SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x                                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006,

or

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

For the transition period from                      to                      

Commission File Number 0-23245

CAREER EDUCATION CORPORATION

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (847) 781-3600

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.01 par value

(Title of Class)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.   Yes x    No o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.   Yes o    No x

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934):

Indicate by check mark whether the Registrant is a shell company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934.   Yes o    No x

The aggregate market value of the Registrant’s voting common stock held by non-affiliates of the Registrant, based upon the $29.89 per share closing sale price of the Registrant’s common stock on June 30, 2006 (the last business day of the Registrant’s most recently completed second quarter), was approximately $1,524,952,231. For purposes of this calculation, the Registrant’s directors and executive officers and holders of 10% or more of the Registrant’s outstanding shares of voting common stock have been assumed to be affiliates, with such affiliates holding an aggregate of 43,676,968 shares of the Registrant’s voting common stock on June 30, 2006.

Number of shares of Registrant’s common stock, par value $0.01, outstanding as of February 27, 2007, was 94,890,370.

Portions of the Registrant’s Notice of Annual Meeting and Proxy Statement for the Registrant’s 2007 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.

CAREER EDUCATION CORPORATION

FORM 10-K

TABLE OF CONTENTS

2

PART I

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking 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 used words such as “anticipate,” “believe,” “plan,” “expect,” “intend,” “will,” and similar expressions, but these words are not the exclusive means of identifying these 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 discussed herein under the caption “Risk Factors,” that could cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects, and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by federal securities laws, we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events, developments, or changed circumstances or for any other reason.

ITEM 1.                BUSINESS

As used in this Annual Report on Form 10-K, the terms “we,” us,” “our,” and “CEC” refer to Career Education Corporation and our wholly-owned subsidiaries. The terms “school” and “university” each refer to an individual, branded, proprietary educational institution, owned by us and including its campus locations. The term “campus” refers to an individual main or branch campus operated by one of our schools.

BUSINESS OVERVIEW

We are a dynamic educational services company committed to quality, career-focused learning and led by passionate professionals who inspire individual worth and lifelong achievement. Since our founding in 1994, we have progressed rapidly toward our goal of becoming the world’s leading provider of quality educational services. We are one of the world’s leading on-ground providers of private, for-profit, postsecondary education and have a substantial presence in online education. Our schools and universities prepare students for professionally and personally rewarding careers through the operation of 71 on-ground campuses located throughout the United States and in France, Canada, Italy and the United Kingdom and two fully-online academic programs.

Our schools and universities offer doctoral degree, master’s degree, bachelor’s degree, associate degree, and non-degree certificate and diploma programs in the following core career-oriented disciplines:

·       Culinary Arts: Programs within this discipline include culinary arts, hotel and restaurant management, and baking and pastry arts.

·       Visual Communication and Design Technologies: Programs within this discipline include desktop publishing, graphic design, fashion design and merchandising, interior design, graphic imaging, web page design, animation, photography, game design, digital film and media and visual journalism.

·       Health Education: Programs within this discipline include medical assistance, medical billing and coding, massage therapy, pharmacy technician, diagnostic medical ultrasound, cardiovascular technician, surgical technician, dental assistance, and medical office administration.

·       Business Studies: Programs within this discipline include business administration, business operations, merchandising management, business administration and marketing, paralegal studies, hospitality management, criminal justice, and education.

3

·       Information Technology: Programs within this discipline include PC/LAN, PC/Net, computer technical support, computer network operation, computer information management, computer science and computer engineering and computer programming.

We evaluate our business based on our operating segments, which we define as our operating divisions. Each of our school and university operating divisions represents a group of for-profit, postsecondary schools that offer a variety of degree and non-degree academic programs and are differentiated based on a variety of criteria including, but not limited to, brand name, academic offerings, and geographic location. We have six school reportable segments, consisting of the Academy segment, the Colleges segment, the Culinary Arts segment, the Health Education segment, the International segment (formerly known as the INSEEC segment), and the University segment and one non-school reportable segment, the JDV Online segment.

The Academy segment includes our International Academy of Design and Technology (“IADT”) campuses that collectively offer academic programs primarily in the career-oriented discipline of visual communications and design technologies in a classroom setting.

The Colleges segment includes schools that collectively offer academic programs in our core career-oriented disciplines of business studies, health education, information technology, and visual communications and design technologies in a classroom or laboratory setting.

The Culinary Arts segment includes our Le Cordon Bleu and Kitchen Academy schools that collectively offer culinary arts programs in the career-oriented disciplines of culinary arts, baking and pastry arts, and hotel and restaurant management primarily in a classroom or kitchen setting.

The Health Education segment primarily includes our Sanford-Brown schools that collectively offer academic programs in the career-oriented disciplines of health education, business studies, visual communications and design technologies, and information technology in a classroom or laboratory setting.

The International segment includes our INSEEC Group schools that are located throughout France and collectively offer academic programs in the career-oriented disciplines of business studies, health education, and visual communication and technologies in a classroom or laboratory setting.

The University segment includes our American Intercontinental University (“AIU”) and Colorado Technical University (“CTU”) universities that collectively offer academic programs in the career-oriented disciplines of business studies, visual communication and design technologies, health education, information technology, criminal justice, and education in an online, classroom, or laboratory setting.

The JDV Online segment was launched in October 2004 and focuses on the development of a range of short-term online learning and informational programs that generates revenue through the sale of products, premium digital content, and advertising space. The JDV Online segment’s primary ventures include Chefs.com, a consumer-focused culinary website, and Blish.com, a comprehensive online marketplace aimed at uniting buyers and sellers of digital content. During 2007, in connection with our commitment to a more focused business strategy, we will be eliminating our JDV Online segment by transferring Chefs.com to our Culinary Arts segment and discontinuing Blish.com.

