended payment plans; as such, the allowance for doubtful accounts for these student receivables as a percentage of outstanding student receivables is higher.

To assist students in completing their educational programs, we had previously provided extended payment plans to certain students and also had loan agreements with Sallie Mae and Stillwater National Bank and Trust Company (“Stillwater”) which required us to repurchase loans originated by them to our students after a certain period of time. We ~~no longer provide~~discontinued providing extended payment plans to students during the first quarter of 2011 and the recourse loan agreements with Sallie Mae and Stillwater ended in March 2008 and April 2007, respectively.

As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, the amount of non-current student receivables under these programs, net of allowance for doubtful accounts and net of deferred tuition revenue, was ~~$5.6~~$4.8 million and ~~$6.8~~$5.2 million, respectively.

Changes in our current and non-current receivables allowance for the quarters ended March 31, 2014 and ~~years to date ended September 30,~~ 2013 ~~and 2012~~ were as follows (dollars in thousands):

The carrying amount reported in our unaudited consolidated balance sheets for the current portion of student receivables approximates fair value because of the nature of these financial instruments as they generally have short maturity periods. It is not practicable to estimate the fair value of the non-current portion of student receivables, since observable market data is not readily available, and no reasonable estimation methodology exists.

During the third quarter of 2013, in conjunction with the quarterly review process, we concluded that certain indicators, including variation from previously projected revenue results, existed to suggest the Le Cordon Bleu trade name was at risk of its carrying value exceeding its respective fair value as of September 30, 2013. A significant amount of judgment is involved in determining if an indicator of impairment has occurred.

~~We calculate the fair value of each of our trade names in accordance with FASB ASC Topic 820 –~~ ~~Fair Value Measurement~~, by utilizing the relief from royalty method under the income approach. The determination of estimated fair value for trade names requires significant estimates and assumptions, and as such, these fair value measurements are categorized as Level 3 as defined in FASB ASC Topic 820. The assumptions utilized in determining the fair value of the Le Cordon Bleu trade name included utilizing projected revenue growth rates, a discount rate of approximately 30%, a royalty rate of 4.5%, and a terminal growth rate of approximately 3%. As a result of our assessment, we recorded a $10.7 million trade name impairment charge, resulting in a remaining fair value of $27.3 million for the Le Cordon Bleu trade name. Due to the inherent uncertainty involved in

deriving those estimates, actual results could differ from those estimates. We evaluate the merits of each significant assumption used, both individually and in the aggregate, to determine the fair value for reasonableness. Although we believe our projected future operating results and cash flows and related estimates regarding fair value are based on reasonable assumptions, historically projected operating results and cash flows have not always been achieved. However, for sensitivity purposes, and with all other inputs remaining equal, a 0.5% change in the royalty rate assumed in the calculation would result in a change in the fair value of approximately $3.0 million. A 1% change in the discount rate utilized in the calculation would result in a change in the fair value of approximately $0.3 million. We continue to monitor the operating results and revenue projections related to our trade names on a quarterly basis for signs of possible further declines in estimated fair value and trade name impairment.

The current quarter impairment is in addition to the amounts recorded in the second quarter of 2013 of $2.3 million and $1.7 million for the Le Cordon Bleu and Sanford-Brown trade names, respectively. We concluded that no indicators for the remaining goodwill and long-lived assets existed during the third quarter of 2013 that would suggest that it is more likely than not that these assets would be impaired.

~~During the current year to date, we~~Reductions in force have been carried out ~~reductions in force~~ related to the ~~continued~~ reorganization of our corporate and campus functions to better align with current total ~~enrollments. Most notably, we have recorded charges within our Career Schools segments~~enrollments and our corporate functions as we continue to align our overall management structure. Additionally, during the third quarter of 2013 we announced the teach out of SBI White Plains, currently reported within Health Education. Severance and related costs of $1.7 million were recorded during the third quarter of 2013 as a result of all of these actions.

~~During 2012, we~~decisions made ~~the decision~~in previous years to teach out a number of campuses, meaning gradually close the campuses through an orderly process. We anticipate that a majority of ~~these~~the campus closures will be completed by the ~~second~~third quarter of 2014. Additionally, during the fourth quarter of 2012, we made the decision to carry out a reduction in force as we reorganize our campus and corporate functions to common operating structures across our ground campuses, most notably within our Career Schools, as well as to better align with current total enrollments.

The following table details the changes in our accrual for severance and related costs associated with ~~all of~~ these restructuring events for our continuing operations during the ~~year to date~~quarters ended ~~September 30,~~March 31, 2014 and 2013 (dollars in thousands):

The current portion of the accrual for severance and related charges was ~~$5.2~~$2.5 million and ~~$7.5~~$2.3 million as of ~~September 30,~~March 31, 2014 and March 31, 2013, ~~and December 31, 2012,~~ respectively, which is recorded within current accrued ~~expenses –~~ expenses—payroll and related benefits; the long-term portion of $1.5 million and ~~$2.7~~$1.9 million, respectively, is recorded within other non-current ~~liabilities on our unaudited consolidated balance sheets.~~liabilities. In addition, as of ~~September 30,~~

~~2013 and December~~March 31, ~~2012,~~2014, we have accrued approximately ~~$2.0~~$1.4 million ~~and $0.3 million, respectively,~~ related to retention bonuses that have been offered to certain employees. These amounts ~~have been~~will be recorded ratably over the period the employees are ~~retained.~~retained; $0.3 million was recorded during the quarter ended March 31, 2014.

~~In addition~~During the first quarter of 2014, nine of our campuses completed their teach-out activities, seven of the nine campuses had remaining lease obligations related to their facilities. The charge recorded during the ~~charges detailed above, a~~current quarter related to these discontinued operations was approximately $8.1 million, which represents the net present value of our remaining lease obligation less an estimated amount for sublease income and was recorded within loss from discontinued operations for the current quarter. A number of ~~these~~our teach-out campuses that have not yet closed will have remaining lease obligations following the eventual campus closure, with the longest lease term being through 2021. The total ~~gross~~estimated charge related to the remaining lease ~~obligations~~obligation for these ~~campuses~~leases, once ~~they complete~~ the ~~close process is expected to approximate $77.0 million, which includes amounts for base rent and estimated expenses for certain occupancy charges such as common area maintenance. At the time each~~ campus completes the close process, ~~a charge will be recorded representing the net present value of the remaining~~and adjusted for possible lease ~~obligation reduced by an estimated amount for~~buyouts and sublease ~~income.~~assumptions is approximately $20.0 to $25.0 million. The ~~final~~ amount related to each campus will be ~~finalized~~recorded at each campus closure ~~date.~~date based on current estimates and assumptions related to the amount and timing of sublease income.

An accrual for estimated legal fees and settlements of ~~$38.5~~$28.9 million and ~~$5.8~~$20.3 million at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, respectively, is presented within other current liabilities on our unaudited consolidated balance sheets. The increase in the accrual as of September 30, 2013 is primarily related to the preliminary settlements reached in the Securities Litigation and Shareholder Derivative Actions and Demands disclosed below. As of September 30, 2013, a receivable of $32.5 million was recorded for insurance recoveries related to these matters and is reflected within other current receivables on our unaudited consolidated balance sheets.

We record a liability when we believe that it is both probable that a loss will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least quarterly, developments in our legal matters that could affect the amount of liability that was previously accrued, and make adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. We may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (1) if the damages sought are indeterminate; (2) if the proceedings are in early stages; (3) if there is uncertainty as to the outcome of pending appeals, motions, or settlements; (4) if there are significant factual issues to be determined or resolved; and (5) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any.

We are, or were, a party to the following legal proceedings that ~~are~~we consider to be outside the scope of ordinary routine litigation incidental to our business. Due to the inherent uncertainties of litigation, we cannot

predict the ultimate outcome of these matters. An unfavorable outcome of any one or more of these matters could have a material adverse impact on our business, results of operations, cash flows and financial position.

Ross, et al. v. Career Education Corporation, et al. On January 13, 2012, a class action complaint was filed in the U.S. District Court for the Northern District of Illinois, naming the Company and various individuals as defendants and claiming that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) by making material misstatements in and omitting material information from the Company’s public disclosures concerning its campuses’ job placement rates and its compliance with accreditation standards. The complaint further claimed that the individual defendants violated Section 20(a) of the Exchange Act by virtue of their positions as control persons of the Company. Plaintiff ~~asks~~asked for unspecified amounts in damages, interest, and costs, as well as ancillary relief. On March 23, 2012, the Court appointed KBC Asset Management NV, the Oklahoma Police Pension & Retirement Systems, and the Oklahoma Law Enforcement Retirement System, as lead plaintiffs in the action. ~~On May 3, 2012, lead~~Lead plaintiffs subsequently filed ~~a consolidated~~an amended complaint, asserting the same claims alleged in the initial complaint and ~~naming the Company and two former executive officers as defendants. Lead plaintiffs seek~~seeking damages on behalf of all persons who purchased the Company’s

common stock between February 19, 2009 and November 21, 2011 (the “Class”). On October 30, 2012, the Court ruled on defendants’ motion to dismiss, granting it as to one of the former executive officer defendants and denying it as to the other defendants. On January 28, 2013, defendants filed answers to the consolidated amended complaint. Defendants have denied and continue to deny each and all of the claims and contentions alleged by plaintiffs in the action and all charges of wrongdoing or liability against them.

On June 12, 2013, the parties agreed to settle the Ross litigation, subject to final Court approval and settlement of ~~the~~certain shareholder derivative actions and subsequent related claims ~~described below (“Proposed~~(the “Derivative Settlements”). As previously disclosed, the Derivative ~~Settlement”).~~Settlements received Court approval and were dismissed with prejudice in the first quarter of 2014. Under the Derivative Settlements, the Company’s directors’ and officers’ liability insurers have paid $10.0 million towards the settlement of this litigation.

On November 6, 2013, the Court entered an order preliminarily approving the Ross settlement. On April 16, 2014, the Court finally approved the settlement and dismissed the action with prejudice. Pursuant to the terms of the Ross settlement agreement, the ~~plaintiff class~~Class will receive a total of $27.5 million in consideration of the proposed settlement and ~~for~~ the ~~benefit of the class members participating in the settlement. We believe it is probable that the~~parties will release all claims. The Company’s directors’ and officers’ liability insurers ~~will pay~~paid $22.5 million of the settlement amount, $10.0 million of which iswas funded pursuant to ~~be funded by~~ the ~~terms of~~Derivative Settlements discussed above, and the ~~Proposed Derivative Settlement, and therefore recorded a receivable for this amount in the second quarter of 2013. The~~ Company ~~may initially pay~~paid the remaining $5.0 ~~million for the benefit of the Class.~~million. However, the Company ~~anticipates~~is seeking recovery of ~~the remaining $5.0 million~~that amount from one of its insurers, Axis Insurance Company (“Axis”), but has not recorded a receivable for this additional amount as it is not deemed probable as of ~~September 30, 2013.~~March 31, 2014. As described below, Axis is seeking a declaration of no coverage. In ~~exchange for~~connection with the ~~$27.5 million cash consideration, among other things,~~Ross settlement, the ~~lead plaintiffs will dismiss the litigation~~Company entered into an additional settlement on April 15, 2014 with ~~prejudice and the parties will release all claims. On October 31, 2013, plaintiffs moved for preliminary Court approval~~certain members of the ~~settlement reached by~~Class pursuant to which the ~~parties.~~Company expects to pay approximately $3.8 million. The Company is seeking recovery of this amount from Axis.

~~Bangari~~Axis Insurance Company v. ~~Lesnik,~~Career Education Company, et al. On December ~~7, 2011,~~11, 2013, Axis Insurance Company filed a ~~derivative~~declaratory judgment action ~~was filed~~ in the Circuit Court of Cook County, Chancery Division, ~~on behalf of~~naming the Company ~~naming the Company’s Board of Directors at that time~~and various individuals as ~~individual defendants and the Company as a nominal defendant. Plaintiff alleges breach of fiduciary duty and abuse of control by the individual~~ defendants in connection with the Company’s alleged ongoing failure to have proper internal controls in place to appropriately determine its campuses’ placement rates or to comply with relevant accreditation standards regarding placement practices and determinations. Plaintiff asks for unspecified amounts in damages, interest, and costs, as well as ancillary relief. On February 10, 2012, defendants filed motions to dismiss or stay the complaint. On August 21, 2012, the Court denied defendants’ motions to dismiss, and granted defendants’ request for a stay. A status hearing is scheduled for November 5, 2013, at which a motion for a stay of proceedings pending approval of the Proposed Derivative Settlement described below will be presented to the Court.

~~Cook v. McCullough, et al.~~ ~~On December 22, 2011, a derivative action was filed in the U.S. District Court~~coverage for the ~~Northern District~~recently settled securities class action and shareholder derivative actions. Axis seeks a declaration of ~~Illinois on behalf of~~no coverage. On March 11, 2014, the Company ~~naming the Company’s Board of Directors at that time as well as various current~~ and ~~former officers as individual defendants and the Company as a nominal defendant. Plaintiff alleges breach of fiduciary duty, abuse of control and gross mismanagement by all of~~ the individual defendants ~~based on allegations similar~~responded to ~~those~~Axis’s complaint and asserted in~~Bangari~~, described above, and on defendants’ alleged failure to prevent the Company’s disclosure of allegedly misleading statements relating to placement rates. Plaintiff also asserts a claim of unjust enrichment against certain individual defendants due to their receipt of incentive-based compensation based on allegedly inflated short-term financial performance. Plaintiff asks for unspecified amounts in damages, interest, and costs, as well as ancillary relief. On March 16, 2012, defendants filed motions to dismiss or stay the complaint. The Court granted the motions to stay pending resolution of the motions to dismiss. On August 13, 2012, the Court denied defendants’ motions to dismiss and ordered the parties to engage in certain preliminary discovery. Defendants filed answers to the complaint on October 22, 2012. On October 31, 2013, plaintiff moved for preliminary Court approval of the Proposed Derivative Settlement described below.

~~Alex v. McCullough, et al.~~ On November 5, 2012, a derivative action was filed in the U.S. District Court for the Northern District of Illinois on behalf of the Company naming the Company’s Board of Directors at that time as well as various current and former officers as individual defendants and the Company as a nominal defendant. Plaintiff alleges breach of fiduciary duty, waste of corporate assets and unjust enrichment by all of the individual defendants based on allegations similar to those asserted in~~Bangari~~ ~~and~~~~Cook~~~~, described above. In addition, in connection with the Company’s reporting of placement rates, plaintiff also asserts violations of Sections 10(b)~~

and 20(a) of the Exchange Act against certain individual defendants. Plaintiff asks for unspecified amounts in damages, interest, and costs, as well as ancillary relief. On September 17, 2013, the Court stayed the case in light of the parties’ continuing settlement discussions. On October 31, 2013, the~~Cook~~ ~~plaintiff moved for preliminary Court approval of the Proposed Derivative Settlement described below, which includes this action.~~

On May 24, 2013, the Company’s Board of Directors formed a Special Committee for the purpose of conducting an independent inquiry with respect to the Proposed Derivative Settlement. The Board of Directors delegated to the Special Committee the full authority to take such actions as the Special Committee deems appropriate and in the best interests of the Company and its shareholders regarding such Proposed Derivative Settlement.

On June 12, 2013, the parties to the derivative actions described above and subsequent related claims (“Derivative Litigation”) agreed to the Proposed Derivative Settlement, subject to agreement to corporate governance terms and Court approval,counterclaims pursuant to which the ~~Company’s directors’ and officers’ liability insurers will pay the~~ Company ~~$20.0 million,~~claims approximately $10.0 million ~~of which is to be applied~~in coverage. On April 22, 2014, Axis responded to the settlement of the securities litigation described above. With the remaining $10.0 million, the Company will be required to pay $5 million in attorneys’ fees and expenses to derivative plaintiffs’ counsel, subject to Court approval. Any net recovery from the Proposed Derivative Settlement may be used by the Company for any purpose. In exchange for this cash consideration, among other things, plaintiffs will dismiss the Derivative Litigation with prejudice and the parties will release all claims.Company’s counterclaims.

~~Amador,~~Abarca v. California Culinary Academy, Inc., et al.(filed June 3, 2011; 115 plaintiffs);Andrade, et al. v. California Culinary Academy, ~~and Career Education Corporation; Adams,~~Inc., et al(filed June 15, 2011; 31 plaintiffs);Aprieto, et al. v. California Culinary Academy ~~and Career Education Corporation~~~~. On September 27, 2007, Allison Amador and 36 other current and former students of the~~(filed August 12, 2011; five plaintiffs);Coleman, et al. v. California Culinary Academy ~~(“CCA”)~~ (filed ~~a complaint~~January 18, 2013; two plaintiffs). These four actions are pending in the ~~California~~San Francisco County Superior Court ~~in San Francisco. Plaintiffs plead their original complaint as a putative class action~~ and ~~allege four causes of action: fraud;~~generally allege: fraud, constructive ~~fraud;~~fraud, violation of the California Unfair Competition ~~Law; and~~Law, violation of the California Consumer Legal Remedies ~~Act.~~Act, breach of contract and violation of the repealed California Education Code. Plaintiffs contend that ~~CCA~~California Culinary Academy (“CCA”) made a variety of misrepresentations to

them, primarily oral, during the admissions process. The alleged misrepresentations relate generally to the school’s reputation, the value of the education, the competitiveness of the admissions process, and the students’ employment prospects upon graduation, including the accuracy of statistics published by CCA.

On April 3, 2008, the same counsel representing plaintiffs in the Amador action filed the Adams action on behalf of Jennifer Adams and several other unnamed members of the Amador putative class. The Adams action also was styled as a class action and was based on the same allegations underlying the Amador action and attempted to plead the same four causes of action pled in the Amador action. The Adams action was deemed related to the Amador action and was being handled by the same judge.

The parties executed a formal settlement agreement as of November 1, 2010. On April 18, 2012, the Court issued an order granting final approval of the settlement and on April 19, 2012, the Court entered a final judgment on the settlement.

