UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





Form 10-Q





(Mark
One)





x
            
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended September 30, 2009oro
            
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
              
              For
      the transition period from _____ to
_____







Commission
File Number 000-51371








LINCOLN
EDUCATIONAL SERVICES CORPORATION


(Exact
name of registrant as specified in its charter)





New
      Jersey
            
            57-1150621(State
      or other jurisdiction of incorporation or organization)
            
            (IRS
      Employer Identification No.)200
      Executive Drive, Suite 340
            
            07052West
      Orange, NJ
            
            (Zip
      Code)(Address
      of principal executive offices)





(973) 736-9340


(Registrant’s
telephone number, including area code)





No
change


(Former
name, former address and former fiscal year, if changed since last
report)





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





Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).  Yes oNo o





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





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





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





As of
November 4, 2009, there were 27,039,272 shares of the registrant’s common stock
outstanding.










LINCOLN EDUCATIONAL SERVICES CORPORATION AND
SUBSIDIARIES





INDEX TO
FORM 10-Q





FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009






PART
      I.
            FINANCIAL
      INFORMATIONItem
      1.
            Financial Statements
            1Condensed Consolidated Balance Sheets at September 30, 2009 and
      December 31, 2008 (unaudited)
            1Condensed Consolidated Statements of Income for the three and
      nine months ended September 30, 2009 and 2008
    (unaudited)
            3Condensed Consolidated Statement of Changes in Stockholders’
      Equity for the nine months ended September 30, 2009
      (unaudited)
            4Condensed Consolidated Statements of Cash Flows for the nine
      months ended September 30, 2009 and 2008 (unaudited)
            5Notes to Unaudited Condensed Consolidated Financial
      Statements
            7Item
      2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            13Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            20Item
      4.
            Controls and Procedures
            20PART
      II.
            OTHER
      INFORMATION
            20Item
      1.
            Legal Proceedings
            20Item
      1A.
            Risk Factors
            20Item
      6.
            Exhibits
            22


Index




PART I – FINANCIAL INFORMATION





Item 1.
Financial Statements





LINCOLN
EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
thousands, except share amounts)


(Unaudited)





September 30,
              
              
              December 31,2009
              
              
              2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              38,056
              
              
              $
              15,234Restricted
      cash
              
              
              368
              
              
              
              383Accounts
      receivable, less allowance of $22,624 and $13,914 at September 30, 2009
      and December 31, 2008, respectively
              
              
              33,698
              
              
              
              22,857Inventories
              
              
              3,347
              
              
              
              3,374Deferred
      income taxes, net
              
              
              8,912
              
              
              
              5,627Due
      from federal programs
              
              
              62
              
              
              
              828Prepaid
      expenses and other current assets
              
              
              8,613
              
              
              
              2,958Total
      current assets
              
              
              93,056
              
              
              
              51,261PROPERTY,
      EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and
      amortization of $93,497 and $83,345 at September 30, 2009 and December 31,
      2008, respectively
              
              
              139,206
              
              
              
              108,567OTHER
      ASSETS:Noncurrent
      accounts receivable, less allowance of $1,429 and $824 at September 30,
      2009 and December 31, 2008, respectively
              
              
              5,717
              
              
              
              3,326Deferred
      finance charges
              
              
              420
              
              
              
              632Deferred
      income taxes, net
              
              
              8,710
              
              
              
              7,080Goodwill
              
              
              111,973
              
              
              
              91,460Other
      assets, net
              
              
              8,792
              
              
              
              5,716Total
      other assets
              
              
              135,612
              
              
              
              108,214TOTAL
              
              $
              367,874
              
              
              $
              268,042





See notes
to unaudited condensed consolidated financial statements.


1
 Index


LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
thousands, except share amounts)


(Unaudited)


(Continued)





September
      30,
            
            
            December
      31,2009
            
            
            2008LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Current
      portion of long-term debt and lease obligations
            
            $
            391
            
            
            $
            130Unearned
      tuition
            
            
            47,436
            
            
            
            38,806Accounts
      payable
            
            
            17,288
            
            
            
            12,349Accrued
      expenses
            
            
            30,693
            
            
            
            16,239Income
      taxes payable
            
            
            2,038
            
            
            
            3,263Other
      short-term liabilities
            
            
            357
            
            
            
            314Total
      current liabilities
            
            
            98,203
            
            
            
            71,101NONCURRENT
      LIABILITIES:Long-term
      debt and lease obligations, net of current portion
            
            
            36,987
            
            
            