See Note 18 “Segment Reporting” of the notes to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion of the financial results of our reporting segments for each of the last three years.

4

Division and Campus Information

Total student population for continuing operations as of January 31, 2007 and 2006 was approximately 89,300 students and 94,100 students, respectively. Included in total student population for continuing operations as of January 31, 2007 and 2006, were approximately 28,600 students and 32,700 students, respectively, enrolled in our University segment’s fully-online academic platforms. Total student population for continuing operations by operating division as of January 31, 2007 and 2006, and related continuing operations student population demographic information as of January 31, 2007 and 2006, were as follows:

Student Population by Segment:

Student Population by Age Group:

Student Population by Core Curricula:

(1)          Student population excludes SBI Springfield, which is currently being taught out.

5

Student Population by Degree Granting Program:

Total student starts for continuing operations during the years ended December 31, 2006 and 2005, were approximately 92,150 students and 107,410 students, respectively. Included in total student starts for continuing operations during the years ended December 31, 2006 and 2005, respectively, were approximately 42,400 student starts and 54,400 student starts attributable to our University segment’s fully-online academic platforms. Total student starts for continuing operations by operating segment for the years ended December 31, 2006 and 2005, were as follows:

(1)          Student starts excludes SBI Springfield, which is currently being taught out.

Certain other key information regarding each of our continuing operating divisions, schools, and campuses is summarized in the following table:

SCHOOL AND CAMPUS INFORMATION TABLE

6

7

          (1) Represents the date on which we acquired the school or individual campus. Start-up campuses that we opened after the initial school acquisition are marked by an “*.” For start-up campuses, the date opened corresponds to the date on which students first matriculated.

          (2) Our schools offer degree and diploma programs within our core curricula of business studies (“B”), culinary arts (“CA”), health education (“HE”), information technology (“IT”), and visual communication and design technologies (“VC”). All of our campuses are degree-granting, with the exception of Kitchen Academy; Sanford-Brown College, Collinsville; and all of our Sanford-Brown Institute campuses located outside of Florida, except for the Houston location.

          (3) Represents the year during which the first IADT campus in Chicago, IL, was founded.

          (4) The first location listed represents the school’s main campus location and the second location listed represents a satellite campus of the school. We define a satellite campus as a separate location of a main or branch campus that is in reasonable geographic proximity to and is managed by the related main or branch campus. Satellite campuses are not included in our campus count.

          (5) Represents the year during which the first Sanford-Brown College campus in Fenton, MO, was founded.

          (6) Represents the year during which the first Sanford-Brown Institute campus in New York, NY, was founded.

          (7) Represents the year during which the INSEEC Paris campus in Paris, France, was founded.

          (8) Represents the year during which the first AIU campus, AIU-Buckhead, in Atlanta, GA, was founded.

          (9) Represents the year during which the first CTU campus in Colorado Springs, CO, was founded.

    (10) Stonecliffe College Online is an academic division of CTU. As such, we do not include Stonecliffe College Online in our campus count.

8

The table above excludes schools that have been sold, closed, have ceased admitting new students, or are part of the Sales Plan discussed above. Certain key information regarding each of our discontinued operating divisions, schools, and campuses is summarized in the following table:

DISCONTINUED SCHOOL AND CAMPUS INFORMATION TABLE

Seasonality

The operating results of our schools’ on-ground campuses generally fluctuate on a quarterly basis, primarily as a result of changes in student enrollment. Our schools generally experience a seasonal increase in enrollment in the fall, traditionally when the largest number of new high school graduates begins postsecondary education. Furthermore, although we encourage year-round attendance at all campuses, certain programs offered by some of our schools include summer breaks. As a result of these factors, our total student population and revenues are generally highest in the fourth quarter (October through December) and lowest in the second quarter (April through June). Operating costs for our schools do not fluctuate as significantly on a quarterly basis, except for admissions and advertising expenses, which are generally higher during the second quarter and third quarter (April through September) in support of seasonally high enrollment. We anticipate that these seasonal trends will continue.

The results of operations of AIU Online fluctuate on a quarterly basis, primarily as a result of the platform’s academic calendar and, more specifically, the number of instructional days in each quarter. Historically, the number of revenue-generating instructional days has been highest during the first and second quarters (January through June), lower in the third quarter (July through September), and lowest in the fourth quarter (October through December). The operating costs of AIU Online do not fluctuate as significantly on a quarterly basis. We anticipate that these seasonal trends will continue.

The results of operations of CTU Online are not significantly impacted by seasonal trends, as the number of revenue-generating instructional days during each quarter and related operating costs don’t fluctuate significantly.

9

Employees

As of January 31, 2007, we had a total of approximately 16,740 employees, including approximately 2,690 students employed on a part-time basis at certain of our schools, as follows:

Our Katharine Gibbs School in New York, which is part of our discontinued operations, and the United Federation of Teachers Local 2, are parties to a collective bargaining agreement which became effective on July 25, 2006, and expires on July 24, 2009. The Union represents all of the full and part time faculty members and the agreement is the first one between the parties.

INDUSTRY BACKGROUND AND COMPETITION

The postsecondary education industry includes approximately 6,500 institutions that participate in federally-sponsored financial aid programs authorized by Title IV of the Higher Education Act of 1965, as amended (“HEA”), which we refer to as “Title IV Programs.” According to the National Center for Education Statistics, approximately 17.7 million students enrolled in degree-granting, postsecondary institutions during the 2004 academic year, and postsecondary education in the United States generated estimated revenues of $339 billion during the 2005-2006 academic year. Postsecondary education institutions are generally grouped into one of three sectors: (1) public, not-for-profit, (2) private, not-for-profit, and (3) private, for-profit. According to NCES and Harris-BMO’s 2006 Education Industry Review, the private, for-profit sector includes approximately 2,600 institutions and approximately 1.2 million students participating in Title IV Programs. Harris-BMO estimates that for-profit sector revenues during 2006 were approximately $27.5 billion.