~~On June 3, 2011, the same attorneys representing the class in the Amador action filed a separate complaint in the San Francisco County Superior Court entitled~~ ~~Abarca v. California Culinary Academy, Inc., et al~~~~, on behalf of 115 individuals. On June 15, 2011, the same attorneys filed another action in the San Francisco County Superior Court entitled~~ ~~Andrade, et al. v. California Culinary Academy, Inc., et al.~~~~, on behalf of another 31 individuals. On August 12, 2011, plaintiffs’ counsel filed a third action on behalf of five individuals entitled~~~~Aprieto, et al. v. California Culinary Academy~~. New counsel has substituted in to represent 78 of the individuals and the Court has entered orders allowing class counsel to withdraw from representing the remaining individuals. On January 18, 2013, new counsel filed a complaint entitled~~Coleman, et al. v. California Culinary Academy~~ on

~~behalf of two individuals. All of the plaintiffs in these four suits are opt outs in the~~ ~~Amador~~ action and/or non-class members, and therefore not subject to the Amador settlement. None of these four suits are being prosecuted as a class action. They each allege the same claims as were previously alleged in the Amador action, plus claims for breach of contract and violations of the repealed California Education Code. The plaintiffs in these ~~cases~~actions seek damages, including consequential damages, punitive damages and attorneys’ fees.

All of the plaintiffs in these four actions either opted out of or did not fit the class definition in a previously settled class action captionedAmador, et al. v. California Culinary Academy and Career Education Corporation; Adams, et al. v. California Culinary Academy and Career Education Corporation. None of these four actions are being prosecuted as a class action. All of these cases have been deemed related and have been transferred to the same judge who handled theAmador case.

~~Claims by individual plaintiffs who~~Currently there are ~~not represented by counsel have been dismissed. There are 80~~79 remaining plaintiffs who have not settled or dismissed their claims. ~~The Company~~CCA has filed answers to the complaints filed by the remaining 8079 individual plaintiffs. The parties participated in a mediation session on April 2, 2014 at which the Company agreed to settle with 77 of the remaining plaintiffs. The Company has agreed to pay approximately $2.2 million plus an as yet undetermined amount of attorneys’ fees. Accordingly, for the quarter ended March 31, 2014, the Company has reserved $3.0 million which is the current estimate of the total amount of the settlement and based on its assessment that the settlement is probable.

The ~~Court has set a trial date on eight test~~parties have agreed to arbitrate one of the remaining cases ~~for March 24, 2014. The test cases~~and the other case will be ~~tried to the Court and not to~~set for trial at a ~~jury. The parties are engaged in discovery relating to the test cases.~~later date.

Because of the many questions of fact and law that may arise ~~as discovery and pre-trial proceedings progress,~~in the ~~outcome of the~~ ~~Abarca~~, ~~Andrade, Aprieto~~ ~~and~~~~Coleman~~ ~~legal proceedings~~future with respect to the two remaining ~~plaintiffs~~cases, the outcome in those cases is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for these actions because these matters are in their early stages and involve many unresolved issues of fact and law.uncertain. Accordingly, we have not recognized any future liability associated with these actions.

Enea, et al. v. Career Education Corporation, California Culinary Academy, Inc., SLM Corporation, and Sallie Mae, Inc.Plaintiffs filed this putative class action in the Superior Court State of California, County of San Francisco, on or about June 27, 2013. Plaintiffs allege that CCA materially misrepresented the placement rates of its graduates, falsely stated that admission to the culinary school was competitive and that the school had an excellent reputation among restaurants and other food service providers, represented that the culinary schools were well-regarded institutions producing skilled graduates who employers eagerly hired, and lied by telling students that the school provided graduates with career placement services for life. The plaintiffs or putative class members here co-signed the loans for students to attend CCA, some of whom wereAmador class members. Plaintiffs seek restitution, damages, civil penalties and attorneys’ fees.

Defendants filed a motion to dismiss and to strike class action allegations on October 31, 2013. ~~Discovery is stayed pending~~A hearing on the motions was conducted on March 14, 2014. Thereafter, the Court issued two separate orders granting the motion to strike the class allegations and the motion to dismiss without leave to amend. Plaintiffs filed a ~~ruling on those motions.~~motion seeking leave to file a third amended complaint and/or for reconsideration of the Court’s orders.

Because of the many questions of fact and law that may arise in the future, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action because, among other things, our potential liability depends on whether a class is certified and, if so, the composition and size of any such class, as well as on an assessment of the appropriate measure of damages if we were to be found liable. Accordingly, we have not recognized any liability associated with this action.

Surrett, et al. v. Western Culinary Institute, Ltd. and Career Education Corporation. On March 5, 2008, a complaint was filed in Portland, Oregon in the Circuit Court of the State of Oregon in and for Multnomah County naming Western Culinary Institute, Ltd. and the Company as defendants. Plaintiffs filed the complaint individually and as a putative class action and alleged two claims for equitable relief: violation of Oregon’s Unlawful Trade Practices Act (“UTPA”) and unjust enrichment. Plaintiffs filed an amended complaint on April 10, 2008, which added two claims for money damages: fraud and breach of contract. Plaintiffs allege that Western Culinary Institute, Ltd. (“WCI”) made a variety of misrepresentations to them, relating generally to

WCI’s placement statistics, students’ employment prospects upon graduation from WCI, the value and quality of an education at WCI, and the amount of tuition students could expect to pay as compared to salaries they could expect to earn after graduation. WCI subsequently moved to dismiss certain of plaintiffs’ claims under Oregon’s

UTPA; that motion was granted on September 12, 2008. On February 5, 2010, the Court entered a formal Order granting class certification on part of plaintiff’s UTPA and fraud claims purportedly based on omissions, denying certification of the rest of those claims and denying certification of the breach of contract and unjust enrichment claims. The class consists of students who enrolled at WCI between March 5, 2006 and March 1, 2010, excluding those who dropped out or were dismissed from the school for academic reasons.

Plaintiffs filed a Fifth Amended Complaint on December 7, 2010, which included individual and class allegations by Nathan Surrett. Class notice was sent on April 22, 2011, and the opt-out period expired on June 20, 2011. The class consisted of approximately 2,600 members. They are seeking tuition refunds, interest and certain fees paid in connection with their enrollment at WCI.

On May 23, 2012, WCI filed a motion to compel arbitration of claims by 1,062 individual class members who signed enrollment agreements containing express class action waivers. The Court issued an Order denying the motion on July 27, 2012. On August 6, 2012, WCI filed an appeal from the Court’s Order and on August 30, 2012, the Court of Appeals issued an Order granting WCI’s motion to compel the trial court to cease exercising jurisdiction in the case. ~~Thus, all~~The oral argument on the appeal is set for May 9, 2014. All proceedings with the trial court have been stayed pending the outcome of the appeal.

Because of the many questions of fact and law that have already arisen and that may arise in the future, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action because of the inherent difficulty in assessing the appropriate measure of damages and the number of class members who might be entitled to recover damages, if we were to be found liable. Accordingly, we have not recognized any liability associated with this action.

Vasquez, et al. v. California School of Culinary Arts, Inc. and Career Education Corporation. On June 23, 2008, a putative class action lawsuit was filed in the Los Angeles County Superior Court entitled Daniel Vasquez and Cherish Herndon v. California School of Culinary Arts, Inc. and Career Education Corporation. The plaintiffs allege causes of action for fraud, constructive fraud, violation of the California Unfair Competition Law and violation of the California Consumer Legal Remedies Act. The plaintiffs allege improper conduct in connection with the admissions process during the alleged class period. The alleged class is defined as including “all persons who purchased educational services from California School of Culinary Arts, Inc. (“CSCA”), or graduated from CSCA, within the limitations periods applicable to the alleged causes of action (including, without limitation, the period following the filing of the action).” Defendants successfully demurred to the constructive fraud claim and the Court has dismissed it. Defendants also successfully demurred to plaintiffs’ claims based on alleged violations of California’s former Private Postsecondary and Vocational Educational Reform Act of 1989 (“the Reform Act”). Plaintiffs’ motion for class certification was denied by the Court on March 6, 2012.

Plaintiffs’ counsel have filed eight separate but related “multiple plaintiff actions” originally involving a total of approximately 1,000 former students entitled Banks, et al. v. California School of Culinary Arts; Abrica v. California School of Culinary Arts; Aguilar, et al. v. California School of Culinary Arts; Alday v. California School of Culinary Arts; Ackerman, et al. v. California School of Culinary Arts; Arechiga, et al. v v.. California School of Culinary Arts; Anderson, et al., v. California School of Culinary Arts; and Allen v. California School of Culinary Arts. All eight cases are pending in the Los Angeles County Superior Court and the allegations in these cases are essentially the same as those asserted in theVasquez class action case. The individual plaintiffs in these cases seek compensatory and punitive damages, disgorgement and restitution of tuition monies received, attorneys’ fees, costs and injunctive relief. All of these cases have been deemed related to the Vasquez class action and therefore are pending before the same judge who is presiding over the Vasquez case.

On June 15, 2012, pursuant to a stipulation by the parties, the plaintiffs filed a consolidated amended complaint in the Vasquez action consolidating all eight of the separate actions referenced above. ~~Defendants’ response to the consolidated~~The complaint was ~~filed on July 13, 2012. The Court has lifted~~thereafter amended to add additional plaintiffs. As a result of these amendments, there were at one time approximately 1,438 plaintiffs, the ~~stay on actions that were consolidated~~majority of whom enrolled between 2003 and 2008 (about 10 of the ~~parties are now engaged~~plaintiffs enrolled in ~~discovery.~~2009 and 2010).

On June 22, 2012, defendants filed motions to compel arbitration of plaintiffs’ claims. On August 10, 2012, the Court granted the motions with respect to approximately 54 plaintiffs. Nine ~~of those individuals have filed~~ arbitration demands were filed before the American Arbitration Association, ~~to date. One~~one of ~~those arbitrations has been~~which was tried to a final award and ~~the~~eight of which were settled. The remaining ~~eight have settled.~~plaintiffs’ claims were settled prior to arbitration demands being filed. The total liability for all of these ~~nine arbitrations~~claims was an immaterial amount.

~~Defendants issued offers to compromise pursuant to~~ Following the ~~California Code~~resolution of ~~Civil Procedure to 1,438 individual plaintiffs, 346 of which were accepted. The total amount that has been or will be paid to eliminate~~ these claims, ~~is approximately $2.1 million. This aggregate amount was recorded in the third quarter of 2012~~other settlements, and the ~~majority~~voluntary dismissal of ~~the payments were made by September 30, 2012. There~~certain claims, there are ~~currently~~ approximately 1,047 ~~active~~remaining plaintiffs in the consolidated action.

~~Because~~The Company and plaintiffs’ counsel have executed an agreement regarding the framework for individual settlements with approximately 950 of the ~~many questions~~remaining individual plaintiffs. Pursuant to this settlement arrangement, defendants will pay a maximum of ~~fact and law that already have arisen and that may arise~~$17.5 million in the ~~future,~~aggregate to fund the ~~outcome~~individual plaintiff settlements, attorneys’ fees and administrative costs of ~~these legal proceedings is uncertain at this point. Based on information available~~the settlement, subject to ~~us at present, we cannot reasonably estimate~~certain excluded costs which defendants will be separately responsible for. The settlement amounts for each individual plaintiff will be determined by a ~~range~~third party. If any plaintiff decides not to accept the settlement, then the amount allocated to that plaintiff will be returned to defendants. Defendants have the right not to proceed with the settlement if a specified number of ~~potential loss, if any, for these actions with respect~~plaintiffs do not accept the settlement. Defendants’ liability pursuant to the ~~current plaintiffs because our possible~~settlement is estimated to be $15.5 million to $17.5 million; however, defendants do not have a reasonable basis to estimate where in that range the liability ~~depends~~is likely to be. Accordingly, for the quarter ended March 31, 2014, the Company is maintaining a reserve of $15.5 million based on anits assessment that the settlement is probable.

Approximately 97 of the ~~appropriate measure~~remaining plaintiffs are not within the purview of ~~damages, if we were~~the settlement arrangement described in the preceding paragraph. Any liability to these plaintiffs is expected to be ~~found liable. Accordingly, we have not recognized any liability associated with these actions except as described above.~~an immaterial amount.

United States of America, ex rel. Melissa Simms Powell, et al. v. American InterContinental University, Inc., a Georgia Corporation, Career Education Corp., a Delaware Corporation and John Doe Nos. 1-100. On July 28, 2009, we were served with a complaint filed in the U.S. District Court for the Northern District of Georgia, Atlanta Division. The complaint was originally filed under seal on July 14, 2008 by four former employees of the Dunwoody campus of our American InterContinental University on behalf of themselves and the federal government. On July 27, 2009, the Court ordered the complaint unsealed and we were notified that the U.S. Department of Justice declined to intervene in the action. When the federal government declines to intervene in a False Claims Act action, as it has done in this case, the private plaintiffs (or “relators”) may elect to pursue the litigation on behalf of the federal government and, if they are successful, receive a portion of the federal government’s recovery. The action alleges violations of the False Claims Act and promissory fraud, including allegedly providing false certifications to the federal government regarding compliance with certain provisions of the Higher Education Act and accreditation standards. Relators claim that defendants’ conduct caused the government to pay federal funds to defendants and to make payments to third-party lenders, which the government would not have made if not for defendants’ alleged violation of the law. Relators seek treble damages plus civil penalties and attorneys’ fees. ~~The lawsuit is currently in the discovery phase.~~ On July 12, 2012, the Court granted our motion to dismiss for a lack of jurisdiction, the claims related to incentive compensation and proof of graduation. Thus, the only claim that remains pending against defendants is based on relators’ contention that defendants misled the school’s accreditor, Southern Association of Colleges and Schools, during the accreditation process. On December 16, 2013, we filed a motion for summary judgment on a variety of substantive grounds.

Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action because the complaint does not seek a specified amount of damages and it is unclear how damages would be calculated, if we were to be found liable. Moreover, the case presents novel legal ~~issues and discovery is in its early stages.~~issues. Accordingly, we have not recognized any liability associated with this action.

United States of America, ex rel. Brent M. Nelson v. Career Education Corporation, Sanford-Brown, Ltd., and Ultrasound Technical Services, Inc. On April 18, 2013, wedefendants were served with aan amended complaint filed in the U.S. District Court for the Eastern District of Wisconsin. The original complaint was ~~originally~~ filed under seal on July 30, 2012 by a former employee of Sanford-Brown College Milwaukee on behalf of himself and the federal

government. On February 27, 2013, the Court ordered the complaint unsealed and we were notified that the U.S. Department of Justice declined to intervene in the action. After the federal government declined to intervene in this case, the relator elected to pursue the litigation on behalf of the federal government. If he is successful he will receive a portion of the federal government’s recovery. The ~~relator~~amended complaint was filed ~~an amended complaint~~by the relator on April 12, ~~2013. The amended complaint~~2013 and alleges violations of the False Claims Act, including allegedly providing false certifications to the federal government regarding compliance with certain provisions of the Higher Education Act and accreditation standards. Relator claims that defendants’ conduct caused the government to pay federal funds to defendants, and to make payments to third-party lenders, which the government would not have made if not for defendants’ alleged violation of the law. Relator seeks treble damages plus civil penalties and attorneys’ fees. On June 11, 2013, wedefendants filed a motion to dismiss the case on a variety of grounds. ~~Both~~The Court ruled on that motion, dismissing CEC from the ~~relator~~case and dismissing several of the ~~government have~~relator’s factual claims. On November 27, 2013, Sanford Brown, LTD., and Ultrasound Technical Services, Inc., the remaining Company defendants, filed ~~briefs in opposition to our~~a motion to ~~dismiss.~~dismiss the case for lack of subject matter jurisdiction due to prior public disclosures of the relator’s alleged claims. On March 17, 2014, the Court granted this motion in part, limiting the timeframe and geographical scope of the relator’s claims. The Court has ~~set~~yet to rule on the ~~case for jury trial beginning~~summary judgment motion filed on January 3, 2014 by the remaining Company defendants. On April 8, 2014, the Court postponed the April 14, ~~2014.~~2014 trial date pending its ruling on the summary judgment motion.

Because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action because the complaint does not seek a specified amount of damages and it is unclear how damages would be calculated, if we were to be found liable. Moreover, the case presents novel legal ~~issues and is in its early stages.~~issues. Accordingly, we have not recognized any liability associated with this action.

Wilson, et al. v. Career Education Corporation. On August 11, 2011, Riley Wilson, a former admissions representative based in Minnesota, filed a complaint in the U.S. District Court for the Northern District of Illinois. The two-count complaint asserts claims of breach of contract and unjust enrichment arising from our decision to terminate our ~~admissions representative~~Admissions Representative Supplemental Compensation (“ARSC”) Plan. In addition to his individual claims, Wilson also seeks to represent a nationwide class of similarly situated ~~Admissions Representatives~~admissions representatives who also were affected by termination of the plan. On October 6, 2011, we filed a motion to dismiss the complaint. On April 13, 2012, the Court granted our motion to dismiss in its entirety and dismissed plaintiff’s complaint for failure to state a claim. The Court dismissed this action with prejudice on May 14, 2012. On June 11, 2012, plaintiff filed a Notice of Appeal with the U.S. Court of Appeals for the Seventh Circuit appealing the final judgment of the trial court. Briefing was completed on October 30, 2012, and oral argument was held on December 3, 2012. On August 30, 2013, the Seventh Circuit affirmed the district court’s ruling on plaintiff’s unjust enrichment claim but reversed and remanded for further proceedings on plaintiff’s breach of contract claim. On September 13, 2013, we filed a petition for rehearing to seek review of the panel’s decision on the breach of contract claim and for certification of question to the Illinois Supreme ~~Court.~~ Court, but the petition was denied.

The ~~Seventh Circuit~~case now is on remand to the district court for further proceedings on the sole question of whether CEC’s termination of the ARSC Plan violated the implied covenant of good faith and fair dealing. CEC has ~~not ruled on our petition.~~answered the complaint, and the parties have exchanged initial disclosures. On February 19, 2014, the Court ordered the parties to commence fact discovery as to the issue of liability.

Because the matter ~~remains on appeal~~is in its early stages and because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on information available to us at present, we cannot reasonably estimate a range of potential loss, if any, for this action. Accordingly, we have not recognized any liability associated with this action.

Nimely, et al. v. Randstad General Partners, Randstad USA, Randstad Inhouse Services L.P., and Career Education Corporation. On December 30, 2012, April R. Nimely, a former hourly, non-exempt call center employee based in Illinois filed a putative class and collective action complaint in the U.S. District Court for the Northern District of Illinois against the Company and various entities of the staffing firm Randstad, which the Company used to supplement its own staff at some of its call centers. The complaint asserts claims under the Fair Labor Standards Act, the Illinois Minimum Wage Law, and the Illinois Wage Payment and Collection Act (“IWPCA”) arising from the alleged failure to pay wages for work performed before and after shifts and during breaks. The putative collective class was defined as “[a]ll persons who worked for ~~Defendants~~[d]efendants as telephone dedicated employees, however titled, who were compensated, in part or in full, on an hourly basis throughout the United States at any time between December 30, 2009 and the present who did not receive the full amount of overtime wages earned and owed to them.”