            10,044Pension
      plan liabilities, net
            
            
            4,393
            
            
            
            4,335Accrued
      rent
            
            
            6,115
            
            
            
            5,972Other
      long-term liabilities
            
            
            1,887
            
            
            
            1,641Total
      liabilities
            
            
            147,585
            
            
            
            93,093COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITY:Preferred
      stock, no par value - 10,000,000 shares authorized, no shares issued and
      outstanding at September 30, 2009 and December 31, 2008
            
            
            -
            
            
            
            -Common
      stock, no par value - authorized 100,000,000 shares at September 30, 2009
      and December 31, 2008, issued and outstanding 27,512,465 shares at
      September 30, 2009 and 26,088,261 shares at December 31,
    2008
            
            
            137,088
            
            
            
            120,597Additional
      paid-in capital
            
            
            13,443
            
            
            
            15,119Deferred
      compensation
            
            
            -
            
            
            
            (3,619
            )Treasury
      stock at cost - 615,000 shares at September 30, 2009 and December 31,
      2008
            
            
            (6,584
            )
            
            
            (6,584
            )Retained
      earnings
            
            
            82,125
            
            
            
            55,219Accumulated
      other comprehensive loss
            
            
            (5,783
            )
            
            
            (5,783
            )Total
      stockholders' equity
            
            
            220,289
            
            
            
            174,949TOTAL
            
            $
            367,874
            
            
            $
            268,042





See notes
to unaudited condensed consolidated financial statements.


2
 Index




LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(In
thousands, except per share amounts)


(Unaudited)




Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30,
            
            
            September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008REVENUES
            
            $
            148,368
            
            
            $
            100,481
            
            
            $
            395,077
            
            
            $
            269,584COSTS
      AND EXPENSES:Educational
      services and facilities
            
            
            57,651
            
            
            
            41,554
            
            
            
            157,069
            
            
            
            114,109Selling,
      general and administrative
            
            
            66,562
            
            
            
            48,485
            
            
            
            189,748
            
            
            
            141,058Loss
      (gain) on sale of assets
            
            
            4
            
            
            
            51
            
            
            
            (10
            )
            
            
            91Total
      costs & expenses
            
            
            124,217
            
            
            
            90,090
            
            
            
            346,807
            
            
            
            255,258OPERATING
      INCOME
            
            
            24,151
            
            
            
            10,391
            
            
            
            48,270
            
            
            
            14,326OTHER:Interest
      income
            
            
            16
            
            
            
            33
            
            
            
            25
            
            
            
            96Interest
      expense
            
            
            (1,129
            )
            
            
            (579
            )
            
            
            (3,232
            )
            
            
            (1,665
            )Other
      income
            
            
            11
            
            
            
            -
            
            
            
            27
            
            
            
            -INCOME
      BEFORE INCOME TAXES
            
            
            23,049
            
            
            
            9,845
            
            
            
            45,090
            
            
            
            12,757PROVISION
      FOR INCOME TAXES
            
            
            9,393
            
            
            
            4,139
            
            
            
            18,184
            
            
            
            5,326NET
      INCOME
            
            $
            13,656
            
            
            $
            5,706
            
            
            $
            26,906
            
            
            $
            7,431BasicNet
      income per share
            
            $
            0.51
            
            
            $
            0.23
            
            
            $
            1.02
            
            
            $
            0.29DilutedNet
      income per share
            
            $
            0.50
            
            
            $
            0.22
            
            
            $
            1.00
            
            
            $
            0.29Weighted
      average number of common shares outstanding:Basic
            
            
            26,590
            
            
            
            25,088
            
            
            
            26,261
            
            
            
            25,362Diluted
            
            
            27,371
            
            
            
            25,810
            
            
            
            27,013
            
            
            
            26,039





See notes
to unaudited condensed consolidated financial statements.


3
 Index




LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY


(In
thousands, except share amounts)


(Unaudited)





AccumulatedAdditional
              
              
              
              
              
              
              
              
              
              
              
              OtherCommon
      Stock
              
              
              Paid-in
              
              
              Deferred
              
              
              Treasury
              
              
              Retained
              
              
              ComprehensiveShares
              
              
              Amount
              
              
              Capital
              
              
              Compensation
              
              
              Stock
              
              
              Earnings
              
              
              Loss
              
              
              TotalBALANCE
      - January 1, 2009
              
              
              26,088,261
              
              
              $
              120,597
              
              
              $
              15,119
              
              
              $
              (3,619
              )
              
              $
              (6,584
              )
              