The postsecondary education industry is highly fragmented and competitive. No single institution claims a significant market share. Our schools compete with traditional public and private two-year and four-year colleges and universities, other proprietary institutions, and alternatives to postsecondary education, such as immediate employment and military service. In addition, many private, for-profit postsecondary educators and certain not-for-profit public and private postsecondary educators offer fully-online education platforms that compete directly with the fully-online educational platforms offered by certain of our schools.

Our primary competitors in the publicly-traded, for-profit postsecondary industry are: Apollo Group, Corinthian Colleges, Devry, ITT Educational Services, and Strayer Education. We also compete with an increasing number of private, for-profit postsecondary institutions, including Education Management Corporation.

We believe that our schools compete with other educational institutions principally based upon the quality of educational programs, reputation in the business community, program costs, and graduates’ ability to find employment. Some public and private institutions are able to charge lower tuition for courses of study similar to courses of study offered by our schools due, in part, to government subsidies, government and foundation grants, tax-deductible contributions, and other financial resources not available to proprietary institutions. However, tuition at private, not-for-profit institutions is, on average, higher than the average tuition rates of our schools. Additionally, some of our competitors in both the public and private sectors may have substantially greater financial and other resources than we do.

10

During 2006, some of our schools experienced increased competition for student enrollments in the specific markets that the schools serve. Also, our schools’ fully-online platforms experienced increased competition for online student enrollments.

BUSINESS AND OPERATING STRATEGY

To compete successfully in today’s demanding workplace, individuals require a solid educational foundation that provides them with the knowledge and skills they will use on the job. Our business and operating strategy is focused on establishing “schools of passion” in the postsecondary education market and enabling our schools to meet the needs and demands of our students. Our overall business strategy is built on the following four platforms: management of the business, people, compliance, and business expansion.

Management of the Business

Emphasize Customer Service throughout the Student Academic Life-Cycle.   We believe that the effective service of our customers is the foundation for our business and operating strategy. Our schools primary customers are our students. We continuously strive to maximize the overall quality of our customer service by focusing on the following key facets of the student’s academic life-cycle:

·       Student recruitment and admissions.   The student recruitment and admissions process begins when a student initially shows interest in attending one of our schools. Admissions representatives at our schools work with each prospective student to determine the student’s career goals and how our schools can assist him or her in achieving those goals.

·       Enrolled student attending class.   Upon enrolling in a program at one of our schools, students consult with faculty and administrators to establish an academic path that will promote completion of their programs and subsequent employment in their fields of choice. Our financial aid professionals assist students in financing the costs of their programs through the use of available sources of government and private assistance, including scholarship and grant programs offered by or through our schools.

·       Quality of the educational experience.   Our success as a company is dependent on our ability to provide our students with a quality educational experience that allows them to develop the skills and knowledge they need to succeed in their studies. Our faculty, many of whom have years of experience in their fields, understand the need to create a learning environment that encourages students to progress in their studies.

·       Student graduation and employment.   As our students near the completion of their academic programs, career services staff members at our campuses provide students with a variety of career development tools that are designed to help them secure employment or advancement in their field of choice.

To effectively service the educational needs of our students, our schools offer a full range of educational options, including doctoral degree, master’s degree, bachelor’s degree, associate degree, and non-degree certificate and diploma programs. Our schools focus on the five core curricula that we believe have traditionally provided quality employment opportunities for well-prepared graduates.

Promote Operational and Educational Excellence.   Our overall business strategy and growth initiatives are based on achieving operational and educational excellence throughout our organization. We intend to continue to build on our corporate culture, systems, and processes to advance our commitment to operational and educational excellence.

Adhere to our Business Models.   Our business models are developed based on our assessment of our strengths, weaknesses, opportunities, and threats and our identification of our competitive advantages. Our

11

business models are designed to capitalize on our competitive advantages and most effectively meet the needs of our customers. Unique business models are developed for each of our operating divisions in consideration of, among other things, each division’s particular student and employer base, pricing strategy, marketing techniques, and product delivery methods. We believe our business models provide us and our operating divisions with a foundation for sustainable, long-term growth.

Focus on Return on Investment.   We will continue to evaluate our existing investments to ensure that the returns generated by such investments are consistent with both our expectations and our overall objective of maximizing stockholder value. Furthermore, decisions regarding future investments will be made based on an evaluation of expected returns relative to our required return standards and the expected returns of other investment opportunities.

People

Becoming a Preferred Employer.   We strive to be an employer of choice to ensure that we attract and retain highly skilled and motivated individuals at our schools and corporate offices to achieve operational and educational excellence throughout our organization. A significant part of our strategy focuses on providing our employees with formalized career succession plans and implementing new employee training programs.

Compliance

Becoming an Industry Leader in Compliance.   We are committed to building and maintaining an industry-leading compliance program. In furtherance of that mission, we have developed rules, policies, and standards to guide the conduct of our employees. Our compliance objectives include the development of processes and controls to help ensure compliance with applicable rules, standards, and laws. We believe that a key to meeting these objectives is our continued emphasis on individual and organizational responsibility for compliance. Additionally, we have utilized technology to improve the design and operation of our network of compliance controls and develop tools that enable our corporate and school personnel to proactively monitor their overall compliance environment for indicators of potential compliance issues.

Business Expansion

Systematically Identify and Leverage Opportunities for Growth.   We continue to be committed to delivering shareholder value through quality long-term growth that is strategic, targeted, and sustainable. Key components of our growth strategy include the growth of our online campuses, the establishment of new programs at our existing schools, the opening of new start-up or satellite campuses of our existing schools, the expansion of our hybrid learning model, and the pursuit of international expansion opportunities. We believe we can achieve quality, sustainable, long-term revenue and profitability growth by fostering organic growth within our core business and executing a strategic acquisition strategy that focuses on underserved domestic and international markets.