On February 27, 2013, defendants filed their answers to the complaint and motion to dismiss the IWPCA count of the complaint. On June 14, 2013, plaintiff filed her motion for class certification. The parties subsequently reached an agreement to settle the matter for an immaterial ~~amount and are in the process of finalizing the settlement documents. A status hearing is scheduled for~~amount. On November ~~8, 2013.~~

~~Sumrall and Tavares Vickers, et al. v. Career Education Corporation, International Academy of Merchandising & Design, Inc., d/b/a International Academy of Design and Technology and d/b/a IADT-Online.On April 25, 2013, a putative collection action was filed in the United States District Court for the Middle District of Florida~~.Plaintiffs alleged a cause of action under the Fair Labor Standards Act for unpaid overtime. Specifically, plaintiffs alleged they were misclassified as exempt employees and denied overtime compensation and/or required to work “off the clock.” The putative class was defined as including all admissions representatives employed by the Company and International Academy of Merchandising & Design, Inc., who worked in excess of forty hours per week from April 25, 2010, to the present. Plaintiffs sought to recover alleged unpaid wages, liquidated damages, prejudgment interest and attorneys’ fees, as well as declaratory relief. On May 30, 2013, defendants filed their answer and affirmative defenses, denying the plaintiffs’ claims.

~~On July 31,~~29, 2013, the ~~parties reached~~Court entered an ~~agreement to settle this matter, pursuant to which plaintiffs agreed to amend their complaint to remove any reference to a purported collective action, stipulate to the dismissal~~order granting preliminary approval of the ~~amended complaint, and sign a full and complete release~~settlement. On March 25, 2014, the Court granted final approval of ~~all claims and potential claims against the Company. In exchange, the Company agreed to pay each plaintiff a~~~~de minimis~~~~amount in back wages, liquidated damages, and attorneys’ fees. The Court approved~~ the settlement and dismissed the ~~amended complaint, with prejudice, on October 7, 2013.~~case.

In addition to the legal proceedings and other matters described above, we are also subject to a variety of other claims, suits and investigations that arise from time to time inout of the ~~ordinary~~ conduct of our business, including, but not limited to, claims involving students or graduates and routine employment matters. While we currently believe that such claims, individually or in aggregate, will not have a material adverse impact on our financial position, cash flows or results of operations, these other matters are subject to inherent uncertainties, and management’s view of these matters may change in the future. Were an unfavorable final outcome to occur in any one or more of these matters, there exists the possibility of a material adverse impact on our business, reputation, financial position, cash flows, and the results of operations for the period in which the effect becomes probable and reasonably estimable.

The ~~Company~~Attorney General of Connecticut is serving as the point of contact for inquiries received from the ~~Attorney General~~attorneys general of the ~~State of New York (“NYAG”) a Subpoena Duces Tecum dated May 17, 2011 (the “Subpoena”), relating to the NYAG’s investigation of whether the Company~~following 14 states: Arkansas, Arizona, Connecticut, Idaho, Iowa, Kentucky, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania and ~~certain of its schools have complied with certain New York state consumer protection, securities, finance~~Washington (January 24, 2014); Illinois (December 9, 2011); and other laws. The documents and information sought by the NYAG in connection with its investigation cover the time period from May 17, 2005 to the present. Pursuant to the Subpoena, the NYAG requested from the Company, and certain of its schools, documents and detailed information on a broad spectrum of business practices, including such areas as marketing and advertising, student recruitment and admissions, education financing, training and compensation of admissions and financial aid personnel, programmatic accreditation, student employment outcomes, placement rates of graduates and other disclosures made to students.

On August 19, 2013, the Company entered into an Assurance of Discontinuance (the “NYAG Settlement’) with the NYAG. Under the terms of the NYAG Settlement, without admitting or denying the NYAG’s findings,Tennessee (February 7, 2014). In addition, the Company has agreed to pay $9.3 million into a restitution fund to be distributed to eligible consumers; an additional $1.0 million for fees, costs, and penalties; and up to an additional $0.2 million for the costs to administer the restitution claims process. The Company recorded $10.0 million related to this matter during the

second quarter of 2013 when the matter was deemed both probable and estimable. $10.3 million was paid during the third quarter of 2013 related to this matter. As part of the NYAG Settlement, the Company has also agreed to, among other things: calculate and disclose placement rates according to agreed upon procedures and retain an independent consultant or audit firm to independently verify and report on such placement rates; provide specified levels of placement assistance to students; provide certain additional training to admissions personnel regarding placement rates; teach out certain programs going forward that do not achieve specified minimum placement rates; provide additional disclosure concerning institutional and programmatic accreditation; and provide additional disclosure concerning transferability of credits to other colleges or universities.

~~The Florida campuses of Sanford-Brown Institute~~ received ~~a notice on November 5, 2010~~inquiries from the ~~State~~Attorneys General of Florida ~~Office of the Attorney General (“FL AG”) that it has commenced an investigation into possible unfair~~(November 5, 2010), Massachusetts (September 27, 2012) and ~~deceptive trade practices at these schools.~~Colorado (August 27, 2013). The ~~notice includes a subpoena to produce documents and detailed information for the time period from January 1, 2007~~inquiries are civil investigative demands or subpoenas which relate to the ~~present about a broad spectrum of business practices at such schools. The Florida campuses of Sanford-Brown Institute have responded to~~investigation by the ~~subpoena and continue to cooperate with the Florida Attorney General with a view towards resolving this inquiry as promptly as possible.~~

~~The Company received from the Attorney General of the State of Illinois (“IL AG”) a Civil Investigative Demand (“CID”) dated December 9, 2011. The CID relates to the IL AG’s investigation~~attorneys general of whether the Company and its schools ~~operating in Illinois~~ have complied with certain ~~Illinois~~ state consumer protection ~~laws. Pursuant~~laws, and generally focus on the Company’s practices relating to the ~~CID,~~recruitment of students, graduate placement statistics, graduate certification and licensing results and student lending activities, among other matters. Depending on the ~~IL AG has requested from~~state, the Company and its schools documents and detailed information on a broad spectrum of business practices, including such areas as marketing and advertising, student recruitment and admissions, education financing, training and compensation of admissions and financial aid personnel, programmatic accreditation, student employment outcomes, placement rates of graduates and other financial and organizational information. The documents and information sought by the ~~IL AG~~attorneys general in connection with ~~its investigation~~their investigations cover ~~the~~ time ~~period from January 1,~~periods as early as 2006 to the present. The Company ~~is cooperating~~intends to cooperate with the ~~IL AG’s office~~states involved with a view towards resolving ~~this inquiry as promptly as possible.~~

The Company received from the Commonwealth of Massachusetts Office of the Attorney General (“MA AG”) a Civil Investigative Demand dated September 27, 2012. The CID relates to the MA AG’s investigation of whether certain of the Company’s schools have complied with Massachusetts consumer protection laws in connection with marketing and advertising, job placement and student outcomes, the recruitment of students, and the financing of education. Pursuant to the CID, the MA AG has requested from the Company documents and detailed information covering a broad spectrum of areas, including student information, programs of study, externships, tuition, financial aid, default rates, graduation rates, employment outcomes, recruitment and admissions, career services, student disclosures, employee compensation, accreditation, advertising, and complaints relating to operations, recruitment, placement, retention, graduation and quality of education. The documents and information sought by the MA AG in connection with its investigation generally cover the time period from January 1, 2008 to the present, with some specific requests covering time periods as early as January 1, 2003 to the present. The Company is cooperating with the MA AG’s office with a view towards resolving this inquiry as promptly as possible.

The Company received from the Colorado Attorney General’s Office (“CO AG”) a CID dated August 27, 2013. The CID relates to the CO AG’s investigation of whether the Company and CTU have complied with certain Colorado state consumer protection laws. Pursuant to the CID, the CO AG has requested from the Company and the schools at issue documents and detailed information on a broad spectrum of business practices, including such areas as recruitment, enrollment, education financing, and the handling of funds issued through the United States Department of Veterans Affairs. The documents and information sought by the CO AG in connection with its investigation cover the time period from January 1, 2009 to the present, with some specific requests covering time periods as early as when CTU began enrolling students. The Company is cooperating with the CO AG’s office with a view towards resolving this inquirythese inquiries as promptly as possible.

We cannot predict the scope, duration or outcome of ~~the FL AG, IL AG, MA AG, and CO AG~~these attorney general investigations. At the conclusion of any of these matters, the Company or certain of its schools may be subject to claims of failure to comply with state laws or regulations and may be required to pay significant financial penalties and/or curtail or modify their operations. Other state attorneys general may also initiate inquiries into the Company or its schools. If any of the foregoing occurs, our business, reputation, financial position, cash flows and results of operations could be materially adversely affected. Based on information available to us at present, we cannot reasonably estimate a range of potential monetary or non-monetary impact these investigations might have on the Company because it is uncertain what remedies, if any, these regulators might ultimately seek in connection with these investigations.

During the second quarter of 2012, the Company was advised by the Chicago Regional Office of the Securities and Exchange Commission (“SEC”) that it is conducting an inquiry pertaining to our previously reported 2011 investigation and review of student placement rate determination practices and related matters. We are cooperating fully with the inquiry. We cannot determine the eventual duration, scope or outcome of this matter.

The Company and its institutions have responded to requests for information regarding its 2011 investigation and review of placement determination practices and related matters from the Higher Learning Commission of the North Central Association of Colleges and Schools, Middle States Commission on Higher Education, Commonwealth of Pennsylvania Department of Education Division of Higher and Career Education, the Arizona State Board for Private Postsecondary Education, the Minnesota Office of Higher Education and the Florida Commission for Independent Education. Additionally, we have responded to follow-up requests from regulators for information regarding the terms of our August 2013 settlement with the New York Attorney General, including from the Higher Learning Commission of the North Central Association of Colleges and Schools and the Middle States Commission on Higher Education. We cannot predict the outcome of these information requests and any legal proceeding, claim or other matter that may arise relating thereto.

In December 2011, ED advised the Company that it is conducting an inquiry concerning possible violations of ED misrepresentation regulations related to placement rates reported by certain of the Company’s institutions to accrediting bodies, students and potential students. This inquiry stems from the Company’s self-reporting to ED of its internal investigation into student placement determination practices at the Company’s Health Education ~~segment~~ campuses and review of placement determination practices at all of the Company’s other domestic campuses in 2011. The Company has been cooperating with ED in connection with this inquiry. If ED determines that the Company or any of its institutions violated ED misrepresentation regulations with regard to the publication of placement rates or other disclosures to students or prospective students, ED may revoke, limit, suspend or deny the institution’s Title IV eligibility, or impose fines. Any such action would first likely require reasonable prior notice and an opportunity for an administrative hearing (as recently confirmed by the U.S. Court of Appeals for the District of Columbia), and would be subject to appeal.

In December 2011, ED also moved all of the Company’s institutions from the “advance” method of payment of Title IV Program funds to cash monitoring status (referred to as Heightened Cash Monitoring 1, or HCM1, status). Although the Company’s prior practices substantially conformed to the requirements of this more restrictive method of drawing down students’ Title IV Program funds, if ED finds violations of the HEA or related regulations, ED may impose monetary or program level sanctions, or transfer the Company’s schools to the “reimbursement” or Heightened Cash Monitoring 2 (“HCM2”) methods of payment of Title IV Program funds. While on HCM2 status, an institution must disburse its own funds to students, document the students’ eligibility for Title IV Program funds and comply with certain waiting period requirements before receiving such funds from ED, which results in a significant delay in receiving those funds. The process of re-establishing a regular schedule of cash receipts for the Title IV Program funds if ED places our schools on “reimbursement” or

HCM2 payment status could take several months, and would require us to fund ongoing operations substantially

out of existing cash balances. If our existing cash balances are insufficient to sustain us through this transition period, we would need to pursue other sources of liquidity, which may not be available or may be costly.

Our schools and universities are also subject to periodic audits by various regulatory bodies, including the U.S. Department of Education’s Office of Inspector General (“OIG”). The OIG audit services division commenced a compliance audit of CTU in June 2010, covering the period July 5, 2009 to May 16, 2010, to determine whether CTU had policies and procedures to ensure that CTU administered Title IV Program and other federal program funds in accordance with applicable federal law and regulation. On January 13, 2012, the OIG issued a draft report identifying three findings, including one regarding the documentation of attendance of students enrolled in online programs and one regarding the calculation of returns of Title IV Program funds arising from student withdrawals without official notice to the institution. CTU submitted a written response to the OIG, contesting these findings, on March 2, 2012. CTU disagreed with the OIG’s proposed determination of what constitutes appropriate documentation or verification of online academic activity during the time period covered by the audit. CTU’s response asserted that this finding was based on the retroactive application of standards adopted as part of the program integrity regulations that first went into effect on July 1, 2011. The OIG final report, along with CTU’s response to the draft report, was forwarded to ED’s Office of Federal Student Aid on September 21, 2012. On October 24, 2012, CTU provided a further response challenging the findings of the report directly to ED’s Office of Federal Student Aid. As a result of ED’s review of these materials, on January 31, 2013, CTU received a request from ED that it perform two file reviews to determine potential liability on two discrete issues associated with one of the above findings. The first file review relates to any potential aid awarded to students who engaged in virtual classroom attendance activities prior to the official start date of a course and for which no further attendance was registered during the official class term. The second file review relates to students that were awarded and paid Pell funds for enrollment in two concurrent courses, while only registering attendance in one of the two courses. The Company ~~has~~ completed these file reviews and provided supporting documentation to ED on April 10, 2013. As of ~~September 30, 2013,~~March 31, 2014, the Company has a $0.8 million ~~liability~~reserve recorded related to this matter.

The components of pretax loss from continuing operations for the quarters ended March 31, 2014 and 2013 are as follows (dollars in thousands):

The determination of the annual effective tax ~~rate~~ is based upon a number of significant estimates and judgments, including the estimated annual pretax income ~~(loss)~~ in each tax jurisdiction in which we operate and the ongoing development of tax planning strategies during the year. In addition, our provision for ~~(benefit from)~~ income taxes can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

The following is a summary of our provision for (benefit from) income ~~tax benefits~~taxes and effective tax ~~rates~~rate from continuing ~~operations for the quarters and years to date ended September 30, 2013 and 2012 (dollars in thousands):~~operations:


	For the Quarter Ended September 30,						For the Year to Date Ended September 30,						For the Quarter Ended March 31,
	2013			2012			2013			2012			2014			2013
Pretax loss	$	(68,765	)	$	(40,072	)	$	(166,269	)	$	(107,407	)	$	(47,225	)	$	(32,196	)
Benefit from income taxes	$	(25,333	)	$	(13,925	)	$	(70,145	)	$	(27,959	)
Provision for (benefit from) income taxes													$	220		$	(12,402	)
Effective rate		-36.8	%		-34.7	%		-42.2	%		-26.0	%		0.5	%		-38.5	%

~~The increase in~~As of December 31, 2013, we reported a total deferred tax valuation allowance of $82.5 million within our consolidated balance sheet. After considering both positive and negative evidence related to the likelihood of realization of the deferred tax assets, we have determined that it is necessary to continue to record this valuation allowance against our net deferred tax assets as of March 31, 2014. As a result, the effective ~~rate~~tax provision for the quarter ended ~~September 30, 2013 as compared to the prior year quarter was primarily due to earnings mix changes for our ground-based institutions versus our online institutions.~~ March 31, 2014 approximates $0.2 million.

The ~~increase in~~cumulative effect of federal and state valuation losses reduced the effective rate for the year to date ended September 30, 2013 as compared to the prior year was primarily due to the write-off of nondeductible goodwill in the prior year. The year to date rate was impacted by a $8.6 million favorable tax ~~adjustment, which is comprised of $11.2 million related to the resolution of various state~~

~~tax audits and exposures offset by $2.6 million of tax benefits recaptured due to the sale of AIU London. The effect of these discrete items was to increase the effective~~ rate benefit by ~~5.2%~~38.7%. ~~In addition,~~The current quarter tax rate was also impacted by nominal uncertain tax position activity, the ~~cumulative~~net effect of ~~state and foreign valuation losses decreased the quarter’s~~which resulted in a 0.5% effective ~~rate benefit by 1.0%.~~tax rate.

We estimate that it is reasonably possible that the liability for unrecognized tax benefits for a variety of uncertain tax positions will decrease by up to ~~$0.9~~$2.5 million in the next twelve months as a result of the completion of various tax audits currently in process and the expiration of the statute of limitations in several jurisdictions. The income tax rate for the quarter ~~and year to date~~ ended ~~September 30, 2013~~March 31, 2014 does not take into account the possible reduction of the liability for unrecognized tax benefits. The impact of a reduction to the liability will be treated as a discrete item in the period the reduction occurs. We recognize interest and penalties related to unrecognized tax benefits in tax expense. As of ~~September 30, 2013,~~March 31, 2014, we had accrued ~~$3.1~~$2.8 million as an estimate for reasonably possible interest and accrued penalties.

Our tax returns are routinely examined by federal, state, local and foreign tax authorities and these audits are at various stages of completion at any given time. The Internal Revenue Service completed its examination of our U.S. income tax returns through our tax year ended December 31, 2007.

~~See Note 4 “Discontinued Operations” of the notes to our unaudited consolidated financial statements for income tax expense disclosures related to the pending sale of our International Schools.~~

The Career Education Corporation 2008 Incentive Compensation Plan (the “2008 Plan”) authorizes awards of stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock, performance units, annual incentive awards, and substitute awards, which generally may be settled in cash or shares of our common stock. Any shares of our common stock that are subject to awards of stock options or stock appreciation rights payable in shares will be counted as 1.0 share for each share issued for purposes of the aggregate share limit and any shares of our common stock that are subject to any other form of award payable in shares will be counted as 1.67 shares for each share issued for purposes of the aggregate share limit. As of ~~September 30, 2013,~~March 31, 2014, there were approximately ~~10.2~~5.7 million shares of common stock available for future share-based awards under the 2008 ~~Plan.~~Plan, which is net of 4.4 million shares issuable upon exercise of outstanding options. This amount does not reflect ~~4.6~~0.6 million shares underlying restricted stock units ~~and stock options outstanding~~ as of ~~September 30, 2013,~~March 31, 2014, which upon vesting ~~or exercise~~ will be settled in shares of our common stock and thus reduce the common stock available for future share-based awards under the 2008 Plan by the amount vested, multiplied by the applicable factor under the plan.