              $
              55,219
              
              
              $
              (5,783
              )
              
              $
              174,949Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              26,906
              
              
              
              -
              
              
              
              26,906Stock-based
      compensation expenseRestricted
      stock
              
              
              19,288
              
              
              
              -
              
              
              
              45
              
              
              
              798
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              843Stock
      options
              
              
              -
              
              
              
              -
              
              
              
              685
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              685Tax
      benefit of options exercised
              
              
              -
              
              
              
              -
              
              
              
              487
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              487Sale
      of common stock, net of expenses
              
              
              1,150,000
              
              
              
              14,932
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              14,932Net
      share settlement for equity-based compensation
              
              
              (5,013
              )
              
              
              -
              
              
              
              (72
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (72
              )Other
              
              
              -
              
              
              
              -
              
              
              
              (2,821
              )
              
              
              2,821
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Exercise
      of stock options
              
              
              259,929
              
              
              
              1,559
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,559BALANCE
      - September 30, 2009
              
              
              27,512,465
              
              
              $
              137,088
              
              
              $
              13,443
              
              
              $
              -
              
              
              $
              (6,584
              )
              
              $
              82,125
              
              
              $
              (5,783
              )
              
              $
              220,289





See notes
to unaudited condensed consolidated financial statements.


4
 Index




LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)





Nine
      Months EndedSeptember
      30,2009
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
            
            $
            26,906
            
            
            $
            7,431Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            17,576
            
            
            
            13,377Amortization
      of deferred finance charges
            
            
            212
            
            
            
            146Deferred
      income taxes
            
            
            (3,465
            )
            
            
            (904
            )(Gain)
      loss on disposition of assets
            
            
            (10
            )
            
            
            91Provision
      for doubtful accounts
            
            
            25,982
            
            
            
            15,855Write-off
      of trade name
            
            
            280
            
            
            
            -Stock-based
      compensation expense
            
            
            1,528
            
            
            
            1,771Tax
      benefit associated with exercise of stock options
            
            
            (487
            )
            
            
            (16
            )Deferred
      rent
            
            
            137
            
            
            
            341(Increase)
      decrease in assets, net of acquisitions:Accounts
      receivable
            
            
            (36,610
            )
            
            
            (19,714
            )Inventories
            
            
            170
            
            
            
            (1,170
            )Prepaid
      expenses and current assets
            
            
            (1,507
            )
            
            
            354Due
      from federal programs
            
            
            766
            
            
            
            5,929Other
      assets
            
            
            (4
            )
            
            
            2Increase
      (decrease) in liabilities, net of acquisitions:Accounts
      payable
            
            
            (1,274
            )
            
            
            2,377Other
      liabilities
            
            
            253
            
            
            
            (1,211
            )Income
      taxes payable/prepaid
            
            
            (738
            )
            
            
            (1,136
            )Accrued
      expenses
            
            
            11,268
            
            
            
            5,652Pension
      plan contribution
            
            
            (661
            )
            
            
            -Unearned
      tuition
            
            
            2,543
            
            
            
            828Total
      adjustments
            
            
            15,959
            
            
            
            22,572Net
      cash provided by operating activities
            
            
            42,865
            
            
            
            30,003CASH
      FLOWS FROM INVESTING ACTIVITIES:Restricted
      cash
            
            
            377
            
            
            
            -Capital
      expenditures
            
            
            (8,953
            )
            
            
            (15,919
            )Proceeds
      from sale of property and equipment
            
            
            90
            
            
            
            -Acquisitions,
      net of cash acquired, including restricted cash
            
            
            (27,552
            )
            
            
            -Net
      cash used in investing activities
            
            
            (36,038
            )
            
            
            (15,919
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from borrowings
            
            
            44,000
            
            
            
            23,000Payments
      on borrowings
            
            
            (44,000
            )
            
            
            (28,000
            )Proceeds
      from exercise of stock options
            
            
            1,559
            
            
            
            74Tax
      benefit associated with exercise of stock options
            
            
            487
            
            
            
            16Net
      share settlement for equity-based compensation
            
            
            (72
            )
            
            
            -Principal
      payments under capital lease obligations
            
            
            (911
            )
            
            
            (156
            )Purchase
      of treasury stock
            
            
            -
            
            
            
            (6,375
            )Proceeds
      from issuance of common stock, net of issuance costs
            
            
            14,932
            
            
            
            -Net
      cash provided by (used in) financing activities
            
            
            15,995
            
            
            
            (11,441
            )NET
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            22,822
            
            
            
            2,643CASH
      AND CASH EQUIVALENTS—Beginning of period
            
            
            15,234
            
            
            
            3,502CASH
      AND CASH EQUIVALENTS—End of period
            
            $
            38,056
            
            
            $
            6,145





See notes
to unaudited condensed consolidated financial statements.