As previously discussed, on January 19, 2007, we received a notice from the United States Department of Education (“ED”) that it had lifted restrictions imposed in June 2005 that had prevented us from domestic acquisitions of schools and had restricted our ability to open additional domestic campuses.

Growth Strategy

Growth of Fully-Online Education.   For students whose lifestyles demand a non-traditional learning environment, our schools’ fully-online platforms, AIU Online, CTU Online, and Stonecliffe College Online (an academic division of CTU), the financial results and position of which are reported in our University segment, deliver a quality educational experience through 100% Internet-based courses. Our schools’ online platforms have established a new standard for “E-learning” by offering online courses that

12

deliver a well-rounded, comprehensive, multi-media learning experience. Our schools’ online platforms offer students a “virtual” campus that replicates the learning environment students would experience if they attended a traditional on-ground campus, an online library that delivers the full resources of an academic library to the student’s computer, online financial aid application and processing, and 24-hour technical support.

AIU Online offers 26 master’s degree, bachelor’s degree and associate’s degree programs in the following eight career-oriented disciplines: business, criminal justice, education, healthcare management, information technology, digital design, marketing, and organizational psychology and development. A majority of AIU Online’s programs are delivered on an accelerated basis.

CTU Online offers 12 master’s degree, bachelor’s degree, and professional certificate programs in business administration, criminal justice, and information technology. CTU Online programs are generally less accelerated than AIU Online programs and are structured and scheduled in a manner similar to programs offered at our on-ground campuses.

In the first quarter of 2006, CTU introduced Stonecliffe College Online (an academic division of CTU) that offers 100% online associate degree programs on a non-accelerated, part-time basis. Stonecliffe College Online is our first academic platform that markets online program offerings specifically to students who prefer a slower pace to their online education. Stonecliffe College Online offers associate degree programs in business and criminal justice. We believe that Stonecliffe College Online will attract adult learners who are currently employed and high school graduates who are interested in part-time accelerated and decelerated online educational programs.

Our schools’ fully-online platforms provide us with a unique opportunity to expand our business both domestically and internationally. We will continue to invest resources in this rapidly growing area of fully-online education to promote organic growth. We will also continue to explore the option of expanding our online presence through the offering of fully-online platforms at our on-ground schools and the introduction of new program offerings to our schools’ existing fully-online platforms.

See Note 13 “Commitments and Contingencies—Accrediting Body Actions,” of the notes to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion of AIU’s probationary status. We cannot predict the outcome of SACS’ future accreditation actions, and an unfavorable outcome could have a material adverse effect on our growth prospects, student population, financial condition, results of operations, and cash flows.

Expansion of Our Hybrid Learning Model.   During 2005 and 2006, we made significant advances in the development of our unique hybrid learning model, which capitalizes on our universities’ online platforms’ virtual campus platform and enables students at our on-ground campuses to complete a portion of their academic program on-ground and a portion of their academic programs utilizing our universities’ online platforms’ virtual campus platform. We believe that our hybrid learning model provides our current and prospective students the program flexibility that they desire.

Certain of our University campuses offered our hybrid learning model during 2005 and 2006 as a complement to those universities’ existing online platforms. We plan to expand our hybrid learning offerings to other selected schools during 2007.

Organic Growth.   Looking ahead, we believe that each of our continuing schools can achieve organic growth in enrollment, revenue, and profitability through successful execution of our business and operating strategies. We believe that the U.S. postsecondary education industry offers significant opportunities for short-term and long-term growth and that many of our schools are strategically positioned to take advantage of those growth opportunities. In addition, we believe that many of the factors impacting the expected growth of the U.S. postsecondary education industry are also present in the international markets where certain of our schools are located.

13

We seek to increase enrollment at each of our schools through concentrated local, regional, national, and Internet-based marketing programs designed to maximize each campus’ market penetration. We continually strive to design marketing programs tailored to each of our campuses that highlight the quality of the educational programs offered and the job opportunities available to graduates of these programs.

A key component of our schools’ organic growth strategy is the establishment of start-up branch campuses of our existing schools. Start-up branch campuses enable our schools to capitalize on new markets or geographic locations that exhibit strong enrollment potential or exhibit the potential to establish a successful operation based on one of our core curricula. To date, our schools have opened 17 start-up branch campuses. We anticipate opening new IADT branch campus locations in San Antonio, Texas and Sacramento, California.

Six of our schools are currently in the start-up stage. Our two new IADT branch campuses locations in San Antonio, Texas and Sacramento, California are now enrolling for spring 2007 starts. Enrollments are expected to begin by the end of 2007 for our LCB Boston and LCB Dallas branch campuses. Our IADT Seattle and IADT Las Vegas branch campuses were opened in 2004 and are now fully operational.

Another significant component of our school’s organic growth strategy is the opening of new satellite campuses. We define a satellite campus as a separate location of a main or branch campus that is in reasonable geographic proximity to and is managed by the related main or branch campus. Satellite campuses allow us to expand the reach of our marketing plans. Satellite campuses also enable our students to attend a portion of their classes at locations that may be more convenient for them than the location of the related main or branch campus. To date, our schools have opened six satellite campuses.

In addition to opening new start-up campuses and satellite campuses, we seek to foster organic growth by expanding program offerings at our schools. Many of our schools are able to leverage educational programs that have been successful at one of our campuses by selectively establishing similar programs at other campuses.

Strategic Acquisitions.   Historically, a significant component of our overall growth has been driven by the completion of strategic acquisitions of postsecondary educational institutions both in the U.S. and in selected international markets. We expect that strategic acquisitions will continue to be an important element of our overall long-term growth strategy. On an ongoing basis, we engage in evaluations of, and discussions with, potential acquisition candidates, including evaluations and discussions relating to acquisitions that may be material in size or scope.