As of ~~September 30, 2013,~~March 31, 2014, we estimate that compensation expense of approximately ~~$8.0~~$7.0 million will be recognized over the next four years for all unvested share-based awards that have been granted to participants, including stock options, shares of restricted stock and restricted stock units to be settled in shares of stock but excluding restricted stock units to be settled in cash.

Stock Options.The exercise price of stock options granted under each of the plans is equal to the fair market value of our common stock on the date of grant. Employee stock options generally become exercisable 25% per year over a four-year service period beginning on the date of grant and expire ten years from the date of grant. Non-employee directors’ stock options expire ten years from the date of grant and generally become exercisable as follows: ~~one-third on the grant date, one-third on the first anniversary of the grant date, and one-third on the second anniversary of the grant date, or,~~ one-fourth on the grant date and one-fourth for each of the first through third anniversaries of the grant date. Both employee stock options and non-employee director stock options are subject to possible earlier vesting and termination in certain circumstances. Generally, if a plan participant terminates his or her employment for any reason other than by death or disability during the vesting period, he or she forfeits the right to unvested stock option awards. Grants of stock options are generally only subject to the service conditions discussed previously.

Stock option activity during the ~~year to date~~quarter ended ~~September 30, 2013~~March 31, 2014 under all of our plans was as follows (options in thousands):


	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding as of December 31, 2012		2,592		$	25.96
Outstanding as of December 31, 2013							3,900		$	15.15
Granted		1,934			2.58		681			7.10
Exercised		—			—		—			—
Forfeited		(244	)		4.98		(147	)		3.63
Cancelled		(352	)		30.87		(46	)		34.25

Outstanding as of September 30, 2013		3,930		$	15.31
Outstanding as of March 31, 2014							4,388		$	14.09

Exercisable as of September 30, 2013		2,110		$	24.78
Exercisable as of March 31, 2014							2,543		$	20.43

Restricted Stock and Restricted Stock Units to be Settled in Stock.Restricted stock and restricted stock units to be settled in shares of stock generally become fully vested either three years after the date of grant or 25% per year over a four-year service period beginning on the date of grant. Generally, if a plan participant terminates his or her employment for any reason other than by death or disability during the vesting period, he or she forfeits the right to the unvested restricted stock and restricted stock units. The vesting of restricted stock and restricted stock units is subject to possible acceleration in certain circumstances. Certain ~~restricted stock awarded~~awards to plan participants referred to as ~~“performance-based restricted stock”~~“performance-based” are subject to performance conditions that, even if the requisite service period is met, may reduce the number of shares or units of restricted stock that vest at the end of the requisite service period or result in all shares or units being forfeited.

The following table summarizes information with respect to all outstanding restricted stock and restricted stock units to be settled in shares of stock under our plans during the ~~year to date~~quarter ended ~~September 30, 2013~~March 31, 2014 (shares and units in thousands):


	Restricted Stock to be Settled in Shares of Stock													Restricted Stock to be Settled in Shares of Stock
	Shares			Weighted Average Grant-Date Fair Value Per Share		Units			Weighted Average Grant-Date Fair Value Per Unit		Total			Shares			Weighted Average Grant-Date Fair Value Per Share		Units			Weighted Average Grant-Date Fair Value Per Unit		Total
Outstanding as of December 31, 2012		854		$	24.74		1,144		$	8.27		1,998
Outstanding as of December 31, 2013															221		$	22.19		539		$	8.30		760
Granted		—			—		43			2.72		43			—			—		249			7.10		249
Vested		(189	)		23.09		(306	)		8.62		(495	)		(106	)		23.27		(134	)		8.63		(240	)
Forfeited		(399	)		27.21		(257	)		7.75		(656	)		(24	)		20.16		(44	)		8.63		(68	)

Outstanding as of September 30, 2013		266		$	22.41		624		$	7.93		890
Outstanding as of March 31, 2014															91		$	21.72		610		$	7.72		701

~~2013 Annual Grants.~~ ~~During the first quarter of 2013, as part of our annual long term incentive grants~~Restricted Stock Units to ~~employees, we issued restricted~~be Settled in Cash.Restricted stock units to be settled in cash ~~and cash-based performance unit awards~~generally become fully vested 25% per year over a four-year service period beginning on the date of grant. Generally, if a plan participant terminates his or her employment for any reason other than by death or disability during the vesting period, he or she forfeits the right to the unvested restricted stock units. The vesting of restricted stock units is

subject to possible acceleration in ~~addition to stock option grants. The cash-settled~~certain circumstances. Cash-settled restricted stock units are recorded as liabilities as the expense is ~~recognized.~~recognized and the fair value for these awards is determined at each period end date with changes in fair value recorded in our statement of loss and comprehensive loss in the current period. Cash-settled restricted stock units are settled with a cash payment for each unit vested equal to the closing price on the vesting date. Cash-settled restricted stock units are not included in common shares reserved for issuance or available for issuance under the 2008 Plan. ~~For cash-settled restricted stock units granted in 2013, vesting is primarily 25% per year over the four year period beginning on the grant date.~~

The following table summarizes information with respect to all cash-settled restricted stock units during the ~~year to date~~quarter ended ~~September 30, 2013~~March 31, 2014 (units in thousands).:

Upon vesting, based on the conditions set forth in the award agreements, these units will be settled in cash. We valued these units in accordance with the guidance set forth by FASB ASC Topic ~~718 –~~718—Compensation-Stock Compensationasand recognized $2.3 million of ~~September 30, 2013 based upon our stock price as~~expense for the first quarter of ~~September 30, 2013. The fair value~~2014 for ~~our outstanding cash settled~~all cash-settled restricted stock units was $6.8 million as of September 30, 2013. The liability related to these outstanding units of $1.2 million was based on the number of days lapsed during the service period as of September 30, 2013; of which $0.5 million was recorded during the quarter ended September 30, 2013.units.

~~The performance~~Performance Unit Awards. Performance unit awards granted during 2013 and 2014 are long-term incentive, cash-based awards. Payment of these awards is based upon a calculation of Total Shareholder Return (“TSR”) of CEC as compared to TSR across a specified peer group of our competitors over a three-year performance period ending ~~primarily~~ on December 31, ~~2015.~~2015 and 2016, respectively. These awards are recorded as liabilities as the expense is recognized and fair value for these awards is ~~determined~~revalued at each period end date with changes in fair value recorded in our statement of loss and comprehensive loss in the current period. ~~The~~A liability of $1.8 million was recorded as of March 31, 2014, which represents the fair value of ~~outstanding performance unit awards as~~the liability incurred through March 31, 2014 for these awards; $0.7 million of September 30, 2013 was $2.5 million. The liability for the outstanding performance unit awards of $0.3 million was based on the number of days lapsed during the service period as of September 30, 2013; of which $0.1 millionexpense was recorded during the quarter ended ~~September 30, 2013.~~March 31, 2014.

~~Stock Appreciation Rights.~~Stock Appreciation Rights (SAR) allow the recipient to receive stock or cash equal in value to the difference between the exercise price of the SAR and fair market value of our stock on the date of exercise. In the second quarter of 2013, and for the first time since inception of any of our plans, we granted approximately 0.2 million SARs to be settled in cash to our Chief Executive Officer with a grant date fair value of $0.2 million. These SARs vest 25% per year over a four year period beginning on the grant date and expire ten years from the date of grant.

Basic net ~~loss~~(loss) income per share is calculated by dividing net ~~loss~~(loss) income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net ~~loss~~(loss) income by the weighted average number of shares assuming dilution. Dilutive common shares outstanding is computed using the Treasury Stock Method and reflects the additional shares that would be outstanding if dilutive stock options were exercised and restricted stock and restricted stock units were settled for common shares during the period.

Due to the fact that we reported a loss from continuing operations for the quarters ended March 31, 2014 and ~~years to date ended September 30,~~ 2013, ~~and 2012, respectively,~~ potential common stock equivalents are excluded from the diluted common shares outstanding calculation. Per FASB ASC Topic ~~260 –~~260—Earnings Per Share, an entity that reports discontinued operations shall use income or loss from continuing operations as the benchmark for calculating diluted common shares outstanding, and as such, we have zero common stock equivalents since these shares would have an anti-dilutive effect on our net loss per share for the quarters ended March 31, 2014 and ~~years to date ended September 30, 2013 and 2012, respectively.~~

In addition to the common stock issued upon the exercise of employee stock options and the granting of restricted stock, we issued approximately 0.1 million and 0.4 million shares for the quarter and year to date ended September 30, 2013, respectively, less than 0.1 million shares for the quarter ended September 30, 2012 and 0.1 million shares for the year to date ended September 30, 2012 upon the purchase of common stock pursuant to our employee stock purchase plan.

Our segments are determined in accordance with FASB ASC Topic ~~280 –~~280—Segment Reportingand are based upon how the Company analyzes performance and makes decisions. Effective January 2014, we have changed our segment reporting to align with the manner in which we are now managing the business. Each segment

represents a group of postsecondary education providers that offer a variety of degree and non-degree academic programs. These segments are organized by key market segments to enhance brand focus and operational alignment within each segment to more effectively execute our strategic plan. ~~The results of our International Schools are now reported within discontinued operations due to our decision in the third quarter of 2013 to commit to a plan to sell these assets. The remaining six~~Our reporting segments are described below.

Colorado Technical University (CTU)~~schools~~ collectively ~~offer~~offers academic programs in the career-oriented disciplines of business studies, information systems and technologies, criminal justice, computer science and engineering, and health sciences in an online, classroom or laboratory setting.

American InterContinental University (AIU)~~schools~~ collectively ~~offer~~offers academic programs in the career-oriented disciplines of business studies, information technologies, criminal justice and design technologies in an online, classroom or laboratory setting.

~~Health Education~~Career Collegesincludes Briarcliffe College, Brooks Institute, Harrington College of Design, Missouri College and our Sanford-Brown ~~schools, along with~~institutions. As of March 31, 2014, we announced the rebranding efforts related to our IADT and Brown College ~~Briarcliffe College and Missouri College. These schools~~institutions; these institutions are now united under the Sanford-Brown name. The Career Colleges group collectively offer academic programs primarily in the career-oriented disciplines of health education that are complemented by certain programs in business studies and information technology, as well as visual communications, fashion design, photography, interior design, graphic design and video production, in a classroom, laboratory or online setting. In addition, continuing education and short-term vocational programs in the area of energy conservation are offered.

Culinary Arts includes our Le Cordon Bleu ~~schools~~institutions in North America ~~that~~which collectively offer hands-on educational programs in the career-oriented disciplines of culinary arts and patisserie and baking in the ~~commercial~~commercial-grade kitchens of Le Cordon ~~Bleu; and advanced degree~~Bleu. Le Cordon Bleu also provides online programs in culinary arts and hotel and restaurant ~~management online.~~management.

~~Design & Technology~~includes IADT, Harrington College of Design and Brooks Institute schools. These schools collectively offer academic programs primarily in the career-oriented disciplines of fashion design, game design, graphic design, interior design, film and video production, photography and visual communications in a classroom, laboratory or online setting as well as job training in the field of energy conservation.

Transitional Schools includes our campuses that are currently being taught out.

We evaluate segment performance based on operating results. Adjustments to reconcile segment results to consolidated results are included under the caption “Corporate and ~~Other”,~~Other,” which primarily includes unallocated corporate activity and eliminations.

Summary financial information by reporting segment is as follows (dollars in thousands):


	For the Year to Date Ended September 30,										For the Quarter Ended March 31,
	Revenue				Operating (Loss) Income						Revenue				Operating (Loss) Income
	2013		2012		2013			2012			2014		2013		2014			2013
CTU	$	259,520	$	274,652	$	41,708		$	41,584		$	87,031	$	90,209	$	14,186		$	15,912
AIU		182,518		238,985		(1,763	)		22,623			52,573		66,299		(3,583	)		3,146

Total University Schools		442,038		513,637		39,945			64,207			139,604		156,508		10,603			19,058

Health Education⁽²⁾		107,439		140,018		(53,200	)		(64,660	)
Career Colleges												53,040		59,786		(17,150	)		(15,003	)
Culinary Arts⁽¹⁾		134,771		175,148		(52,809	)		(11,991	)		42,246		45,938		(18,046	)		(12,137	)
Design & Technology⁽³⁾		82,899		109,654		(24,787	)		(50,912	)

Total Career Schools		325,109		424,820		(130,796	)		(127,563	)		95,286		105,724		(35,196	)		(27,140	)

Corporate and Other⁽⁴⁾		—		50		(24,979	)		1,746
Corporate and Other												100		—		(11,136	)		(6,368	)

Subtotal		767,147		938,507		(115,830	)		(61,610	)		234,990		262,232		(35,729	)		(14,450	)
Transitional Schools⁽⁵⁾		43,761		109,259		(43,521	)		(46,666	)
Transitional Schools												8,115		22,218		(12,143	)		(10,580	)

Total	$	810,908	$	1,047,766	$	(159,351	)	$	(108,276	)	$	243,105	$	284,450	$	(47,872	)	$	(25,030	)

   Total Assets as of⁽⁶⁾
   September 30,
2013    December 31,
2012
CTU
   $ 74,300       $ 72,554
AIU
   60,755       65,092




Total University Schools
   135,055       137,646




Health Education
   36,884       52,511
Culinary Arts
   145,860       173,477
Design & Technology
   32,108       30,720




Total Career Schools
   214,852       256,708




Corporate and Other
   342,734       433,233




Subtotal
   692,641       827,587
Transitional Schools
   19,731       38,448
Discontinued Operations
   272,811       256,668




Total
   $ 985,183       $ 1,122,703

During October 2013, we announced the teach out of five additional campuses, including three campuses within Health Education and two campuses within Design & Technology. We anticipate recording charges for these campuses of approximately $4.0 million related to asset impairment charges and severance and related costs during the fourth quarter of 2013. The results of operations for these five campuses and SBI White Plains, whose teach out was announced during the third quarter of 2013, will be reported within our Transitional Schools segment as of December 31, 2013.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion below contains “forward-looking ~~statements”,~~statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our current expectations regarding our future growth, results of operations, cash flows, performance and business prospects, and opportunities, as well as assumptions made by, and information currently available to, our management. We have tried to identify forward-looking statements by using words such as ~~“anticipate”, “believe”, “plan”, “expect”, “intend”, “project”, “will”, “potential”~~“anticipate,” “believe,” “expect,” “estimate,” “on track to,” “will,” “continue to” and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to us and are subject to various risks, uncertainties, and other factors, including, but not limited to, those matters discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2012~~2013 that could cause our actual growth, results of operations, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances, or for any other reason.

WeThe colleges, institutions and universities that are ~~an industry leader whose institutions are recognized globally. Those~~part of the Career Education Corporation (“CEC”) family offer high-quality education to a diverse student population in a variety of career-oriented disciplines through online, on-ground and hybrid learning program offerings. In addition to its online offerings, Career Education serves students from campuses throughout the United States offering programs that lead to doctoral, master’s, bachelor’s and associate degrees, as well as to diplomas and certificates.

Our institutions include ~~among others,~~both universities that provide degree programs through the master or doctoral level and colleges that provide programs through the associate and bachelor level. The University group includes American InterContinental University (“AIU”)~~; Brooks Institute;~~ and Colorado Technical University (“CTU”);—predominantly serving students online with career-focused degree programs that meet the educational demands of today’s busy adults. The Career Schools group offers career-centered education primarily through ground-based campuses and includes Briarcliffe College, Brooks Institute, Harrington College of ~~Design; INSEEC Group (“INSEEC”) Schools; International University of Monaco (“IUM”); International Academy of~~ Design, ~~& Technology (“IADT”);~~ Le Cordon Bleu North America (“LCB”);, Missouri College and Sanford-Brown Institutes and Colleges (“SBI” and ~~“SBC”,~~“SBC,” respectively). Through our ~~schools,~~colleges, institutions and universities, we are committed to providing high-quality education, enabling students to graduate and pursue rewarding career opportunities.

During the first quarter of 2014, the Company completed the teach-out of the following Sanford-Brown campuses: Austin, Collinsville, Cranston, Dearborn, Grand Rapids, Indianapolis, Portland, Tinley Park and Trevose. As a result, all current and prior periods reflect these campuses as components of discontinued operations. In the fourth quarter of 2013, we completed the sale of our International Segment (see Note 2 “Basis of Presentation” of the notes to our unaudited consolidated financial statements) and accordingly, the prior period results of operations of our International Segment are reported within discontinued operations.

All prior period results have been recast to reflect our reporting segments on a comparable basis.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The MD&A is intended to help investors understand the results of operations, financial condition and present business environment. The MD&A is organized as follows:

During the ~~third~~first quarter of ~~2013,~~2014, we ~~further developed~~continued our focus onEnrolling,Educating and ~~refined key aspects~~Placing our students into a better position to succeed professionally. Our goal is to make our organization a highly respected and financially sound educational institution and to accomplish this in a professional manner that always puts student interests at the forefront of every decision. Our ongoing efforts are aligned with student success.

Our first quarter results were in line with our expectations despite the continued economic and other challenges as well as severe weather impacts to some of our ~~strategy,~~ground-based campuses during the current year quarter. The severe weather experienced across the nation resulted in ninety-six closures and delays for our campuses which ~~include recapitalizing~~created scheduling challenges for current students and impacted admissions advisor efforts with our prospective students. Despite the ~~business, simplifying our regulatory exposure and organization, positioning~~obstacles created by the ~~Company for growth and profitability and enhancing and investing~~extreme winter weather, we were able to generate another quarter of improvement in ~~technological innovations. Additionally, we continue to emphasize~~many of our key ~~priorities around enrolling, educating and placing our students within each of our institutions. We believe that~~metrics, including increased student applications, positive trends in the ~~strategic actions~~rate at which we ~~have taken coupled with our continued focus on~~convert a prospective student outcomes will enable us to return to positive growth and combat the challenges that continue to face the industry, including extended student decision making cycle times, increased competition across the industry and the continued uncertain regulatory climate.