5
 Index




LINCOLN
EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)


(Continued)





Nine
      Months EndedSeptember
      30,2009
            
            
            2008SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the year for:Interest
            
            $
            3,031
            
            
            $
            1,571Income
      taxes
            
            $
            22,969
            
            
            $
            7,754SUPPLEMENTAL
      SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Capital
      leases acquired in acquisition
            
            $
            26,828
            
            
            $
            -Fixed
      assets acquired in noncash transactions
            
            $
            1,100
            
            
            $
            1,505





See notes
to unaudited condensed consolidated financial statements.


6
 Index




LINCOLN EDUCATIONAL SERVICES CORPORATION AND
SUBSIDIARIES


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008


(In
thousands, except share and per share amounts and unless otherwise
stated)


(Unaudited)





1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES





Business
Activities – Lincoln Educational Services Corporation and subsidiaries
(the "Company") is a diversified provider of career-oriented post-secondary
education. The Company offers recent high school graduates and working adults
degree and diploma programs in five principal areas of study: automotive
technology, health sciences, skilled trades, business and information technology
and hospitality services. The Company currently has 43 schools in 17 states
across the United States.





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





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





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





Stock Based
Compensation –The accompanying condensed consolidated statements of
operations include compensation expense of approximately $0.5 million and $0.6
million for the three months ended September 30, 2009 and 2008, respectively,
and $1.5 million and $1.8 million for the nine months ended September 30, 2009
and 2008, respectively.  The Company uses the Black-Scholes valuation
model and utilizes straight-line amortization of compensation expense over the
requisite service period of the grant.  The Company makes an estimate
of expected forfeitures at the time options are granted.





2. WEIGHTED
AVERAGE COMMON SHARES





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





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30,
            
            
            September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Basic
      shares outstanding
            
            
            26,590,492
            
            
            
            25,087,946
            
            
            
            26,260,511
            
            
            
            25,361,821Dilutive
      effect of stock options
            
            
            780,278
            
            
            
            721,765
            
            
            
            752,742
            
            
            
            677,530Diluted
      shares outstanding
            
            
            27,370,770
            
            
            
            25,809,711
            
            
            
            27,013,253
            
            
            
            26,039,351





For the
three months ended September 30, 2009 and 2008, options to acquire 79,500 and
546,708 shares, respectively, and for the nine months ended September 30, 2009
and 2008, options to acquire 112,500 and 546,708 shares, respectively, were
excluded from the above table as the effect of their inclusion on reported
earnings per share would have been antidilutive.





3. BUSINESS
ACQUISITIONS





On
January 20, 2009, the Company completed the acquisition of six of the seven
schools comprising Baran Institute of Technology, Inc. (“BAR”), for
approximately $24.9 million in cash, net of cash acquired, subject to further
post closing adjustments.  BAR consists of seven schools serving
approximately 2,700 students as of September 30, 2009 and offers associate and
diploma programs in the fields of automotive, skilled trades, health sciences
and culinary arts.  On April 20, 2009, the Company acquired the
seventh BAR school, Clemens College (“Clemens”), for $2.7 million, in cash, net
of cash acquired.  In connection with these acquisitions, the Company
incurred approximately $1.3 million of transaction expenses for the nine months
ended September 30, 2009.


7
 Index


On
December 1, 2008, the Company acquired all of the rights, title and interest in
the assets of Briarwood College (“BRI”) for approximately $10.6 million, net of
cash acquired.  BRI is regionally accredited by the New England
Association of Schools and Colleges, and currently offers two bachelor degree
programs to approximately 700 students as of September 30, 2009 from Connecticut
and surrounding states.





The
consolidated financial statements include the results of operations from the
respective acquisition dates. The purchase price allocation for BRI was
finalized on June 30, 2009.  With respect to BAR and Clemens
acquisitions the purchase prices have been preliminarily allocated to
identifiable net assets with the excess of the purchase price over the estimated
fair value of the net assets acquired recorded as goodwill.  The
allocation may be revised when the Company receives final information including
appraisals, valuations, settlement of purchase price and other analyses related
to certain intangible assets.