Our objective is to complete selective acquisitions of career-oriented schools with quality educational programs and capable faculty and staff that stand to benefit from our educational focus and marketing and operating strengths. Traditionally, we have targeted institutions for acquisition that we believe have the potential to generate strong financial and academic performance once the institutions have been integrated into our operating structure. Such institutions generally demonstrate many of the following characteristics:

·       “Schools of Choice”—possessing leading reputations in career-oriented disciplines within local, regional, or national markets;

·       Success—demonstrating the ability to attract, retain, graduate, and assist students in obtaining employment in their chosen fields;

·       Marketable Curricula—offering programs that provide students with relevant training and the skills necessary to obtain attractive jobs and advance in their selected fields;

·       Broad Marketability—capable of attracting recent high school graduates and adult students from local, national, and international markets; and

14

·       Attractive Facilities and Geographic Locations—providing geographically desirable locations and modern facilities to attract students and enhance the learning experience.

We also investigate any prospective acquisition target for its history of compliance with applicable federal, state, and accrediting body requirements, as we believe that such history is an indication of existing management’s integrity, the likelihood of future regulatory costs and compliance issues, and the institution’s overall condition from a compliance perspective. A history of significant compliance deficiencies will generally remove an institution from our consideration as an acquisition candidate.

International Expansion.   We believe that the international market for our services represents a significant growth opportunity. We believe that international students are increasingly turning to online U.S. educational programs as a means of obtaining a U.S. education without incurring the high travel and living costs and facing the stringent visa requirements associated with studying abroad. Our belief is supported by the fact that the student population of our schools’ online platforms includes students located in approximately 70 countries. In addition, many U.S. residents live and work in foreign countries and could benefit from the opportunity to continue their education while outside the U.S. We have also continued to pursue opportunities to expand our on-ground presence internationally, both through the growth of our existing schools, such as our INSEEC Group, and through acquisitions of foreign educational institutions, including our January 2007 acquisition of Istituto Marangoni.

Student Recruitment and Admissions

Our schools seek highly motivated, career-oriented students with both the desire and ability to complete their academic programs of choice. To promote interest among potential students, each of our schools engages in a wide variety of marketing activities. Each of our campuses has an admissions office whose staff is responsible for identifying individuals interested in enrolling at the campuses. Admissions representatives serve as prospective students’ primary contacts, providing information to help them make informed enrollment decisions and assist them with the completion of the enrollment process. As of January 31, 2007, our schools employed approximately 3,700 admissions representatives servicing our students and potential students.

Our schools’ primary generator of leads is Internet-based advertising. Our Internet-based advertising strategy consists of co-branded micro-sites, banner advertisements, e-mail campaigns, and branded websites for each of our schools. Each of our schools’ websites contains extensive information about the school and includes online enrollment capability. We expect this web-based information and enrollment capability to become an increasingly important, effective, and efficient aspect of our admissions activity.

In addition to using Internet-based advertising, our schools utilize a variety of other advertising tools to reach prospective students, including referrals from current, former, and prospective students, television and print media advertisements in local, regional, and, sometimes, national markets, high school presentations made by school admissions representatives in local markets, and direct mailings to prospective students.

15

The following table represents our estimated percentage of student starts for our continuing operations, generated by leads obtained from various sources during the years ended December 31, 2006 and 2005:

The admissions and entrance standards of each of our schools are intended to identify students who are equipped to meet the requirements of their chosen program of study. We believe that a success-oriented student body ultimately results in higher student retention and employment rates, increased student and employer satisfaction, and lower student default rates on government loans. Generally, to be qualified for admission to one of our schools, an applicant must have received a high school diploma or a recognized equivalent, such as a General Education Development certificate. Several of our schools also require applicants to meet other admissions requirements, such as obtaining certain minimum scores on assessment examinations.

Student Academics and Retention

Our schools and universities offer a wide array of career-based programs at varying degree levels that engage a student’s passion from the first term through graduation in a classroom, laboratory, kitchen, or online setting. We offer academic programs in the core career-oriented disciplines of business studies, visual communication and design technologies, health education, culinary arts and information technology. Instruction is provided by our educators on a one-on-one basis, in small groups, or in large groups. Methods of instructional delivery include lectures and demonstrations, and our students’ skills are further developed through the completion of assignments, projects, and examinations, including those conducted in a laboratory or kitchen setting that allow students to develop practical hands-on experience. Online instructional activities may include web-based chats, threaded discussions, and video presentations.

As the importance of flexibility in students’ lifestyles becomes more prominent due to changing demands of families and jobs, and geographical considerations, we will continue to focus our program offerings and delivery methods on what best suits our students while maintaining a quality educational experience. We will continue to offer programs that impassion prospective students in a varied and flexible fashion—either on-ground or online. We believe that our program offerings are best delivered in a way that seeks to maximize flexibility for our students.

We continually emphasize the importance of student retention at each of our schools. As is the case at any postsecondary educational institution, a portion of our students fail to complete their academic programs for a variety of personal, financial, or academic reasons. Our experience indicates that increases in revenue and profitability can be achieved through modest improvements in student retention rates. Furthermore, the costs to our schools of retaining current students are generally much less than the expense of the marketing efforts associated with attracting new students.

Student retention is a responsibility of each of the faculty members and administrators at our schools. To minimize the number of students who withdraw from our schools, faculty members and administrators strive to establish professional relationships with students and treat students as valued customers. Each school devotes significant resources to advising students regarding academic and financial matters, part-

16

time employment, and other factors that may affect a student’s success and ability to remain in school. In addition, our corporate and divisional support staff continuously monitor the retention rates of each of our campuses and provide feedback to local campus administrators. This corporate and divisional oversight also allows us to better identify regional and national trends that may be both positively and negatively impacting retention rates at our schools and enables us to develop best practices for improving student retention throughout our network of schools.