~~As part of our efforts to recapitalize the business, during the third quarter of 2013 we made the decision to commit~~inquiry to a ~~plan to sell our International Schools which include the Paris-based INSEEC Group~~student applicant as well as new and the International University of Monaco. As a result of this decision, the results of our International Schools are now reported as assets held for sale within discontinued operations for all periods presented.total student enrollments.

For the third quarter of 2013, our revenue declined approximately 21% as compared to the prior year quarter. We reported an operating loss of $68.6 million for the third quarter of 2013 which included $11.6 million of asset impairment charges ($0.11 per diluted share) primarily related to $10.7 million of impairment for our Le Cordon Bleu trade name.

~~Our new student enrollments were down 18% as compared to the prior year quarter.~~ Excluding our campuses within the Transitional Schools segment, which no longer enroll new students, ~~new~~revenue declined approximately 10.4% as a result of the 8% decline in total student ~~enrollments were down 10%~~enrollment as compared to the prior year quarter. ~~The decrease in new~~On a consolidated basis our revenue declined approximately 14.5% and total student enrollments is primarily related to our online institutions within our University Schools segments. Despite the declines in new student enrollments this quarter, we continue to experience positive trends in the number of applications received across all of our ongoing segments, attributed to changes that have been made to student intake models as well as shifts in marketing strategy across our institutions. Current year new student enrollments were also negatively impacted by our student readiness programs.

~~Our University Schools group, which includes both CTU and AIU, reported operating income of $3.3 million for the third quarter of 2013 while revenue decreased approximately~~enrollment declined 12% as compared to the prior year quarter. ~~New~~For the current year quarter, we reported an operating loss of $47.9 million as compared to an operating loss of $25.0 million in the prior year quarter primarily as a result of the decline in revenue. The current quarter results include $6.8 million for proposed legal settlements as we continue to resolve outstanding legal matters.

Beginning in January of 2014, we terminated our previous student readiness program and replaced it with a new student orientation process which we believe provides a better and more engaged experience for students. This enhanced process has already been implemented within our University segments and is being instituted on a modified basis at most of our ground-based campuses. This change impacts how we calculate a new student enrollment. Accordingly, we have recast prior period new student enrollments ~~declined 13%~~within our University Schools segments to reflect this change in methodology.

We have identified four main objectives for our turnaround strategy during 2014, including:

As of March 31, 2014, total student enrollments showed sequential improvement in the rate of decline for each of the past five quarters due to both increased student applications and improved retention of our students. These improvements are a result of the changes we have made to our student intake models and shifts in marketing strategies across our institutions.

Our University Schools group reported operating income of $10.6 million for the ~~third~~current year quarter as compared to $19.1 million in the prior year quarter which was primarily due to the 8% decrease in total student enrollments as compared to the prior year quarter. This enrollment decrease has continued to lessen over the past five quarters. We anticipate that this sequential improvement in the rate of decline for total student enrollments coupled with other positive metric indicators we are tracking will yield positive total student enrollment growth as compared to prior periods in the second half of 2014 within our University segments.

During the first quarter of ~~2013~~2014, we united the educational mission of International Academy of Design and Technology (IADT), Brown College and Sanford-Brown to create comprehensive career schools under the Sanford-Brown name. Bringing these career-focused schools together expands the Sanford-Brown educational mission, allowing the schools to provide more comprehensive programs and resources to students at 18 campuses across the country. This group now makes up our Career Colleges reporting segment. As part of our strategy, we are also working to expand the mission and program offerings at the Sanford-Brown institutions to include courses in allied health, business, information technology and art and design, some of which offerings were not in their existing missions. Once approved by regulatory authorities, we anticipate that this program expansion will allow us to better serve students and communities by providing students with greater educational options. Also, campuses will have greater flexibility in their course offerings to better serve students and accommodate local workforce needs. Finally, we will benefit from efficiencies and a lower cost structure related to supporting one brand name. While we believe that we have adequately prepared students and faculty for this change, there may be temporary disruptions and volatility impacting our operating results for these institutions.

Another effort towards stabilizing our Career Schools enrollments includes changes and enhancements to our marketing strategies. We have shifted our strategy from a national approach to tailoring our marketing efforts to be more localized in each of our markets. We have engaged a marketing firm to assist us with this shift in strategy as well as to broaden the scope and appeal of the new Sanford- Brown brand. We expect these changes to benefit us in the long-term but may temporarily disrupt our lead flow volume as we make the changes. Within Culinary Arts, we have intensified our communication with local high schools and begun to change our creative and media strategies to better attract prospective students.

During the current year quarter, Career Schools’ new student enrollments decreased 12% as compared to the prior year quarter. This decrease was primarily driven by an 18% decrease in Culinary Arts new student enrollments for the current year quarter as compared to the prior year. The re-introduction of the Associate program has resulted in a change in the mix of students to be more heavily weighted in the Associate program which has a longer program length. Students enrolling in the Associate program tend to have a lower show rate (the rate at which an applicant is converted to a new student enrollment) than students entering the shorter duration Certificate programs. As a result, new student enrollments on a comparative basis will be negatively impacted for the short term. As we move through the remainder of 2014, we expect total enrollments to increase over the prior year as the Associate program students enter their second year of the program.

Operating costs have decreased approximately $18.5 million in the current year quarter as compared to the prior year quarter. Approximately $12.5 million of the decrease was attributed to lower Transitional School expenses. The remaining $6.0 million is a function of actions taken by management to lower costs, including right sizing and reengineering the Company, real estate consolidation and generating other organizational efficiencies. In addition, we benefited from lower metrically-driven costs as a result of lower total student enrollments. We continue to anticipate realizing at least $75 million of lower operating expenses in fiscal year 2014 as compared to 2013.

Successfully complete the teach out of our Transitional Schools, significantly lowering the financial losses associated with these campuses

During the first quarter of 2014, we completed the teach-out of nine campuses within our Transitional Schools segment. We remain on track to successfully complete the teach-out of 20 of our Transitional Schools in 2014, of which seven are expected to close during the second quarter of 2014. We estimate the 20 schools closing in 2014 will generate approximately $36.0 million of operating losses. As of December 31, 2014, we expect to have ten campuses remaining within our Transitional Schools segment.

Revenue for our Transitional Schools decreased approximately $14.1 million in the current year quarter as compared to the prior year quarter ~~and total enrollment~~while our operating loss decreased ~~12%. We believe that~~approximately $1.6 million for the ~~current state of the economy and the uncertainty surrounding job prospects continues to impact many students’ decision to return to school and incur debt.~~same period. We continue to ~~analyze and implement operational changes~~focus on managing our expenses as the schools finish their commitment to improve our student intake process, including embarking on new marketing campaigns and enhancements to our websites. These efforts are beginning to yield results as we are seeing positive trends in new student enrollment, with year-over-year declines growing smaller as we have progressed throughstudents. For the ~~year to date ended September 30, 2013. Lastly, we are working toward expanding our pricing strategies aimed at providing students with varying alternatives to~~nine schools completing their ~~course of studies in an affordable and efficient manner. We are targeting an introduction of these expanded offerings in early 2014.~~

Our Career Schools continue to show signs of stabilization. Overall new student enrollments were down 6% for the third quarter of 2013 as compared to the prior year quarter. Student applications showed positive improvements in all three Career Schools segments as compared to the prior year quarter and Health Education’s student retention rate increased as compared to the prior year. New student enrollments continue to be impacted by challenging market conditions and a decline in the effectiveness of our processes to enroll a new student once they have applied to one of our institutions, particularly within our Culinary Arts segment. We are making solid progress establishing more effective enrollment processes to combat this operational inefficiency. The leadership team within Career Schools continues to evaluate and make changes to enhance critical operations and academic processes across Career Schools through focus on new student intake initiatives, new programs and reengineering efforts.

During the third quarter of 2013, our Career Schools reported a 19% decrease in revenue as compared to the prior year quarter and collectively reported an operating loss of $48.5 million. In connection with our quarterly assessment of indicators of goodwill and asset impairment, we concluded that as of September 30, 2013, there were events or circumstances which occurred during the third quarter which indicated that the fair value of the Le Cordon Bleu trade name could be below its respective carrying value. An interim impairment test was performed for this trade name which resulted in a non-cash charge of $10.7 million during the third quarter of 2013. We continue to monitor the operating results and cash flows of each of our reporting units on a quarterly basis for signs of possible declines in estimated fair value.

~~Additionally, the decision made during the third quarter of 2013 to commit to a plan of sale for our International Schools triggered the accounting requirement under FASB ASC Topic 740 –~~~~Income Taxes~~ to record a liability for the tax effect of the difference in basis for financial reporting purposes versus tax reporting. Accordingly, we recorded $39.9 million of income tax expense ($0.60 per diluted share)teach-out during the current year quarter, we recorded approximately $8.1 million for estimated remaining lease obligations related to ~~the excess basis.~~their leased facilities. This ~~expense~~charge was recorded within discontinued ~~operations.~~operations for the quarter ended March 31, 2014.

As we look ahead to the remainder of 2014, we remain focused on the operational execution against our key goals we have set forth. We continue to evaluate our portfolio of assets to assess where best to deploy our capital and how to structure our organization to provide the greatest opportunity for long-term, sustainable shareholder growth, while upholding the interests of our students. There are a number of strategies that we can choose from to optimize our capital structure, including investing in new business technologies, long-term borrowing options, acquisitions or divestitures, modifying our equity structure or considering other organizational changes. Our strategy to return Career Education to profitability is through an understanding that our long-term success is rooted in the collective success of our students.

Gainful Employment. On March 25, 2014, the Secretary of Education published a proposed rule on gainful employment which aims to require all programs at proprietary institutions and non-degree programs at public and non-profit institutions to demonstrate that they adequately prepare students for gainful employment in a recognized occupation. According to the proposed rule, for a program to meet that requirement, it would need to pass one of two debt-to-earnings (D/E) ratio tests and also have an acceptable program-level cohort default rate (pCDR), with the former being calculated only for program completers and the latter being calculated for all students who enrolled in the program and were scheduled to go into loan repayment during the applicable period, whether these individuals completed the program or not.

Two formulas have been devised for calculating D/E ratios, and programs must pass at least one of these two tests in order to meet the gainful employment requirement. The first formula is based on debt-to-discretionary income, which has a threshold of 20%, and the second formula is based on debt-to-annual earnings, which has a threshold of 8%. Programs with a debt-to-discretionary income ratio of greater than 20% but less than or equal to 30% or with a debt-to-annual earnings ratio of greater than 8% but less than or equal to 12%, would be considered to be “in the zone.”

Programs that fail to meet either the discretionary or annual earnings ratio for two out of any three consecutive award years, or that either fail to meet the requirement or are “in the zone” for four consecutive award years would be ineligible to participate in Title IV programs. Only student debt related to tuition, fees, books and supplies would be included in the calculation. During the first four years following implementation of the ~~Business~~

~~On October 22, 2013, we agreed~~rule, programs that fail to ~~sell our International Schools to~~meet the ~~private equity group, Apax Partners, and expect~~earnings ratios based on student loan balances of the ~~transaction to close by~~appropriate cohort may substitute the ~~end~~median loan balance of ~~2013. Through~~ the ~~movement~~most recent cohort of ~~cash from our International operations prior to closing~~program graduates so that tuition adjustments made following the ~~transaction, along with payment expected to be received at closing, we anticipate that our domestic cash position will increase by approximately $290 million. Upon~~promulgation of the ~~closing of this transaction, we estimate that the gain on sale~~rule will be ~~approximately $120—$130 million. From~~taken into account. If a ~~tax perspective,~~final rule is enacted as

proposed in March (and published on or before November 1, 2014), the ~~taxes attributable to the expected gain on sale~~first year of measurement will be largely offset by the tax benefit recognized in 2013 related to our domestic operating losses reported in 2013. These estimated amounts are subject to change depending upon the timing of the pending transaction. We expect that this transaction will improve our options for accelerating growth, position us well to redeploy our assets to rebuild our domestic educational institutions, assist us in remaining compliant with our financial responsibility ratios to ED and to consider other potential ventures while overall reducing the complexity of our business.

During the third quarter, we made organizational changes to simplify our structure, particularly within our Career Schools segments. Lysa Clemens assumed the role of Chief Career Schools Officer. Lysa recently joined the Company as Senior Vice President of Strategic Initiatives and is a proven outstanding leader with years of experience within the postsecondary, proprietary education sector. Lysa has named experienced education leaders to key roles overseeing areas such as operations, academics and enrollments and has combined our Health Education and Design & Technology institutions under common leadership to align with our strategy and to gain efficiencies. With these leadership changes, we believe we are well positioned to continue to build upon and execute our turnaround strategy. Additionally, we have created market-specific operational oversight roles within our Culinary Arts segment which will enable us to drive best practices and operational consistency across more campuses.

In addition to simplifying our structure, we are taking action to consolidate some of our brands within our nationally accredited institutions within Health Education and Design & Technology. This consolidation will include expanding the mission and educational programs offered at certain campuses, allowing us to better respond to student interests and local workforce needs. Focusing our efforts on a smaller number of brands also allows us to become more efficient and effectivedebt from an operations perspective. We are planning on implementing this strategy first in locations where we have both a Health Education campus and a Design & Technology campus in close proximity of each other and we will work to combine the educational resources and programs of each campus to form a single, comprehensive institution.

Within our Transitional Schools reporting segment, we announced the teach-out of SBI White Plains during the third quarter of 2013 and during October 2013, we announced five additional schools to be taught out, including three Health Education campuses and two Design & Technology campuses. These additional six schools will be added to our Transitional Schools segment during the fourth quarter of 2013. These campuses were selected based on various considerations, including, enrollment, financial viability and employment opportunities for graduates in the ~~local market.~~ 2010/2011 and 2011/2012 academic years with income being captured from the 2014 calendar year. For programs failing, alternate debt would be substituted from graduates during the 2014/2015 academic year using the same program level income from the 2014 calendar year.

The ~~aggregate annual revenue~~pCDR rate would be calculated for all students who enrolled in the program and ~~operating losses~~who received one or more Title IV Stafford loans and entered into repayment on one or more of ~~these six campuses were approximately $45 million and $8 million, respectively,~~those loans during the federal fiscal year that is three years prior to the year in which the rate is calculated. If fewer than 30 borrowers entered repayment in a fiscal year, the cohort of borrowers would include in addition to those borrowers entering repayment in the fiscal year, those who entered repayment in the two preceding fiscal years. If a final rule is enacted as proposed in March (and is published on or before November 1, 2014), the first year of measurement of the pCDR rate would be for the ~~year ended December 31, 2012. We anticipate recording~~2013 cohort, which includes students who entered repayment between October 1, 2012 and September 30, 2013 and measures defaults as of September 30, 2015.

An institution would be required to notify all current and potential students within 30 days of receiving notification from the Department of Education that a ~~charge of approximately $4 million during~~program could become ineligible for the ~~fourth quarter of 2013 related~~next award year. A program voluntarily withdrawn or deemed ineligible could not participate in Title IV programs for three years. All so-called “gainful employment” programs would need to disclose additional data to the five additional teach-out campuses announced in October for impairment and severance-related expenses. Consistent with our existing teach-out methodology, we will ensure that students currently enrolled within these institutions are afforded the reasonable opportunity to complete their program of study before the campus is ultimately

closed. With these moves, we believe we now have the core campuses upon which we will stabilize our organization and regain growth. We expect that we will incur operating losses for the campuses within the Transitional Schools segment,public, including the ~~six campuses recently announced,~~total cost of ~~approximately $90 million for the year ending December 31, 2013, excluding the impact of remaining lease obligation charges~~tuition and other unusual items. As we end 2013, we anticipate having 30 campuses remaining within Transitional Schools as two locations are scheduled to complete their teach-out process in the fourth quarter. Furthermore, 13 more campuses are scheduled to complete their teach-outs in the first half of 2014.

We have made significant progress towards developing and implementing a business model and cost structure that is aligned with lower total enrollment and the closing of selected campuses across all of our institutions. We recorded an additional $1.7 million of severance and related costs during the third quarter of 2013 related to our restructuring and reengineering initiatives. As a result of our right-sizing and reengineering efforts, we expect approximately $35 million of cost savingsfees for the full ~~year 2013. These actions, combined with our decision~~gainful employment program and the amount included in the cost of attendance, or assessed directly by the institution, for books, supplies and equipment. Programs that fall “in the zone” would be subject to ~~exit certain campus locations, our continued focus on lowering metrically driven costs and improving~~additional disclosure obligations, including notifying students of the ~~utilization~~potential loss of our existing real estate footprint have resulted in over $100 million in operating expense reductions for the year to date ended September 30, 2013 as compared to the prior year period. For the full year ending December 31, 2013, we are expecting operating expenses, excluding impairment charges, to be lower than the prior year period by approximately $175 million. Title IV eligibility.

We are ~~estimating an incremental $75 million—$100 million of costs to be reduced on an annualized basis for fiscal 2014 as we receive a full year benefit of our cost savings initiatives, complete~~evaluating the ~~teach-out process at more campuses and generate other efficiencies.~~

~~Earlier in the year, we announced the full-scale rollout of our intelli~~~~path~~ adaptive learning platform. We had previously piloted certain adaptive learning courses within our CTU and AIU institutions and based on positive metrics reported by both student and faculty from the pilots, we have continued to implement this platform broadly within our University institutions, including orientation courses. Our Career Schools began to pilot this technology in general education courses and will continue the rollout to a greater number of courses throughout the remainderpotential impact of the ~~year. Based~~proposed gainful employment rule. Any final rule may adversely affect the eligibility of the programs we offer, primarily our culinary arts and design programs, and therefore our business could be materially and adversely impacted.