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





BAR
              January 20,
      2009
              and
      Clemens
              April 20,
      2009
            
            
            BRI
              December 1,
      2008Restricted
      cash
            
            $
            362
            
            
            $
            -Current
      assets, excluding cash acquired (1)
            
            
            8,126
            
            
            
            195Property,
      equipment and facilities
            
            
            36,739
            
            
            
            1,265Goodwill
            
            
            19,267
            
            
            
            9,992Identified
      intangibles:Student
      contracts
            
            
            2,162
            
            
            
            450Trade
      name
            
            
            510
            
            
            
            -Accreditation
            
            
            1,040
            
            
            
            960Curriculum
            
            
            410
            
            
            
            40Non-compete
            
            
            1,980
            
            
            
            -Other
      long-term assets
            
            
            1,094
            
            
            
            21Current
      liabilities assumed
            
            
            (16,688
            )
            
            
            (1,539
            )Long-term
      liabilities assumed
            
            
            (27,450
            )
            
            
            (816
            )Cost
      of acquisition, net of cash acquired
            
            $
            27,552
            
            
            $
            10,568





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





4. GOODWILL AND
OTHER INTANGIBLE ASSETS





The
Company reviews intangible assets for impairment when indicators of impairment
exist.  Annually, or more frequently, if necessary, the Company evaluates
goodwill for impairment, with any resulting impairment reflected as an operating
expense.





Changes
in the carrying amount of goodwill from December 31, 2008 through September 30,
2009 are as follows:





Goodwill
      balance as of December 31, 2008
            
            $
            91,460Goodwill
      adjustments (1)
            
            
            1,246Goodwill
      acquired pursuant to business acquisition-BAR
            
            
            19,267Goodwill
      balance as of September 30, 2009
            
            $
            111,973




(1)
Goodwill adjustments are related to the finalization of the purchase price of
BRI.


8
 Index




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





Student
              Contracts
            
            
            Trade
              Name
            
            
            Trade
              Name
            
            
            Accreditation
            
            
            Curriculum
            
            
            Non-compete
            
            
            TotalGross
      carrying amount at December 31, 2008
            
            $
            2,563
            
            
            $
            1,270
            
            
            $
            -
            
            
            $
            1,307
            
            
            $
            2,000
            
            
            $
            201
            
            
            $
            7,341Acquisitions
      (1)
            
            
            2,162
            
            
            
            -
            
            
            
            510
            
            
            
            1,040
            
            
            
            410
            
            
            
            1,980
            
            
            
            6,102BRI
      adjustment (2)
            
            
            102
            
            
            
            -
            
            
            
            -
            
            
            
            (40
            )
            
            
            (1,260
            )
            
            
            -
            
            
            
            (1,198
            )Disposal
      (3)
            
            
            -
            
            
            
            (280
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (280
            )Gross
      carrying amount at September 30, 2009
            
            
            4,827
            
            
            
            990
            
            
            
            510
            
            
            
            2,307
            
            
            
            1,150
            
            
            
            2,181
            
            
            
            11,965Accumulated
      amortization at December 31, 2008
            
            
            2,230
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            289
            
            
            
            105
            
            
            
            2,624Amortization
            
            
            1,188
            
            
            
            -
            
            
            
            62
            
            
            
            -
            
            
            
            73
            
            
            
            498
            
            
            
            1,821Accumulated
      amortization at September 30, 2009
            
            
            3,418
            
            
            
            -
            
            
            
            62
            
            
            
            -
            
            
            
            362
            
            
            
            603
            
            
            
            4,445Net
      carrying amount at September 30, 2009
            
            $
            1,409
            
            
            $
            990
            
            
            $
            448
            
            
            $
            2,307
            
            
            $
            788
            
            
            $
            1,578
            
            
            $
            7,520Weighted
      average amortization period (years)
            
            
            2
            
            
            Indefinite
            
            
            
            6
            
            
            Indefinite
            
            
            
            10
            
            
            
            3





(1) The
acquisitions related to the acquisitions of six of the BAR schools on January
20, 2009 and Clemens on April 20, 2009


(2) The
adjustments are related to the finalization of the purchase price of
BRI.


(3)
During the second quarter of 2009, the Company wrote-off the value of the trade
name of Florida Culinary Institute in West Palm Beach, Florida due to
rebranding.





Amortization
of intangible assets was approximately $0.6 million and $27 thousand for the
three months ended September 30, 2009 and 2008, respectively, and $1.8 million
and $86 thousand for the nine months ended September 30, 2009 and 2008,
respectively.