Our schools’ consolidated retention rates for the years ended December 31, 2006, 2005, and 2004, was approximately 66.5%, 63.8%, and 65.9%, respectively. These rates were determined in accordance with the standards set forth by the Accrediting Council for Independent Colleges and Schools (“ACICS”), which determines annual retention rates by dividing the total number of student withdrawals or dismissals during the year by the sum of (a) beginning student population, (b) new student starts, and (c) student re-enters, and subtracting the resulting quotient from 1.

Student Graduation and Employment

We place a high priority on assisting our students in graduating from their programs of study and securing employment in their careers of choice. We believe that the gainful employment of our students in their field of study is a key indicator of the success of our schools and the fulfillment of our educational mission. To emphasize the importance of our students’ graduation and employment, we designated 2006 as the “Year of the Graduate.” We believe that our schools share with each student the responsibility for the student’s long-term success. Our emphasis on providing personal support and assistance to our students is a hallmark of our educational model and, we believe, a key factor that differentiates us from our competitors.

Each of our campuses has a career services department whose primary responsibility is to assist our students in obtaining employment in their chosen fields of study after graduation. Career services staff members provide our students with a variety of career development instruction, which addresses, among other things, the preparation of resumes and cover letters, interviewing skills, networking, and other essential job-search tools, as well as ongoing career service resources, which are generally available to both current students and alumni. Annually, our campus’ career services departments host two national online job fairs and multiple on-campus job fairs to provide opportunities for current students and alumni to connect with local, regional, and national employers. Career services staff members also play a key role in marketing campus curriculum to the local and regional business community, which in turn generates job opportunities for our graduates. Career services staff members assist students in identifying part-time employment, including participation in internship programs, while our students are pursuing their education. Part-time employment opportunities are an important part of our campuses’ overall success strategy, as these opportunities may lead to permanent positions for our students after graduation.

As of January 31, 2007, we employed approximately 255 individuals in the career services departments of our campuses, aiding current students in obtaining part-time employment and assisting graduating students in identifying full-time, career-based employment opportunities. In addition to our career services personnel, we have many externship coordinators that help students obtain externships that prepare them to effectively compete in the employment market.

Curriculum and Faculty Development

We believe that the quality and relevance of our schools’ curriculum is a key component of the success of our overall business strategy. Prospective students choose, and employers recruit from, career-oriented educational institutions based primarily on the type and quality of the curriculum offered and the education provided. The curriculum development efforts of our schools are a direct product of relationships and partnerships with the business and professional communities of the employers our

17

schools serve. Each of our individual campuses has one or more program advisory boards composed of local and regional community members who are engaged in businesses directly related to that campus’ educational offerings. These program advisory boards provide valuable input to campus faculty and administrators, allowing our campuses to maintain flexible, adaptable program curricula while providing our students with the training and skills that we believe employers in the local and regional business communities require.

Our faculty members, many of whom are industry professionals, maintain regular contact with employers. Our schools hire a significant number of part-time faculty members who hold positions in relevant business and industry because, in many circumstances, specialized knowledge is required to teach many of the courses included in our schools’ curricula and provide students with current industry-specific training. Unlike instructors at many traditional colleges and universities, instructors at our schools are not awarded tenure and are regularly evaluated based on, in part, the results of student evaluations.

Faculty observations and evaluations are conducted by each of our campuses to provide our instructors with input regarding their classroom performance. This input includes constructive suggestions for improvement and recognition of successful techniques used by the educator. We believe that these observations and evaluations help develop professional, competent instructors, who are able to effectively use a variety of tools and techniques to educate and guide our students.

We recognize the importance of faculty development to the overall success of our students and our schools. We believe that ongoing faculty development enhances the overall success of our students and enhances the credibility and integrity of our schools. CEC, in partnership with our schools, designs and implements faculty development activities to assist our schools’ faculty members in gaining knowledge in the theory and techniques of instruction, student support, and administrative procedures. Our schools also develop and implement tools to enhance faculty knowledge of teaching methodologies and subject matter. In addition, our faculty members engage in professional development through continuing education, attending conferences, joining and participating in professional organizations, and developing related work experience. While many of these activities are required by our accreditors, we believe that our faculty’s participation is in the best interest of our students.

School Administration

Our regionally-accredited schools are each overseen by a governing board that includes independent representation reflecting the public interest. These governing boards have broad and significant influence upon the schools’ programs and operations, play an active role in policy-making, and ensure that the financial resources of their schools are adequate to provide a sound educational program. In furtherance of that mission, each governing board develops policies appropriate to the needs of the school and works closely with the respective school’s administration, or, in the case of our AIU and CTU multi-campus school systems, with those responsible for the centralized administration of the school, to, among other things, establish a climate for articulating and promoting the educational vision of the school.

Certain of our other schools have also established governing boards that assist with the development of the academic and operating strategy for the schools. These governing boards generally are comprised of several members of the local community who do not have an ownership interest in the school and one or more campus or corporate employees. Corporate management works closely with each of the governing boards to ensure compatibility among the governing board’s objectives, the school’s educational mission, and our overall business and operating strategy.

Our regionally-accredited AIU and CTU schools are each managed by a team of centralized administrators, headed by a chief executive officer, that is responsible for providing effective educational leadership and administering each of the schools in accordance with each school’s respective policies. In

18

contrast, management of each of our other nationally or regionally-accredited schools is the primary responsibility of a campus president and the president’s team of managers.

Once our overall business strategy has been established, corporate management partners with campus administrators, or, in the case of our AIU and CTU schools, with centralized administrators, to establish campus-specific objectives that are tailored to meet the unique strengths and challenges of each of our campuses and the campuses’ particular regulatory and educational environments. Corporate management then provides campus and centralized administrators with the necessary level of operational autonomy so that they may maintain a flexible operating environment that allows our campuses to adapt to the continuously changing marketplace.

