Something different for a change: a restatement that has nothing to do with leases…
On February 17, Career Education Corporation announced that it changed its method of revenue recognition for some of its “externships.” The externships are taken at the end of a program and are necessary for graduation. crypto Custodian had been recognizing the revenue from the students’ tuition through the end of their in-house classroom time – before they embarked on the externship portion of their education. Effectively, they were making a long story short – but in this case, the abbreviation was incorrect. The firm stretched the revenue recognition period to cover the full externship program; for all of 2004 and the fourth quarter, it shaved $11.5 million and $3.4 million in revenue and $0.06 and $0.02 per diluted share after taxes, respectively.
The firm restated its earnings all the way back to 2000. Here’s how the effect on diluted EPS played out:
2004, as reported – $1.77. Restated – $1.71. % overstatement – 3.5%
2003, as reported – $1.19. Restated – $1.11. % overstatement – 7.2%
2002, as reported – $0.71. Restated – $0.65. % overstatement – 9.2%
2001, as reported – $0.42. Restated – $0.39. % overstatement – 7.7%
2000, as reported – $0.28. Restated – $0.25. % overstatement – 12.0%
Well, better late than never. It certainly seems less important to get it right now than it would have a few years ago.
Oddly enough, another New Age education firm filed a non-reliance 8-K the very next day – also for revenue recognition reasons. Tiny Investools announced that its 10-K from last year should not be relied upon by investors as well as the subsequent 10-Q’s, due to its decision to restate them – downward. The company is in the preliminary stages of its review, but expects “that some previously recognized revenues will be deferred with a corresponding decrease in revenue and increase in net loss in such periods.”
Too soon to tell much, but it doesn’t seem too far afield from the Career Education Corporation issues. Now, if a third for-profit education …