The
following table summarizes the estimated future amortization
expense:





Year Ending December 31,Remaining
      of 2009
            
            $
            6422010
            
            
            1,8942011
            
            
            8832012
            
            
            2322013
            
            
            181Thereafter
            
            
            391$
            4,223


9
 Index




5. LONG-TERM
DEBT AND LEASE OBLIGATIONS





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





September 30,
            
            
            December 31,2009
            
            
            2008Credit
      agreement (a)
            
            $
            -
            
            
            $
            -Finance
      obligation (b)
            
            
            9,672
            
            
            
            9,672Note
      payable
            
            
            43
            
            
            
            -Capital
      lease-property (with a rate of 8.0%) (c)
            
            
            27,260
            
            
            
            -Capital
      leases-equipment (with a rate of 8.5%)
            
            
            403
            
            
            
            50237,378
            
            
            
            10,174Less
      current maturities
            
            
            (391
            )
            
            
            (130
            )$
            36,987
            
            
            $
            10,044





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





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





As of
September 30, 2009 and December 31, 2008, the Company had no amounts outstanding
under its credit agreement.  During the nine months ended September
30, 2009, the Company borrowed a total of $44.0 million and repaid $44.0 million
under its credit agreement.  Interest rates on borrowing under the
credit agreement during the nine months ended September 30, 2009 ranged from
1.32% to 3.25%.





The
credit agreement contains various covenants, including total funded debt to
adjusted EBITDA of not less than 2:1, net worth of not less than $141.8 million,
a fixed charge coverage ratio of not less that 1:1, a minimum financial
responsibility score of not less than 1.0, and a cohort default rate of not more
than 20%.  Additionally, the credit agreement contains customary
events of default as well as an event of default in the event of the suspension
or termination of Title IV Program funding for the Company’s and its
subsidiaries' schools aggregating 10% or more of the Company’s EBITDA (as
defined) or its consolidated total assets and such suspension or termination is
not cured within a specified period.  As of September 30, 2009, the Company
was in compliance with the financial covenants contained in the credit
agreement.





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





(c) As
part of the acquisition of BAR, the Company assumed real estate capital leases
related to Americare School of Nursing in St. Petersburg, Florida and
Connecticut Culinary Institute in Hartford, Connecticut.  These leases
bear interest at 8% and expire in 2032 and 2031, respectively.





6. EQUITY





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





Under the
LTIP, certain employees received an award of restricted shares of common stock
totaling 200,000 shares, valued at $2.9 million, on October 30, 2007; 80,000
shares, valued at $1.0 million, on February 29, 2008; 8,000 shares, valued at
$0.1 million, on May 2, 2008; and 8,000 shares, valued at $0.1 million, on May
5, 2008.  As of September 30, 2009, there were a total of 296,000
restricted shares awarded and 59,200 shares vested under the
LTIP.  The restricted shares vest ratably on the first through fifth
anniversary of the grant date; however, there is no vesting period on the right
to vote or the right to receive dividends on these restricted
shares.  The recognized restricted stock expense for the three months
ended September 30, 2009 and 2008 was $0.2 million and $0.2 million,
respectively, and for the nine months ended September 30, 2009 and 2008 was $0.6
million and $0.6 million, respectively. The unrecognized restricted stock
expense under the LTIP as of September 30, 2009 and December 31 2008 was $2.6
million and $3.2 million, respectively.


10
 Index


Pursuant
to the Non-Employee Directors Plan, each non-employee director of the Company
receives an annual award of restricted shares of common stock on the date of the
Company’s annual meeting of shareholders.  The number of shares
granted to each non-employee director is based on the fair market value of a
share of common stock on that date.  The restricted shares vest ratably on
the first through third anniversary of the grant date; however, there is no
vesting period on the right to vote or the right to receive dividends on these
restricted shares. As of September 30, 2009, there were a total of 104,242
shares awarded and 60,047 shares vested under the Non-Employee Directors Plan.
The recognized restricted stock expense for the three months ended September 30,
2009 and 2008 was $0.1 million and $0.1 million, respectively, and for the nine
months ended September 30, 2009 and 2008 was $0.2 million and $0.2 million,
respectively. The unrecognized restricted stock expense under the Non-Employee
Directors Plan as of September 30, 2009 and December 31, 2008 was $0.5 million
and $0.4 million, respectively.