Program Integrity. The Department of Education is currently engaged in negotiated rulemaking on ~~positive results experienced~~a set of six “program integrity” issues, including: clock to ~~date,~~credit hour conversions, state authorization of distance learning, state authorization of foreign locations, cash management, retaking coursework and definition of adverse credit. Although negotiations are ongoing and we ~~continue to believe this technology will have a positive impact on student learning which we expect will lead to better overall performance for our schools.~~

As we exit the third quarter of 2013, we continue to focus on our key strategies, which we expect will position us for modest growth in new student enrollments within our University institutions and continued stabilization within our Career Schools institutions as we move through 2014. Our continued work surrounding optimization of our cost structure coupled with the strategic initiatives discussed above have positioned us well for future growth and a return to profitability. Throughout 2013, we anticipate we will continue to have a net usage of cash from operating activities but expect wecannot predict what will be ~~cash flow positive as we exit 2015, excluding~~included in any final rule, the ~~impact~~Department’s proposed regulations regarding state authorization of ~~nonrecurring items.~~

~~ED Rule-Making Initiatives~~. In September, ED held the first of two negotiating sessions as part of its effort to rewrite certain “gainful employment” regulations that the United States District Court for the District of Columbia vacateddistance learning could impose significant additional administrative burdens on June 30, 2012. The recent partial government shutdown delayed the second negotiating session originally scheduled to take place in October, and ED has rescheduled that session for November 18 – 20, 2013. We are monitoring the proposed regulations,state regulators as well as ~~recommendations made~~schools offering distance education. The newly proposed rules could require states that do not presently regulate delivery of online courses and programs to enact legislation or issue regulations that specifically address online educational programs, such as those offered by our schools, and/or alter regulations impacting the ~~negotiators, and evaluating~~availability of exemptions from licensure, or otherwise affect our schools’ operations. Our schools offering distance learning had already begun completing additional state applications for licensures or confirming exemptions for their ~~potential impact on our business. Because new regulations must be finalized by November 1 in order~~distance learning programs prior to ~~be effective at~~ the ~~beginning~~partial invalidation of the ~~next award year (July 1),~~October 2010 state authorization regulations, and we ~~believe~~continued to process the applications that ~~it is unlikely that a final rule~~were submitted. Nonetheless, any forthcoming state authorization regulations could ~~go into effect prior to July 2015. See Item 1, “Business,” in~~impose significant additional administrative burdens and costs upon our ~~Annual Report on Form 10-K for the year~~operations.

ended December 31, 2012 for more information about ED’s earlier attempt to develop a regulatory definition for gainful employment, how portions of prior regulations on these matters were invalidated by the courts, and how these matters generally affect our business.

~~Annual Reporting to ACICS~~. Our campuses have been preparing annual reports for filing with the Accrediting Council for Independent Colleges and Schools (“ACICS”), including graduate employment placement rates and student retention rates for the 2013 reporting year. Approximately 90% of our ACICS-accredited campuses that are not in teach-out expect to report higher campus level placement and retention rates than they reported for the ACICS 2012 reporting year. For its 2013 reporting year, ACICS increased the minimum acceptable placement rate compliance standard from 47% to 60%, and increased the benchmark placement rate from 64% to 70%. ACICS also increased the minimum acceptable campus retention rate compliance standard from 52% to 60%, and increased the corresponding benchmark retention rate from 67% to 70%. Under the increased standards for the 2013 reporting year, 15 of our 38 ACICS-accredited campuses that are not in teach-out expect to report campus level rates below ACICS’ benchmark placement or retention rate, including 3 campuses that expect to report rates below the placement rate minimum compliance standard. While we believe that some of these campuses may qualify for the waiver of accreditation standards (for minimum acceptable retention or placement rates) as a result of mitigating circumstances that were beyond the control of the campus, if waivers are not granted, we anticipate that these 15 campuses will continue to be subject to increased levels of accreditation monitoring and reporting. Campuses below the minimum compliance standard must come into compliance within a timeframe established by ACICS, or could face additional sanctions, including potentially the loss of accreditation.

~~Cohort Default Rates.~~In late September 2013, ED released the official two-year cohort default rates for the 2011 cohort and the official three-year cohort default rates for the 2010 cohort. These official rates were in line with our draft rates released earlier this year. The 2011 two-year cohort marks the conclusion of the two-year reporting metric, as subsequent years will focus solely on the three-year rate. None of our institutions exceeded ED’s annual threshold for the two-year rates. Across our institutions, our three-year rates for 2010 decreased (~~i.e.~~, improved) from the three-year rates for 2009. Only one institution, which is currently in teach-out, had a three-year official rate for 2010 in excess of 30%. None of our continuing institutions had rates in excess of ED’s thresholds. See Item 1, “Business – Student Financial Aid and Related Federal Regulation – Compliance with Federal Regulatory Standards and Effect of Federal Regulatory Violations –~~Student Loan Default Rates~~” in our Annual Report on Form 10-K for the year ended December 31, 2012 for more information about cohort default rates, our prior year rates and ED’s standards applicable to the two-year and three-year rates.

The summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the quarters ended March 31, 2014 and ~~years to date ended September 30, 2013 and~~

~~2012.~~2013. Results for the prior year ~~periods~~quarter have been ~~reclassified~~recast to be comparable to the current ~~year~~quarter presentation (dollars in thousands).:


	For the Quarter Ended September 30,												For the Year to Date Ended September 30,												For the Quarter Ended March 31,												% Change
	2013			% of Total Revenue			2012			% of Total Revenue			2013			% of Total Revenue			2012			% of Total Revenue			2014			% of Total Revenue			2013			% of Total Revenue			2014 vs. 2013
TOTAL REVENUE	$	251,313					$	316,155					$	810,908					$	1,047,766					$	243,105					$	284,450						-14.5	%

OPERATING EXPENSES
Educational services and facilities ⁽¹⁾		100,053			39.8	%		117,929			37.3	%		310,948			38.3	%		375,705			35.9	%		86,078			35.4	%		102,757			36.1	%		-16.2	%
General and administrative⁽²⁾
Advertising		74,005			29.4	%		79,673			25.2	%		214,065			26.4	%		229,846			21.9	%		70,748			29.1	%		71,252			25.0	%		-0.7	%
Admissions		32,719			13.0	%		40,311			12.8	%		102,618			12.7	%		130,178			12.4	%		32,944			13.6	%		36,496			12.8	%		-9.7	%
Administrative		76,693			30.5	%		89,088			28.2	%		253,512			31.3	%		252,016			24.1	%		80,222			33.0	%		76,098			26.8	%		5.4	%
Bad debt		7,884			3.1	%		10,847			3.4	%		21,187			2.6	%		27,240			2.6	%		5,866			2.4	%		5,751			2.0	%		2.0	%

Total general and administrative expense		191,301			76.1	%		219,919			69.6	%		591,382			72.9	%		639,280			61.0	%		189,780			78.1	%		189,597			66.7	%		0.1	%
Depreciation and amortization		17,023			6.8	%		18,749			5.9	%		52,221			6.4	%		55,593			5.3	%		15,052			6.2	%		16,969			6.0	%		-11.3	%
Goodwill and asset impairment		11,585			4.6	%		—			0.0	%		15,708			1.9	%		85,464			8.2	%
Asset impairment																										67			0.0	%		157			0.1	%		-57.3	%

OPERATING LOSS		(68,649	)		-27.3	%		(40,442	)		-12.8	%		(159,351	)		-19.7	%		(108,276	)		-10.3	%		(47,872	)		-19.7	%		(25,030	)		-8.8	%		91.3	%

PRETAX LOSS		(68,765	)		-27.4	%		(40,072	)		-12.7	%		(166,269	)		-20.5	%		(107,407	)		-10.3	%		(47,225	)		-19.4	%		(32,196	)		-11.3	%		46.7	%
BENEFIT FROM INCOME TAXES		(25,333	)		-10.1	%		(13,925	)		-4.4	%		(70,145	)		-8.7	%		(27,959	)		-2.7	%
PROVISION FOR (BENEFIT FROM) INCOME TAXES																										220			0.1	%		(12,402	)		-4.4	%		-101.8	%

Effective tax rate		-36.8	%					-34.7	%					-42.2	%					-26.0	%					0.5	%					-38.5	%

LOSS FROM CONTINUING OPERATIONS		(43,432	)		-17.3	%		(26,147	)		-8.3	%		(96,124	)		-11.9	%		(79,448	)		-7.6	%		(47,445	)		-19.5	%		(19,794	)		-7.0	%		139.7	%
LOSS FROM DISCONTINUED OPERATIONS, net of tax		(43,632	)		-17.4	%		(6,999	)		-2.2	%		(37,533	)		-4.6	%		(1,856	)		-0.2	%
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, net of tax																										(10,698	)		-4.4	%		4,591			1.6	%		NM

NET LOSS	$	(87,064	)		-34.6	%	$	(33,146	)		-10.5	%	$	(133,657	)		-16.5	%	$	(81,304	)		-7.8	%	$	(58,143	)		-23.9	%	$	(15,203	)		-5.3	%		NM

~~All of our segments reported a~~The approximate 15% decline in revenue as compared to ~~both~~ the prior year quarter ~~and the prior year to date. This decline~~ was ~~driven by approximately 25% fewer students enrolled within~~a result of lower revenue across all of our institutions at the beginning of the year and approximately 18% and 24% fewer new enrollments for the third quarter of 2013 and year to date 2013, respectively, as compared to the corresponding prior year periods.segments. Excluding ~~the impact of~~our Transitional Schools which no longer enroll new students ~~we had~~as they teach out the campus, revenue declined approximately 10%. This decline, excluding the Transitional Schools, was driven by approximately 8% fewer ~~new enrollments for the third quarter~~students enrolled within our institutions as of ~~2013 and 16% fewer new enrollments year to date 2013 when~~March 31, 2014 as compared to March 31, 2013. We continue to experience an increase in the ~~same periods in 2012. In addition,~~number of applications to our institutions ~~implemented certain~~and have continued to address operational ~~changes during 2013 that have, in the short-term, negatively impacted our new enrollments, including certain programs which we had established to enable~~

students to assess their readiness to commit to enrolling in college-level courses. We expect, however, that these changes will positively impact student outcomes as enrolled students have more awareness of the tools and rigor of the educational program that they are enrolled in. Finally, we have experienced certain operational execution issues related to student intake and orientation processes that have ~~negatively~~positively impacted the rate at which students are converted from prospective applicants to new ~~enrollments. The Company is actively addressing these issues.~~enrollments as compared to prior periods. We anticipate positive change going forward resulting from our efforts.

The decrease in educational services and facilities expense as compared to ~~both~~ the prior year quarter ~~and prior year to date~~ is primarily driven by lower academic costs, most notably faculty and bookstore costs. The decrease in faculty and bookstore costs is caused by a combination of factors, including lower total student ~~enrollment~~enrollments across all of our institutions, our initiative to implement self-published textbooks and procurement renegotiations for books and supplies. We continue to closely monitor the variable costs while maintaining optimal student-teacher ratios. ~~As a percentage of revenue, educational services~~

General and administrative expenses have remained relatively equal as compared to the prior year ~~quarter and year to date primarily due to fixed costs, including occupancy costs.~~

General and administrative expenses have decreased in both the third quarter of 2013 and year to date 2013 when compared to the same prior year periods, mainly due to lower admissions and advertising expenses for both periods and lower administrative expenses for the quarter. Admission costs have decreased primarily in salary and related expenses due to ~~cost~~headcount reductions made in response to decreasing enrollments as well as Transitional Schools no longer enrolling new students. The lower advertising expense is substantially related to the Transitional Schools segment which was partially offset with increased advertising ~~expense~~spending within ~~our Career Schools segments~~the Culinary Arts segment in certain marketing channels to generate additional new student lead volume.

Administrative expenses were ~~favorably~~negatively impacted ~~for the quarter and year to date ended September 30, 2013 as a result of the reductions~~by $8.3 million in force carried out late 2012 through the current year to date to reorganize our campus and corporate functions to common operating structures and to better align with the current enrollment. This favorability wasproposed legal settlements which were partially offset ~~with $10.3 million of expenses related to the settlement of a legal matter, recorded within Health Education during the year to date 2013. Year to date 2012 administrative expense included a $19.0~~by an anticipated $1.5 million insurance recovery ~~recorded within Corporate and Other, related to the settlement~~for one of ~~claims under certain insurance policies.~~

these legal matters. Bad debt expense ~~incurred by each of our segments during the quarters and years to date ended September 30, 2013 and 2012 was as follows (dollars in thousands):~~

~~Total bad debt expense decreased for the current year quarter and year to date as compared to the corresponding prior year periods primarily~~increased slightly as a ~~result~~percentage of ~~the decreasing total enrollments across our segments. Within our University segments, bad debt expense as a percent of~~ revenue ~~increased as compared to the prior year periods~~ due to an increased amount of in-school payment plans, resulting from an overall reduction in Pell grants available to students as a result of changes in eligibility requirements. The decrease in bad debt expense in our Culinary Arts segment is primarily due to a greater amount of institutional grants issued to students to assist with funding gaps.

During the third quarter of 2013, in conjunction with our quarterly review process, we concluded that certain indicators existed to suggest the Le Cordon Bleu trade name was at risk of its carrying value exceeding its fair value as of September 30, 2013. As a resultBad debt expense incurred by each of our assessment, we recorded a $10.7 million trade name impairment charge for Le Cordon Bleu (Culinary Arts segment). The current quarter trade name impairment charge is in addition to the amounts recorded in the second quarter of 2013 of $2.3 million and $1.7 million for the Le Cordon Bleu and Sanford-Brown (Health Education segment) trade names, respectively. See Note 7 “Intangible Assets” of the notes to our unaudited consolidated financial statements for additional information. Alsosegments during the ~~third quarter of~~quarters ended March 31, 2014 and 2013 ~~we recorded asset impairment charges approximating $0.9 million primarily related to exiting certain facilities to optimize existing real estate.~~was as follows (dollars in thousands):

During the year to date ended September 30, 2012, we recorded a goodwill impairment charge of $83.4 million ($41.9 million within Health Education, $40.8 million within Design & Technology and $0.7 million within Transitional Schools), a trade name impairment charge of $1.0 million and asset impairment charges of $1.1 million.

The operating loss reported for the current quarter ~~and year to date ended September 30, 2013~~ resulted ~~principally~~ from the decline in revenues across all of our segments which was only partially offset ~~by lower~~with the decline in operating expenses. Initiatives to align expenses with the declining student enrollment, changes in marketing strategies and implementation of efficiencies in our support functions continue to partially offset the impact of declining revenues and deleveraging of the business. In addition, the asset impairment charges and the $1.7 million and $4.6 million of severance and related costs, recorded in the current quarter and year to date, respectively, as well as the $10.3 million of expenses related to a legal settlement recorded primarily in the second quarter of 2013, negatively impacted the quarter and year to date ended September 30, 2013 operating results.

The prior year to date operating loss of $108.3 million includes $85.5 million of goodwill and asset impairment charges primarily recorded in the second quarter of 2012 and an insurance recovery of $19.0 million related to the settlement of claims under certain insurance policies recorded in the first quarter of 2012.

~~The increase in~~As of December 31, 2013, we reported a total deferred tax valuation allowance of $82.5 million within our unaudited consolidated balance sheet. We have determined that it is necessary to continue to record this valuation allowance against our net deferred tax assets as of March 31, 2014. As a result, the effective ~~rate~~tax provision for the

quarter ended ~~September 30, 2013 as compared~~March 31, 2014 approximated $0.2 million, resulting primarily from adjustments for uncertain tax positions. We will continue to evaluate our valuation allowance in future periods for any change in circumstances that may cause a change in judgment about the ~~prior year quarter was primarily due to earnings mix changes for our ground-based institutions versus our online institutions. The increase in~~realizability of the effective rate for the year to date ended September 30, 2013 as compared to the prior year was primarily due to the write-off of nondeductible goodwill in the prior year. The year to date rate was impacted by a $8.6 million favorabledeferred tax adjustment, which is comprised of $11.2 million related to the resolution of various state tax audits and exposures offset by $2.6 million of tax benefits recaptured due to the sale of AIU London. The effect of these discrete items was to increase the effective rate benefit by 5.2%. In addition, the cumulative effect of state and foreign valuation losses decreased the quarter’s effective rate benefit by 1.0%.

The results of operations for campuses that ~~are held for sale~~have been taught out or ~~that have ceased operations or were~~ sold, and are considered distinct operations as defined under FASB ASC Topic ~~205 –~~205—Presentation of Financial Statements, are presented within discontinued operations. During the ~~third~~first quarter of ~~2013, we made~~2014, the decision to commit to a plan to sell our International Schools. Accordingly, the results of operations for these schools are reported within discontinued operations. Also, during the 2013 quarters ended June 30 and March 31, weCompany completed the teach-out of ~~our SBI Landover~~the following Sanford-Brown campuses: Austin, Collinsville, Cranston, Dearborn, Grand Rapids, Indianapolis, Portland, Tinley Park and ~~SBC Hazelwood campuses, respectively.~~Trevose. All current and prior period financial statements and the related notes herein, including segment reporting, include the results of operations and financial position of these campuses as components of discontinued operations.

The increase in the loss from discontinued operations as compared to the prior year quarter and prior year to date is primarily due to $39.9 million of tax expense recorded during the quarter ended September 30, 2013 related to the excess of the book basis over the tax basis of investments in foreign subsidiaries that are currently held for sale. See Note 4 “Discontinued Operations” of the notes to our unaudited consolidated financial statements for further discussion.

The following tables present unaudited segment results for the reported periods (dollars in thousands). Results for the prior year ~~periods~~quarter have been ~~reclassified~~recast to be comparable to the current year presentation.