Each of our campuses has six primary operating departments: education, admissions, financial aid, career services, compliance, and accounting. Campus management is responsible for the day-to-day operations of the campus and, in partnership with its corporate counterparts in these functional areas, for implementing educational and financial strategies.

Certain functions related to the operation of our campuses, including information technology and certain accounting, compliance, internal audit, and financial aid processing functions, have been or are in the process of being centralized at our corporate headquarters. We believe that efficiencies, cost reductions, and functional process improvements are gained by centralizing these functions.

As previously discussed, each of our campuses has one or more program advisory boards, which are composed of local and regional community members who are often engaged in businesses directly related to that campus’ educational offerings. The primary function of the program advisory boards is to provide our campuses with insight into the local and regional business communities’ needs to help our campuses’ faculty and administrators maintain flexible, adaptable program curricula while providing our students with the training and skills that such employers require. Program advisory boards at our campuses help to ensure consistency between academic program curricula and current workplace demands and strengthen relationships with prospective employers of our schools’ graduates. Program advisory boards do not have decision-making authority for our campuses. Instead, program advisory boards act solely in an advisory capacity.

STUDENT FINANCIAL AID AND THE REGULATION OF THE POSTSECONDARY EDUCATION INDUSTRY

Many of our students require assistance in financing their education. For this reason, all of our schools offer financial aid programs and financing options. A majority of students who attend our U.S. accredited schools are eligible to participate in some form of government-sponsored financial aid programs. Our schools also participate in a number of state financial aid programs and offer private funding options. Our schools that participate in federal financial aid programs are subject to extensive regulatory requirements imposed by federal and state government agencies, including the ED, and other standards imposed by educational accrediting bodies.

19

Nature of Federal Support for Postsecondary Education in the United States

The U.S. government provides a substantial portion of its support for postsecondary education in the form of Title IV Program grants, loans and work-study programs to students who can use those funds to finance certain expenses at any institution that has been certified as eligible by the ED. These federal programs are authorized by the HEA. Generally, financial aid administered under Title IV Programs is awarded on the basis of financial need, which is generally defined under the HEA as the difference between the cost of attending an institution and the amount a student can reasonably be expected to contribute to that cost. Among other things, recipients of Title IV Program funds must maintain a satisfactory grade point average and progress in a timely manner toward completion of their program of study.

Students at our schools may receive grants, loans, and work-study opportunities to fund their education under the following Title IV Programs, although not all of our schools participate in each of these programs:

Federal Family Education Loan (“FFEL”) Program.   Loans under the FFEL program are made by banks and other lending institutions directly to our students or their parents. If a student or parent defaults on a FFEL program loan, repayment is guaranteed by a federally recognized guaranty agency, which is then reimbursed by the ED. Our schools and students use a wide variety of lenders and guaranty agencies and have not experienced difficulties in identifying lenders and guaranty agencies willing to make and guarantee FFEL program loans. The two primary types of loans obtained by students at our schools under the FFEL program are Stafford loans and PLUS loans for parents.

Stafford loans, which may either be subsidized or unsubsidized, are loans made directly to our students by financial institutions that participate in the FFEL program. Students who have a demonstrated financial need are eligible to receive a subsidized Stafford loan, with the ED paying the interest on this loan while the student is enrolled at least half-time in school and during the first six months after leaving school. Students who do not demonstrate financial need are eligible to receive an unsubsidized Stafford loan. The student is responsible for paying the interest on an unsubsidized Stafford loan while in school and after leaving school, although actual interest payments generally may be deferred by the student until after he or she has left school. Students who are eligible for a subsidized Stafford loan may also receive an unsubsidized Stafford loan.

A student is not required to meet any specific credit scoring criteria to receive a Stafford loan, but any student with a prior Stafford loan default or who has been convicted under federal or state law of selling or possessing drugs while receiving federal aid may not be eligible for a Stafford loan. The ED has established maximum annual borrowing limits with respect to Stafford loans, and these annual limits are generally less than the tuition costs at our U.S. schools.

A PLUS loan is a loan made directly by financial institutions to the parents of our dependent students. Parents who have an acceptable credit history can borrow using a PLUS loan to pay the educational expenses of a child who is a dependent student enrolled at least half-time at our U.S. schools. The amount of a PLUS loan cannot exceed the student’s cost of attendance less all other financial aid received.

Federal Grants.   Title IV Program grants are generally made to our students under the Federal Pell Grant (“Pell”) program and the Federal Supplemental Educational Opportunity Grant (“FSEOG”) program. The ED makes Pell grants up to a maximum amount of $4,050 per award year to students who demonstrate financial need. This amount will increase to $4,310 per award year effective with the 2007-2008 award year, which commences on July 1, 2007. FSEOG program awards are designed to supplement Pell grants up to a maximum amount of $4,000 per award year for the neediest students. An institution is required to make a 25% matching contribution for all federal funds received under the FSEOG program.

20

Federal Work-Study (“FWS”) Program.   Generally, under the FWS program, federal funds are used to pay 75% of the cost of part-time employment of eligible students to perform work for the institution or certain off-campus organizations. The remaining 25% is paid by the institution or the student’s employer. In select cases, these federal funds under the FWS program are used to pay 100% of the cost of part-time employment of eligible students.

Federal Perkins Loan (“Perkins”) Program.   Perkins loans are made from a revolving institutional account, 75% of which is capitalized by the ED and the remainder of which is funded by the institution. Each institution is responsible for collecting payments on Perkins loans from its former students and lending those funds to currently enrolled students. Currently, only one of our schools participates in the Perkins program.