In 2009
and 2008, the Company completed a net share settlement for 5,013 and 13,512
restricted shares, respectively, on behalf of some employees that participate in
the LTIP upon the vesting of the restricted shares pursuant to the terms of the
LTIP.  The net share settlement was in connection with income taxes
incurred on restricted shares that vested and were transferred to the employee
during 2009 and/or 2008, creating taxable income for the
employee.   The Company has agreed to pay these taxes on behalf
of the employees in return for the employee returning an equivalent value of
restricted shares to the Company.  This transaction resulted in a
decrease of approximately $0.1 million and $0.2 million in 2009 and 2008,
respectively, to equity on the consolidated balance sheets as the cash payment
of the taxes effectively was a repurchase of the restricted shares granted in
previous years.





On
February 18, 2009, the Company issued 1.15 million shares of common stock in a
public offering and received net proceeds of approximately $14.9 million, after
deducting underwriting commissions and offering costs of approximately $0.3
million.  In addition, in connection with the same public offering,
the Company also expensed $1.2 million of costs associated with the sale of
stock by certain selling shareholders.




Fair
Value of Stock Options




The fair
value of the stock options used to compute stock-based compensation is the
estimated present value at the date of grant using the Black-Scholes option
pricing model.  The weighted average fair values of options granted
during 2009 were $7.34 per share using the following weighted average
assumptions for grants:





September
      30, 2009Expected
      volatility
            51.95%Expected
      dividend yield
            0%Expected
      life (term)
            6
      yearsRisk-free
      interest rate
            2.29%Weighted-average
      exercise price during the year
            $14.36





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





Shares
            
            
            Weighted
      Average
              Exercise
              Price
      Per Share
            
            Weighted
      Average Remaining
              Contractual
      Term
            
            Aggregate
              intrinsic
      Value
              (in
      thousands)Outstanding
      December 31, 2008
            
            
            1,474,215
            
            
            $
            9.98
            
            5.25
      years
            
            $
            6,808Granted
            
            
            27,000
            
            
            
            14.36Canceled
            
            
            (21,833
            )
            
            
            15.38Exercised
            
            
            (259,929
            )
            
            
            6.00
            
            
            
            
            3,224Outstanding
      September 30, 2009
            
            
            1,219,453
            
            
            
            10.83
            
            4.79
      years
            
            
            14,798Exercisable
      as of September 30, 2009
            
            
            1,040,039
            
            
            
            10.47
            
            4.23
      years
            
            
            13,015


11
 Index




As of
September 30, 2009, the unrecognized pre-tax compensation expense for all
unvested stock option awards was $0.5 million.  This amount will be
expensed over the weighted-average period of approximately 1.6
years.





The
following table presents a summary of stock options outstanding:





At
      September 30, 2009Stock
      Options Outstanding
            
            
            Stock
      Options ExercisableRange
      of Exercise Prices
            
            
            Shares
            
            
            Contractual
      Weighted
              Average
      life
              (years)
            
            
            Weighted
              Average
      Price
            
            
            Shares
            
            
            Weighted
              Exercise
      Price$3.10
            
            
            
            437,746
            
            
            
            2.29
            
            
            $
            3.10
            
            
            
            437,746
            
            
            $
            3.10$4.00-$13.99
            
            
            
            265,499
            
            
            
            7.80
            
            
            
            11.88
            
            
            
            132,016
            
            
            
            11.78$14.00-$19.99
            
            
            
            403,708
            
            
            
            5.49
            
            
            
            15.17
            
            
            
            364,377
            
            
            
            15.18$20.00-$25.00
            
            
            
            112,500
            
            
            
            4.89
            
            
            
            22.90
            
            
            
            105,900
            
            
            
            23.081,219,453
            
            
            
            4.79
            
            
            
            10.83
            
            
            
            1,040,039
            
            
            
            10.47





7. INCOME
TAXES





The
effective tax rate for the three months ended September 30, 2009 and 2008 was
40.8% and 42.0%, respectively, and for the nine months ended September 30, 2009
and 2008 was 40.3% and 41.7%, respectively.





8. CONTINGENCIES





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





9. PENSION
PLAN





The Company sponsors a noncontributory defined benefit
pension plan covering substantially all of the Company’s union
employees.  Benefits are provided based on employees’ years of service
and earnings.  This plan was frozen on December 31, 1994 for non-union
employees.  The total amount of the Company’s contributions paid under
its pension plan was $0.7 million and $0 for the nine months ended September 30,
2009 and 2008, respectively.The net periodic benefit cost was
$229 thousand and $719 thousand for the three and nine months ended September
30, 2009, respectively.  The net periodic benefit cost was $36
thousand and $2 thousand for the three and nine months ended September 30,
2008.