	For the Quarter Ended September 30,							For the Year to Date Ended September 30,							For the Quarter Ended March 31,
	2013		2012		% Change			2013		2012		% Change			REVENUE							OPERATING (LOSS) INCOME						OPERATING MARGIN (LOSS)
NEW ENROLLMENTS:
															2014		2013		% Change			2014			2013			2014			2013
CTU		4,780		5,150		-7	%		13,710		16,620		-18	%	$	87,031	$	90,209		-3.5	%	$	14,186		$	15,912			16.3	%		17.6	%
AIU		2,880		3,700		-22	%		9,600		13,390		-28	%		52,573		66,299		-20.7	%		(3,583	)		3,146			-6.8	%		4.7	%

Total University Schools		7,660		8,850		-13	%		23,310		30,010		-22	%		139,604		156,508		-10.8	%		10,603			19,058			7.6	%		12.2	%

Health Education		3,150		3,310		-5	%		7,470		7,940		-6	%
Career Colleges																53,040		59,786		-11.3	%		(17,150	)		(15,003	)		-32.3	%		-25.1	%
Culinary Arts		3,650		3,920		-7	%		8,720		9,490		-8	%		42,246		45,938		-8.0	%		(18,046	)		(12,137	)		-42.7	%		-26.4	%
Design & Technology		990		1,060		-7	%		2,510		2,750		-9	%

Total Career Schools		7,790		8,290		-6	%		18,700		20,180		-7	%		95,286		105,724		-9.9	%		(35,196	)		(27,140	)		-36.9	%		-25.7	%

Corporate and Other																100		—		NM			(11,136	)		(6,368	)		NM			NM

Subtotal		15,450		17,140		-10	%		42,010		50,190		-16	%		234,990		262,232		-10.4	%		(35,729	)		(14,450	)		-15.2	%		-5.5	%
Transitional Schools⁽¹⁾		20		1,720		NM			120		5,330		NM
Transitional Schools																8,115		22,218		-63.5	%		(12,143	)		(10,580	)		-149.6	%		-47.6	%

Total		15,470		18,860		-18	%		42,130		55,520		-24	%	$	243,105	$	284,450		-14.5	%	$	(47,872	)	$	(25,030	)		-19.7	%		-8.8	%


	As of September 30,							NEW STUDENT ENROLLMENTS							TOTAL STUDENT ENROLLMENTS
	2013		2012		% Change			For the Quarter Ended March 31,							As of March 31,
TOTAL ENROLLMENTS:
								2014		2013		% Change			2014		2013		% Change
CTU(1)		20,500		22,000		-7	%		4,820		4,900		-2	%		20,600		21,500		-4	%
AIU(1)		12,000		14,900		-19	%		5,900		5,510		7	%		13,300		15,500		-14	%

Total University Schools		32,500		36,900		-12	%		10,720		10,410		3	%		33,900		37,000		-8	%

Health Education		9,000		10,600		-15	%
Career Colleges									3,000		3,200		-6	%		11,800		12,900		-9	%
Culinary Arts		8,000		11,200		-29	%		2,300		2,810		-18	%		8,400		8,600		-2	%
Design & Technology		5,000		6,500		-23	%

Total Career Schools		22,000		28,300		-22	%		5,300		6,010		-12	%		20,200		21,500		-6	%

Subtotal		54,500		65,200		-16	%		16,020		16,420		-2	%		54,100		58,500		-8	%
Transitional Schools		1,800		7,300		NM
Transitional Schools⁽²⁾									10		590		NM			1,600		5,100		-69	%

Total		56,300		72,500		-22	%		16,030		17,010		-6	%		55,700		63,600		-12	%

University Schools.Current quarter ~~and year to date~~ revenue ~~for our~~decreased approximately 10.8% as AIU and CTU ~~segments decreased approximately 12.0%~~experienced declines in both revenue and ~~13.9%, respectively. Lower~~total student ~~enrollment at~~enrollments as compared to the ~~beginning~~prior year quarter. The 8% decrease in total student enrollments as of March 31, 2014 compared to March 31, 2013 is driven by the ~~year, coupled with lower~~overall decline in new student enrollments ~~throughout 2013, partially resulting from certain programs which we had established~~during the past twelve months due to ~~enable students to assess their readiness to commit to enrolling~~an increase in ~~college-level courses and certain operational execution issues related to~~ student ~~intake and orientation that have negatively impacted~~applications being more than offset by a decline in the rate at which students are converted from prospective applicants to new student enrollments. We continue to make steady progress in increasing the number of applications for each of our institutions and address certain operational execution issues. New student enrollments ~~contributed~~increased approximately 3% in the current quarter for University Schools as compared to ~~this decline.~~the prior year quarter.

~~Operating~~Current quarter operating income ~~for the third quarter of 2013~~ for the University Schools decreased ~~$8.1~~$8.5 million, or ~~71.3%~~44.4%, as compared to the prior year ~~quarter. Current year to date operating income decreased $24.4 million for AIU and remained relatively flat for CTU as compared to the prior year. The decreases in operating income are~~quarter driven by the declines in revenue, which were only partially offset by decreases in operating expenses. Most expense categories were lower when compared to the prior year ~~periods,~~quarter, with the exception of administrative expenses and bad debt expense. The increase in administrative expense is primarily due to increased legal costs in the current quarter as ~~cost reduction efforts were implemented in response~~compared to the ~~continued decline in total enrollments.~~prior year quarter primarily within AIU. Bad debt ~~expense increased for both~~increases resulted from an increase in the ~~current year quarter and year to date due to an increased~~ amount of in-school payment plans, ~~within both segments,~~ resulting from an overall reduction in Pell grants available to students as a result of changes in eligibility requirements. ~~Additionally, approximately $2.8 million~~

In connection with our quarterly assessment of ~~expense was recorded within both reporting segments~~indicators of goodwill and asset impairment, we concluded that as of March 31, 2014, there were events or circumstances which occurred during the ~~third~~first quarter which indicated that the fair value of ~~2013 as~~AIU’s goodwill could be below its respective carrying value. An interim impairment test was performed for this reporting unit which resulted in no impairment. We continue to monitor the operating results and cash flows of each of our reporting units on a ~~result~~quarterly basis for signs of ~~the decision to vacate space and optimize our real estate footprint.~~

Career Schools.Current quarter ~~and year to date~~ revenue ~~for our Design & Technology,~~decreased $10.4 million, or approximately 10%, as Career Colleges and Culinary Arts ~~and Health Education segments decreased 19.4% and 23.5%, respectively,~~each experienced declines in revenue as compared to the ~~corresponding~~ prior year ~~periods.~~quarter. The decrease in revenue is primarily due to lower total student enrollments at the beginning of the year as well as new student enrollments being approximately 12% lower as compared to the prior year quarter, of which Career Colleges was 6% lower and Culinary Arts was 18% lower than the prior year quarter. Several factors have impacted new student enrollments including weather-related closures at certain campuses in the current year quarter, a decrease in the rate at which we convert a prospective student to a new enrollment and within our Culinary Arts segment, a decrease in the number of prospective applicants and challenges related to our marketing strategies. Additionally, Culinary Arts reintroduced the Associate degree program beginning in late 2012 due to the demand from students and employers. This program has a greater lead time between a prospective applicant to a new student enrollment as compared to the Certificate program due to the longer length of the program impacting a student’s likelihood to start which has contributed to the decline in new student enrollments. Culinary Arts’ revenue was also impacted by a greater amount of institutional grants awarded to students.

The current quarter operating loss of $35.2 million for Career Schools is driven by the decline in revenue, which is partially offset by decreases in operating expenses. Most expenses, including academics expenses decreased as compared to the prior year quarter, primarily due to our restructuring and re-engineering initiatives

carried out to better align with current total student enrollments. Administrative and advertising expenses increased in the current year within the Culinary Arts segment, primarily related to increased legal costs within administrative expense and increased advertising expenses as a result of a change in marketing strategy to assist in generating greater new student interest.

Transitional Schools. This segment includes our schools that are currently being taught out. Current quarter decline in revenue as compared to the prior year quarter is primarily a result of the decrease in total student enrollments at the beginning of the year and lower new enrollments throughout 2013. Although applications are slightly higher in 2013 as compared to 2012, new enrollments lag the prior year due in part to the economic conditions, the impact of our student readiness programs and certain operational inefficiencies affecting the rate at which we convert prospective students to new enrollments. The current year quarter was impacted by the announcement of the teach-out of our SBI White Plains campus and therefore did not include a full quarter of new enrollments and as a result accounted for approximately 4% of the 5% decline in new enrollments for Health Education and approximately 1% of the 6% in new enrollments for Career Schools as compared to the prior year quarter. In addition, the lower student enrollments within our Culinary Arts and Design & Technology segments are primarily within programs which yield a higher revenue per student.

For the third quarter of 2013, Career Schools reported an operating loss of $48.5 million versus a $29.1 million operating loss for the third quarter of 2012. The current year quarter includes a $10.7 million trade name impairment recorded within the Culinary Arts segment. Career Schools’ operating losses year to date 2013 and 2012, were $130.8 million and $127.6 million, respectively. Decreases in certain expense categories, including academics and admissions as a result of our restructuring and re-engineering initiatives carried out to better align with current total enrollments, were offset with the increase in legal expense, primarily related to the settlement of a legal matter for $10.3 million as well as increased advertising expenses to assist in generating greater new student interest. Additionally, the current year to date includes trade name impairment charges of $14.7 million ($13.0 million and $1.7 million recorded within the Culinary Arts and Health Education segments, respectively). The prior year to date included $82.7 million of goodwill impairment charges.

~~Transitional Schools.~~ ~~This segment includes our campuses that are currently being taught out. Current quarter and year to date revenue declined as compared to the prior year periods due to the~~ campuses no longer enrolling new students. We expect revenue to continue to decline as compared to ~~the~~ prior ~~year~~periods as campuses continue to wind down their operations. We anticipate that the majority of these campus closures will be completed by the ~~second~~third quarter of 2014.

~~Operating losses are reported for both the quarter and year to date ended 2013 as the lower revenues exceed reductions in~~The operating expenses. Reduced admissions and advertising expenses as a result of discontinuing enrollments, as well as other cost savings actions, have resulted in the operating losses for both the quarter and year to date ended 2013 improvingloss within Transitional Schools increased by $1.6 million as compared to the prior year ~~periods.~~quarter as the decrease in revenue and fixed expenses more than offset the reductions in variable operating expenses.

Corporate and Other. This category includes unallocated costs that are incurred on behalf of the entire company. ~~The approximate $26.7~~Corporate and Other costs increased $4.8 million ~~increase in year to date expenses~~ as compared to the prior year ~~results~~quarter, primarily ~~from the $19.0 million insurance recovery recorded~~due to legal settlement expense in 2012 related to the settlement of claims under certain insurance policies and additional current year to date expenses related to the change in leadership, outside services expense associated with our continuing efforts to reorganize our campus and corporate functions to better align with the current ~~total enrollment,~~quarter and ~~higher insurance costs.~~increased stock-based compensation expense as a result of the increase in stock price for cash-settled stock awards.

A detailed discussion of the accounting policies and estimates that we believe are most critical to our financial condition and results of operations that require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties is included under the caption “Summary of Critical Accounting Policies and Estimates” included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2012.~~2013. Note 2 “Summary of Significant Accounting Policies” of the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2012~~2013 also includes a discussion of these and other significant accounting policies.

As of ~~September 30, 2013,~~March 31, 2014, cash, cash equivalents and short-term investments totaled ~~$95.7~~$315.5 million. Our cash flows from operations have historically been adequate to fulfill our liquidity requirements. We historically have financed our operating activities, organic growth and acquisitions primarily through cash generated from operations, existing cash balances and credit facility borrowings. The recent declines in operating performance have resulted in an increase in net cash used in operating activities. As we execute on our strategic imperatives and pay approximately $25.0 million of accrued legal settlements in the second quarter of 2014, we expect ~~that there will be~~ continued pressure on our ~~domestic~~ operating cash flows in the short term. We anticipate that we will be able to satisfy the cash requirements associated with, among other things, our working capital needs, capital expenditures and lease commitments through at least the next 12 months primarily with cash generated by operations and existing cash balances.

~~Restricted cash balances as of September 30, 2013 approximate $12.6 million and are comprised of certificates of deposit to provide securitization for letters of credit.~~

On October 22, 2013, the Company and one of its subsidiaries entered into a Securities Purchase Agreement with Insignis, a company controlled by funds managed by Apax Partners, pursuant to which the Company will sell and transfer control of its Paris-based INSEEC Group and the International University of Monaco. Through movement of cash from our international operations prior to the closure of the transaction, along with payment expected to be received at closing, we anticipate that our domestic cash position will increase by approximately $290.0 million. As of September 30, 2013, these foreign entities had approximately $131.8 million of cash and cash equivalents. Upon the closing of this transaction, the net cash proceeds would be utilized toWe continue to ~~support~~focus on identifying strategic alternatives which will position CEC for a return to sustainable growth and optimize our ~~investment~~capital structure. Along those lines, there are a number of strategies that we can potentially employ, including investing in new business technologies, long-term borrowing options, acquisitions or divestitures, modifications to our ~~domestic operations as well as provide flexibility as~~equity structure and other organizational changes. The decisions we ~~seek opportunities~~make will be reached by balancing our short-term needs against our long-term strategies to return to growth. ~~Subsequent to the closing of this transaction, total domestic cash is expected to be approximately $375.0 million as of December 31, 2013.~~

The discussion above reflects management’s expectations regarding liquidity; however, we are not able to assess the effect of loss contingencies on future cash requirements and liquidity. See Note 98 “Commitments and Contingencies” of the notes to our unaudited consolidated financial statements. Further, as a result of the

significance of the Title IV Program 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 timing or our ability to receive Title IV Program funds would have a significant impact on our operations and our financial condition. See Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2012.~~2013.

~~We continue~~In particular, to ~~focus~~participate in Title IV Programs, our schools must either satisfy standards of financial responsibility prescribed by ED, or be subjected to additional oversight, required to post a letter of credit in favor of ED or placed on ~~identifying strategic alternatives~~provisional certification. These regulations require each eligible higher education institution to, among other things, satisfy a quantitative standard of financial responsibility that is a weighted average composite score of three annual tests which assess the financial condition of the institution. If the institution achieves a composite score of at least 1.5, it is considered financially responsible without conditions or additional oversight. See Item 1, “Business—Student Financial Aid and Related Federal Regulation—Compliance with Federal Regulatory Standards and Effect of Federal Regulatory Violations—Financial Responsibility Standards,” in our Annual Report on Form 10-K for the year ended December 31, 2013 for more information regarding ED’s standards of financial responsibility.

ED applies its quantitative financial responsibility tests annually based on an institution’s audited financial statements and may apply the tests to the parent company on a consolidated basis. Recent profitability declines and the write down of the carrying value of non-financial assets, such as deferred tax assets and goodwill, have negatively impacted our financial responsibility composite scores. Our composite score for the consolidated entity for the year ended December 31, 2012 was 1.6, and our preliminary calculation for the year ended December 31, 2013 is 1.5, which are considered financially responsible without conditions or additional oversight. The Company regularly monitors its composite score and expects downward pressure on the financial responsibility calculation for the year ending December 31, 2014, as a result of its expected operating losses and the impact of recording a valuation allowance against its deferred tax assets. The amount of deferred tax asset considered realizable could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth. In order to remain financially responsible for 2014, as defined by ED, the Company may need to take additional steps which may include further cost reductions, investing in new business technologies, long-term borrowing options, acquisitions or divestitures, modifying our equity structure or considering other organizational changes. Additionally, our investment decisions, such as the use of our cash, will ~~position CEC for~~be impacted by the course of action we choose.

ED has significant discretion in determining the monitoring and reporting procedures applicable to an institution with a ~~return to sustainable growth. Along those lines,~~composite score below 1.5, including the amount of any required letter of credit and the terms of any provisional certification. If in the future we are ~~working~~required to ~~complete~~satisfy ED’s standards of financial responsibility on an alternative basis, including potentially by posting irrevocable letters of credit, we may not have the ~~sale~~capacity to post these letters of ~~our foreign assets, assess our real estate footprint, evaluate the portfolio of campuses and extend or replace our existing line of~~ credit. We have received a commitment from BMO Harris N.A. to extend our existing credit agreement to January 2015 under the same terms and conditions as the current facility. We are also discussing revised terms and conditions for a facility which would replace our existing facility subject to the consummation of the sale of our International operations. The decisions we make will be reached by balancing our short-term needs against our long-term strategies to return to growth.

During the ~~year to date~~quarters ended ~~September 30,~~March 31, 2014 and March 31, 2013, net cash ~~flows~~ used in operating activities totaled ~~$77.8 million. During the year to date ended September 30, 2012, net cash flows provided by operating activities totaled $32.5 million.~~$35.4 million and $14.2 million, respectively. The increase in our use of operating cash ~~flows~~ is driven primarily by the operating loss for the current year to date, ~~as well as~~net payments of ~~legal settlements~~income taxes and ~~severance and related costs.~~timing of other payments.

Our primary source of cash flows from operating activities is tuition collected from our students. Our students derive the ability to pay tuition costs through the use of a variety of funding sources, including, among others, federal loan and grant programs, state grant programs, private loans and grants, school payment plans,

private and institutional scholarships and cash payments. For the ~~years to date~~quarters ended ~~September 30,~~March 31, 2014 and 2013, approximately 77% and ~~2012, approximately~~ 78% ~~and 80%~~, respectively, of our ~~U.S.~~ schools’ cash receipts from tuition payments ~~come~~came from Title IV Program funding.

For further discussion of Title IV Program funding and alternative private loan funding sources for our students, see “Student Financial ~~Aid And Related Federal Regulation”~~Aid” in Item 1, ~~“Business”,~~“Business,” in our Annual Report on Form 10-K for the year ended December 31, ~~2012.~~2013.

Our primary uses of cash to support our operating activities include, among other things, cash paid and benefits provided to our employees for services, to vendors for products and services, to lessors for rents and operating costs related to leased facilities, to suppliers for textbooks and other school supplies, and to federal, state and local governments for income and other taxes.

During the year to date ended September 30, 2013, we recorded a loss on the sale of AIU London of $7.0 million. Included in the loss on sale was $3.3 million relating to the cumulative translation loss resulting from the effects of foreign currency on AIU London’s balance sheet.

During the ~~years to date~~quarters ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012,~~ net cash ~~flows~~ used in investing activities totaled ~~$7.5~~$19.0 million and ~~$4.4~~$6.1 million, respectively.

Purchases and Sales of Available-for-Sale Investments. Purchases and sales of available-for-sale investments resulted in a $15.5 million net cash ~~inflow of $11.6~~outflow and a $0.1 million ~~and $29.7 million~~net cash outflow during the ~~years to date~~quarters ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012,~~ respectively.

Capital Expenditures.Capital expenditures decreased to ~~$16.6~~$3.5 million for the ~~year to date~~quarter ended ~~September 30, 2013~~March 31, 2014 as compared to ~~$29.5~~$4.1 million for the ~~year to date~~quarter ended ~~September 30, 2012.~~March 31, 2013. Capital expenditures represented ~~1.8%~~1.4% and ~~2.6%~~1.2% of total revenue of continuing and discontinued operations during the ~~years to date~~quarters ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012,~~ respectively. The decrease in capital expenditures as compared to the prior year to date is primarily due to the investment made in 2012 in our IT infrastructure and online student platforms as well as the elimination of capital expenditures at campuses included in our Transitional Schools segment in 2013.

~~Payments of Cash upon Sale of Business.~~~~In conjunction with the sale of AIU London, we paid $2.5 million in cash to the buyer in consideration of negative working capital.~~

During the ~~year to date~~quarter ended ~~September 30, 2013,~~March 31, 2014, net cash ~~flows provided by financing activities approximated $5.9 million. During the year to date ended September 30, 2012, net cash flows~~ used in financing activities totaled ~~$62.0 million.~~$0.2 million, versus net cash provided by financing activities of $6.7 million during the quarter ended March 31, 2013.