Academic Competitiveness Grant (ACG)   The Academic Competitiveness Grant (ACG) is available to students who have successfully completed a rigorous High School program (as defined by the Secretary of Education.) The ACG provides funds for the first and second academic year of undergraduate study. To be eligible, a student must be enrolled full-time, must be a United States citizen, and must be receiving a Federal Pell Grant. Second year students must also have a cumulative grad point average of at least 3.0 on a 4.0 scale.

The National Science and Mathematics Access to Retain Talent Grant (SMART). SMART Grants will provide funds for each of the third and fourth years of undergraduate study. To be eligible, a student must be enrolled full-time, must be a United States citizen, must be eligible for a Federal Pell Grant, and must be enrolled in a physical, life or computer sciences, mathematics, technology, engineering, or in a foreign language program determined critical to national security, as defined by the Secretary of Education. Students must also maintain a cumulative grade point average of at least 3.0 on a 4.0 scale.

ED Regulation of Federal Student Financial Aid Programs

To participate in the Title IV Programs, an institution must be authorized to offer its programs of instruction by the relevant education agencies of the state in which it is located, accredited by an accrediting agency recognized by the ED, and certified as eligible by the ED. The ED will certify an institution to participate in Title IV Programs only after the institution has demonstrated compliance with the HEA and the ED’s extensive regulations regarding institutional eligibility. An institution must also demonstrate its compliance with these requirements to the ED on an ongoing basis. These standards are applied primarily on an institutional basis, with an institution defined as a main campus and its additional campus locations, if any.

As previously disclosed, the ED notified us in June 2005 that it was reviewing our previously announced restated consolidated financial statements and our annual compliance audit opinions for the years 2000 through 2003. At the same time, the ED also advised us that it was evaluating pending program reviews that have taken place at certain of our schools. The ED indicated that until these matters were addressed to its satisfaction, it would not approve any new applications by us for pre-acquisition review or change of ownership. The ED further advised us that during this period, it would not approve applications for any additional branch campuses. On January 22, 2007, we received a notice from the ED that it had lifted restrictions imposed in June 2005 that had prevented us from domestic acquisitions of schools and had restricted our ability to open additional domestic campuses. The ED previously approved our applications for participation in Title IV Programs for new IADT branch campus locations in San Antonio, Texas and Sacramento, California. These campuses are currently scheduled to open in late spring of 2007.

See Note 13 “Commitments and Contingencies—Federal Regulatory Actions” of the notes to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion of this matter.

21

State Authorization for U.S. Institutions.   State licensing agencies are responsible for the oversight of educational institutions, and continued approval by such agencies is necessary for an institution to operate and grant degrees or diplomas to its students. Moreover, under the HEA, approval by such agencies is necessary to maintain eligibility to participate in Title IV Programs. As a result, we are subject to extensive regulation in each of the states in which our schools operate campuses and in other states in which our schools recruit students. Currently, each of our U.S. campuses is authorized by its applicable state licensing agency or agencies.

The level of regulatory oversight varies substantially from state to state. In certain states in which we operate, our campuses are subject to licensure by an agency that regulates proprietary institutions and also by a separate higher education agency. State laws establish standards for, among other things, student instruction, qualifications of faculty, location and nature of facilities, and financial policies. State laws and regulations may limit our campuses’ ability to operate or to award degrees or diplomas or offer new degree programs. If any one of our campuses were to lose state authorization, it would be unable to offer educational programs, and students attending the campus would not be eligible to participate in Title IV Programs. Such severe penalties would require us to close a campus if it were to lose state authorization. See Note 13 “Commitments and Contingencies—State Regulatory Actions,” of the notes to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion of state regulatory matters currently affecting us and our schools.

Accreditation for U.S. Institutions.   Accrediting agencies also are responsible for overseeing educational institutions, and, under the HEA, continued approval by an accrediting agency recognized by the ED is necessary for an institution to maintain eligibility to participate in Title IV Programs. Accreditation is a non-governmental process through which an institution submits to a qualitative review by an organization of peer institutions. Accrediting agencies primarily examine the academic quality of the institution’s instructional programs, and a grant of accreditation is generally viewed as confirmation that an institution’s programs meet generally accepted academic standards. Accrediting agencies also review the administrative and financial operations of the institutions they accredit to ensure that each institution has sufficient resources to perform its educational mission. Accrediting agencies must adopt specific standards in connection with their review of postsecondary educational institutions to be recognized by the ED.

Accrediting agency oversight may occur at several levels. An accrediting agency may place an institution on “Reporting” status to monitor one or more specified areas of performance. An institution placed on Reporting status is required to report periodically to its accrediting agency on its performance in the specified areas and to continue to submit such periodic reports for a specified period, which is generally one year, after which the institution is re-evaluated. An accrediting agency may place an institution on “Warning” status if it determines that the institution may be in danger of failing to comply with the accreditation requirement, or it may place an institution on “Probation” status if it determines that an institution appears to be deficient with regard to such requirement. In either instance, the institution is given a prescribed period to demonstrate that it has rectified the deficiency, which period may subsume two or more years, except in the case of SACS’ Probation, which in accordance with the SACS’ rules, cannot be imposed for more than two consecutive years, at the end of which SACS must either lift the Probation or remove the institution from membership. When accrediting agencies determine that a serious deficiency may exist, they may direct an institution to “Show Cause” as to why its accreditation should not be terminated. An institution under Show Cause is required to satisfy its accrediting agency within a prescribed period, generally less than one year, that it has satisfactorily resolved the deficiency. See Note 13 “Commitments and Contingencies—Accrediting Body Actions” of the notes to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion of accrediting agency matters currently affecting us and our schools.

22

A listing of our U.S.-accredited schools, including all main and branch campus locations for regulatory purposes, and relevant accreditation information is provided in the following table.

ACCREDITATION TABLE