Credit Agreement. During the fourth quarter of ~~2012,~~2013, we entered into a ~~revolving credit facility pursuant to a~~$70.0 million Amended and Restated Credit Agreement with BMO Harris Bank N.A., in its capacities as the initial lender and letter of credit issuer thereunder and the administrative agent for the lenders which from time to time may be parties to the Credit Agreement. The revolving credit facility under the Credit Agreement is scheduled to mature on June 30, 2016. The Credit Agreement, which includes certain financial covenants, requires that interest and fees are payable quarterly in arrears and principal is payable at maturity.

~~We borrowed the maximum amount of $80.0 million under the Credit Agreement in December 2012 and repaid this amount in full during the first quarter of 2013.~~ As of ~~September 30,~~March 31, 2014 and December 31, 2013, we ~~have~~had no outstanding borrowings ~~outstanding~~ under ~~this Agreement.~~

~~Restricted Cash.~~During 2012, we established restricted cash balances of approximately $97.9 million, of which $88.0 million represented the 110% cash collateral for the loans secured under our Credit Agreement that was entered into during the fourth quarter of 2012. In the first quarter of 2013, we repaid the revolving credit ~~facility thereby releasing the $88.0~~facility.

Restricted Cash. As of March 31, 2014 and December 31, 2013, we had approximately $12.9 million and $12.6 million, respectively, of restricted ~~cash.~~

~~Repurchases of Stock.~~ We did not repurchase any shares of our common stock during the year to date ended September 30, 2013. During the year to date ended September 30, 2012, we repurchased 6.1 million shares of our common stock for approximately $56.4 million at an average price of $9.29 per share. Repurchases of stock in 2012 were funded by cash generated from operating activities.

As of ~~September 30, 2013~~March 31, 2014 there were no significant changes to our contractual obligations from December 31, ~~2012.~~2013. We are not a party to any off-balance sheet financing or contingent payment arrangements, nor do we have any unconsolidated subsidiaries.

~~Changes in Financial Position – September 30, 2013 compared to December 31, 2012~~

~~Selected unaudited consolidated balance sheet account changes from December 31, 2012 to September 30, 2013 were as follows (dollars in thousands):~~

~~Total cash and cash equivalents and short-term investments:~~ The decrease is primarily driven by the first quarter of 2013 $80.0 million repayment of borrowings under our Credit Agreement and an increase in the net cash used in operating activities as a result of the current year to date operating loss.

~~Receivables, other, net~~: The increase is primarily due to an insurance recovery receivable related to the proposed settlement of our Securities and Shareholder Derivative litigation matters recorded in the second quarter of 2013. See Note 9, “Commitments and Contingencies”.

~~Prepaid expenses~~~~: The increase is mainly due to the year to date income tax benefit of $82.9 million.~~

~~Assets of discontinued operations:~~ The increase is due to non-current assets held for sale as of December 31, 2012 being classified as current assets held for sale as of September 30, 2013 upon the determination that the sale of our International Schools is expected to be completed within one year.

~~Accrued expenses, other~~~~: The increase is primarily due to $32.5 million of litigation accruals being recorded in the second quarter of 2013. See Note 9, “Commitments and Contingencies”.~~

~~Deferred income tax liabilities, net:~~A deferred income tax liability was recorded during the current year quarter in the amount of $39.9 million related to the tax effect of the difference in book basis versus tax basis for our assets held for sale. This liability was recorded within continuing operations during the third quarter of 2013.

~~Liabilities of discontinued operations:~~ This increase is primarily due to an increase in deferred revenue for our assets held for sale as those institutions typically bill students up front at the beginning of the fall session. This balance decreases over the term as revenues are earned.

We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. We use various techniques to manage our market risk, including, from time to time, the use of derivative financial instruments. We do not use derivative financial instruments for speculative purposes.

Our municipal bond investment in auction rate securities (“ARS”) has a stated term to maturity of greater than one ~~year. We~~year, and as such, we classify our investment in ARS as non-current on our unaudited consolidated balance sheets within other ~~non-current~~ assets. ~~An auction~~Auctions can “fail” when the number of sellers of the security exceeds the buyers for that particular auction period. In the event that an auction fails, the interest rate resets at a rate based on a formula determined by the individual security. The ARS for which ~~an auction has~~auctions have failed continues to accrue interest and is auctioned on a set interval until the auction succeeds, the issuer calls the ~~securities,~~security, or it matures. As of ~~September 30, 2013,~~March 31, 2014, we have determined this investment is at risk for impairment due to the nature of the liquidity of the market over the past year. ~~As a result, we recorded a cumulative~~Cumulative unrealized ~~loss~~losses as of March 31, 2014 amount to $0.5 million and are reflected within accumulated other comprehensive ~~income (loss) on our unaudited consolidated balance sheet~~loss as a component of ~~approximately $0.5 million as of September 30, 2013.~~stockholders’ equity. We believe this impairment is temporary, as we do not intend to sell the investment and it is unlikely we will be required to sell the investment before recovery of its amortized cost basis.

Any outstanding borrowings under our ~~Credit Agreement~~revolving credit facility bear annual interest at fluctuating rates under either the Base Rate Loan or as determined by ~~the Base Loan Rate or~~ the London Interbank Offered Rate (LIBOR) for the relevant currency, plus the applicable rate based on the type of loan. As of ~~September 30, 2013,~~March 31, 2014, we had no outstanding borrowings under this ~~agreement.~~facility.

Our financial instruments are recorded at their fair values as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012.~~2013. We believe that the exposure of our consolidated financial position and results of operations and cash flows to adverse changes in interest rates is not significant.

We are subject to foreign currency exchange exposures arising from current and anticipated transactions denominated in currencies other than the U.S. dollar, and from the translation of foreign currency balance sheet accounts into U.S. dollar balance sheet accounts. Specifically, we are subject to risks associated with fluctuations in the value of the Euro versus the U.S. dollar.

As a percentage of total continuing and discontinued operations for the year to date ended September 30, 2013, our international operations represented approximately 11% of revenue and contributed $2.3 million of earnings before tax within discontinued operations. Total assets of our international operations represent 25% of total consolidated assets as of September 30, 2013. Our current year to date discontinued operations results included a $1.5 million favorable impact of foreign currency exchange rates related to revenue versus the prior year to date. The impact of foreign currency exchange rates on operating income was not material when compared to the prior year to date.

We completed an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q (“Report”) under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September 30, 2013,~~March 31, 2014 our disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by us in this Report was recorded, processed, summarized, and reported within the time periods specified in the rules and forms provided by the U.S. Securities and Exchange Commission (“SEC”) and (ii) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~September 30, 2013~~March 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management does not expect that our disclosure controls and procedures or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls

must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Note 98 “Commitments and Contingencies” to our unaudited consolidated financial statements is incorporated herein by reference.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Part I, Item 1A “Risk ~~Factors”,~~Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2012,~~2013, which was filed with the Securities and Exchange Commission on February ~~28, 2013.~~27, 2014.

The following table sets forth information regarding purchases made by us of shares of our common stock on a monthly basis during the ~~year to date~~quarter ended ~~September 30, 2013:~~March 31, 2014:

The exhibits required to be filed by Item 601 of Regulation S-K are listed in the “Exhibit ~~Index”,~~Index,” which is attached hereto and incorporated by reference herein.

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 thereunto duly authorized.


Delaware		36-3932190
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

231 N. Martingale Road Schaumburg, Illinois		60173
(Address of principal executive offices)		(Zip Code)


Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	~~Accelerated filer~~ x	~~Non-accelerated filer~~ ¨	~~Smaller reporting company~~ ¨
		~~(Do~~ (Do not check if a smaller reporting company)		Smaller reporting company	¨


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Consolidated Balance Sheets		1

	Unaudited Consolidated Statements of Loss and Comprehensive Loss		2

	Unaudited Consolidated Statements of Cash Flows		3

	Notes to Unaudited Consolidated Financial Statements		4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3125

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		4636

Item 4.	Controls and Procedures		4737

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings		4839

Item 1A.	Risk Factors		4839

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		4839

Item 6.	Exhibits		4839

SIGNATURES			4940


	September 30, 2013		December 31, 2012
Assets:
Cash and cash equivalents	$	131,817	$	127,679
Receivables, net		24,768		15,604
Property and equipment, net⁽¹⁾		32,599		29,326
Goodwill⁽¹⁾		46,817		45,669
Other intangible assets⁽¹⁾		5,693		5,664
Other assets, net⁽¹⁾		8,674		9,072

Total assets held for sale	$	250,368	$	233,014

Liabilities:
Capital lease obligations	$	—	$	211
Accounts payable and accrued expenses		23,395		23,661
Deferred revenue		57,453		42,090
Other liabilities⁽²⁾		2,170		2,152

Total liabilities held for sale	$	83,018	$	68,114


	Balance, Beginning of Period		Charges Incurred ⁽¹⁾		Net Cash Payments			Other ⁽²⁾			Balance, End of Period
For the quarter ended September 30, 2013	$	37,660	$	214	$	(2,945	)	$	—		$	34,929

For the quarter ended September 30, 2012	$	41,212	$	2,531	$	(2,511	)	$	—		$	41,232

For the year to date ended September 30, 2013	$	42,277	$	1,060	$	(8,357	)	$	(51	)	$	34,929

For the year to date ended September 30, 2012	$	45,961	$	3,270	$	(7,999	)	$	—		$	41,232


	Balance, Beginning of Period		Charges Incurred ⁽¹⁾			Net Cash Payments			Other ⁽²⁾			Balance, End of Period
For the quarter ended March 31, 2014	$	43,900	$	6,311		$	(5,817	)	$	3,033		$	47,427

For the quarter ended March 31, 2013	$	46,298	$	(227	)	$	(2,294	)	$	(38	)	$	43,739


	September 30, 2013		December 31, 2012
Cash collateral for amounts under:
Credit Agreement	$	—	$	88,000
Letters of credit		12,564		7,376
Funds restricted for legal matter		—		2,502

Total restricted cash	$	12,564	$	97,878


	As of September 30, 2013
	Level 1		Level 2		Level 3		Total
U.S. Treasury bills	$	52,210	$	—	$	—	$	52,210
Municipal bond		—		—		7,382		7,382

Totals	$	52,210	$	—	$	7,382	$	59,592


Balance at December 31, 2012	$	7,382
Unrealized gain (loss)		—

Balance at September 30, 2013	$	7,382


Balance at December 31, 2013	$	7,374
Unrealized gain (loss)		—

Balance at March 31, 2014	$	7,374


	Balance, Beginning of Period		Charges to Expense⁽¹⁾		Amounts Written-off			Balance, End of Period
For the quarter ended September 30, 2013	$	33,460	$	7,884	$	(10,101	)	$	31,243

For the quarter ended September 30, 2012	$	46,229	$	10,847	$	(15,180	)	$	41,896

For the year to date ended September 30, 2013	$	40,154	$	21,187	$	(30,098	)	$	31,243

For the year to date ended September 30, 2012	$	57,232	$	27,240	$	(42,576	)	$	41,896


	Balance, Beginning of Period		Charges to Expense ⁽¹⁾		Amounts Written-off			Balance, End of Period
For the quarter ended March 31, 2014	$	27,953	$	5,866	$	(8,056	)	$	25,763

For the quarter ended March 31, 2013	$	39,163	$	5,751	$	(11,179	)	$	33,735


Balance as of December 31, 2012	$	10,234
Severance & related charges		4,592
Payments⁽¹⁾		(7,339	)
Non-cash adjustments⁽²⁾		(775	)

Balance as of September 30, 2013	$	6,712


	Balance, Beginning of Period		Severance and related charges		Payments ⁽¹⁾			Non-cash adjustments ⁽²⁾			Balance, End of Period
For the quarter ended March 31, 2014	$	4,913	$	—	$	(593	)	$	(278	)	$	4,042

For the quarter ended March 31, 2013	$	7,931	$	364	$	(4,060	)	$	(73	)	$	4,162


	Restricted Stock Units to be Settled in Cash
Outstanding as of December 31, ~~2012~~2013		— 2,289
Granted		~~2,938~~966
Vested		— (655	)
Forfeited		(~~448~~225	)


Outstanding as of ~~September 30, 2013~~March 31, 2014		~~2,490~~2,375


	Total Assets as of⁽⁶⁾
	September 30, 2013		December 31, 2012
CTU	$	74,300	$	72,554
AIU		60,755		65,092

Total University Schools		135,055		137,646

Health Education		36,884		52,511
Culinary Arts		145,860		173,477
Design & Technology		32,108		30,720

Total Career Schools		214,852		256,708

Corporate and Other		342,734		433,233

Subtotal		692,641		827,587
Transitional Schools		19,731		38,448
Discontinued Operations		272,811		256,668

Total	$	985,183	$	1,122,703


	Total Assets as of ⁽¹⁾
	March 31, 2014		December 31, 2013
CTU	$	74,253	$	75,441
AIU		53,431		54,426

Total University Schools		127,684		129,867

Career Colleges		55,713		58,718
Culinary Arts		104,230		108,349

Total Career Schools		159,943		167,067

Corporate and Other		440,458		491,674

Subtotal		728,085		788,608
Transitional Schools		11,484		13,433
Discontinued Operations		1,929		3,004

Total	$	741,498	$	805,045


	For the Quarter Ended March 31,
	2014			% of Segment Revenue			2013			% of Segment Revenue
Bad debt expense:
CTU	$	2,270			2.6	%	$	2,014			2.2	%
AIU		2,339			4.4	%		1,620			2.4	%

Total University Schools		4,609			3.3	%		3,634			2.3	%
Career Colleges		564			1.1	%		710			1.2	%
Culinary Arts		703			1.7	%		1,758			3.8	%

Total Career Schools		1,267			1.3	%		2,468			2.3	%
Corporate and Other		(181	)		NM			(717	)		NM

Subtotal		5,695			2.4	%		5,385			2.1	%
Transitional Schools		171			2.1	%		366			1.6	%

Total	$	5,866			2.4	%	$	5,751			2.0	%


	As of
	September 30, 2013		December 31, 2012		% Change
ASSETS
CURRENT ASSETS:
Total cash and cash equivalents and short-term investments	$	95,698	$	274,634		-65	%
Receivables, other, net		39,845		2,096		NM
Prepaid expenses		112,836		38,296		NM
Assets of discontinued operations		254,097		153,675		65	%

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accrued expenses, other		61,383		35,060		75	%
Deferred income tax liabilities, net		32,752		—		100	%
Liabilities of discontinued operations		95,975		76,020		26	%


Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
December 31, 2012							$	183,296,772
January 1, 2013—January 31, 2013		—	$	—		—		183,296,772
February 1, 2013—February 28, 2013		—		—		—		183,296,772
March 1, 2013—March 31, 2013		155,423		2.92		—		183,296,772
April 2013—April 30, 2013		—		—		—		183,296,772
May 1, 2013—May 31, 2013		15,429		3.07		—		183,296,772
June 1, 2013—June 30, 2013		236		2.98		—		183,296,772
July 1, 2013—July 31, 2013		—		—		—		183,296,772
August 1, 2013—August 31, 2013		—		—		—		183,296,772
September 1, 2013—September 30, 2013		—		—		—		183,296,772

Total		171,088				—


	CAREER EDUCATION CORPORATION

Date: ~~November 6, 2013~~ May 8, 2014	By:	/S/ SCOTT W. STEFFEY
		Scott W. Steffey President and Chief Executive Officer (Principal Executive Officer)

Date: ~~November 6, 2013~~ May 8, 2014	By:	/S/ COLLEEN M. O’O’S~~SULLIVAN~~ULLIVAN
		Colleen M. O’Sullivan Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)


Exhibit Number	Exhibit

~~+3.2~~ *10.1	~~Sixth Amended and Restated By-laws~~Form of 2014 Performance Unit Agreement under the Career Education Corporation ~~(as amended as of October 24, 2013).~~2008 Incentive Compensation Plan (the “2008 Plan”) (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 10, 2014)

*10.2	Form of Non-Qualified Stock Option Agreement under the 2008 Plan (incorporated by reference to Exhibit 10.2 to our Current Report on form 8-K filed on March 10, 2014)

*10.3	Form of Restricted Stock Unit Agreement under the 2008 Plan (Time-Based) (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on March 10, 2014)

*10.4	Form of Cash-Settled Restricted Stock Unit Agreement under the 2008 Plan (Time-Based) (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on March 10, 2014)

*10.5	Form of Restricted Stock Unit Agreement under the 2008 Plan (Performance-Based) (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 19, 2014)

+*~~10.1~~10.6	Letter Agreement between Career Education Corporation and ~~Diane Auer Jones~~Jeffrey R. Cooper dated ~~July 17, 2013.~~	January 10, 2014

~~+*10.2~~	~~Separation Agreement and General Release between Career Education Corporation and Daniel Hurdle dated September 5, 2013.~~

~~+*10.3~~	~~Executive Retention Agreement between Organisation et Developpement and Catherine Lespine dated September 30, 2013.~~

~~+*10.4~~	~~Employment Contract between INSEEC and Catherine Lespine dated June 27, 2013.~~

~~+*10.5~~	~~Employment Contract between Organisation et Developpement and Catherine Lespine dated June 27, 2013.~~

~~+*10.6~~	~~Executive Retention Agreement between INSEEC and Catherine Lespine dated March 4, 2013.~~

~~+*10.7~~	~~Executive Retention Agreement between Organisation et Developpement and Catherine Lespine dated March 4, 2013.~~

~~+31.1~~ +31.1	Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

~~+31.2~~ +31.2	Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

~~+32.1~~ +32.1	Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

~~+32.2~~ +32.2	Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

+101	The following financial information from our Quarterly Report on Form 10-Q for the ~~nine~~three months ended ~~September 30, 2013,~~March 31, 2014, filed with the SEC on ~~November 6, 2013,~~May 8, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) the Unaudited Consolidated Balance Sheets as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, (ii) the Unaudited Consolidated Statements of Loss and Comprehensive Loss for the ~~quarter~~three months ended March 31, 2014 and ~~year to date ended September 30,~~March 31, 2013, ~~and September 30, 2012,~~ (iii) the Unaudited Consolidated Statements of Cash Flows for the ~~year to date~~three months ended ~~September 30,~~March 31, 2014 and March 31, 2013, ~~and September 30, 2012,~~ and (iv) Notes to Unaudited Consolidated Financial Statements.