12
 Index


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





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





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





General





We are a
leading and diversified provider of career-oriented post-secondary education. We
offer recent high school graduates and working adults degree and diploma
programs in five areas principal of study: automotive technology, health
sciences, skilled trades, business and information technology and hospitality
services. Each area of study is specifically designed to appeal to and meet the
educational objectives of our student population, while also satisfying the
criteria established by industry and employers and state and federal accrediting
bodies. We believe that diversification limits our dependence on any one
industry for enrollment growth or placement opportunities and broadens our
opportunity to introduce new programs. As of September 30, 2009, 31,509 students
were enrolled at our 43 campuses across 17 states. Our campuses primarily
attract students from their local communities and surrounding areas, although
our destination schools attract students from across the United States, and in
some cases, from abroad.





Critical
Accounting Policies and Estimates





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





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





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


13
 Index


Our bad
debt expense as a percentage of revenues for the three months ended September
30, 2009 and 2008 was 6.8% and 6.3%, respectively, and for the nine months ended
September 30, 2009 and 2008 was 6.6% and 5.9%, respectively. Our exposure to
changes in our bad debt expense could impact our operations.  A 1%
increase in our bad debt expense as a percentage of revenues for the three
months ended September 30, 2009 and 2008 would have resulted in an increase in
bad debt expense of $1.5 million and $1.0 million, respectively, and for
the nine months ended September 30, 2009 and 2008 would have resulted in an
increase in bad debt expense of $4.0 million and $2.7 million,
respectively.





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





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





Goodwill represents a significant portion of our total
assets. As of September 30, 2009, goodwill represented approximately $112.0
million, or 30.4%, of our total assets. At December 31, 2008, we tested our
goodwill for impairment utilizing a multiple of earnings before interest, taxes,
depreciation and amortization (EBITDA) approach toestimate the fair
value of our individual reporting unitsand
determined that the fair market value of our reporting units exceeded their
carrying amount.  No events have occurred subsequently that would have
required retesting since that evaluation took place.





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





Effect
of Inflation





Inflation
has not had a material effect on our operations.


14
 Index


Results
of Operations





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





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





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30,
            
            
            September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Revenues
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Costs
      and expenses:Educational
      services and facilities
            
            
            38.9
            %
            
            
            41.4
            %
            
            
            39.8
            %
            
            
            42.3
            %Selling,
      general and administrative
            
            
            44.8
            %
            
            
            48.3
            %
            
            
            48.0
            %
            
            
            52.3
            %Total
      costs and expenses
            
            
            83.7
            %
            
            
            89.7
            %
            
            
            87.8
            %
            
            
            94.6
            %Operating
      income
            
            
            16.3
            %
            
            
            10.3
            %
            
            
            12.2
            %
            
            
            5.4
            %Interest
      expense, net
            
            
            -0.8
            %
            
            
            -0.5
            %
            
            
            -0.8
            %
            
            
            -0.6
            %Income
      before income taxes
            
            
            15.5
            %
            
            
            9.8
            %
            
            
            11.4
            %
            
            
            4.8
            %Provision
      for income taxes
            
            
            6.3
            %
            
            
            4.1
            %
            
            
            4.6
            %
            
            
            2.0
            %Net
      income
            
            
            9.2
            %
            
            
            5.7
            %
            
            
            6.8
            %
            
            
            2.8
            %





Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008





Revenues.    Revenues
increased by $47.9 million, or 47.7%, to $148.4 million for the
quarter ended September 30, 2009 from $100.5 million for the quarter ended
September 30, 2008. Approximately $14.6 million, or 30.4%, of this increase
was a result of our acquisitions of Briarwood College on December 1, 2008, six
of the seven schools comprising Baran Institute of Technology (“BAR”) on January
20, 2009 and Clemens College (“Clemens”) on April 20, 2009 (collectively, the
“Acquisitions”).  The remainder of the increase in revenues was
primarily attributable to a 28.0% increase in average student population, which
increased to 26,460 for the quarter ended September 30, 2009 from 20,665 for the
quarter ended September 30, 2008.  Average revenue per student on a
same school basis increased 4.0% for the quarter ended September 30, 2009 from
the quarter ended September 30, 2008 primarily from tuition increases which
ranged from 3% to 5% annually and by a shift from lower to higher tuition
programs.  For a general discussion of trends in our student
enrollment, see “Seasonality and Trends” below.





Educational
services and facilities expenses.   Our educational
services and facilities expenses increased by $16.1 million, or 38.7%, to
$57.7 million for the quarter ended September 30, 2009 from
$41.6 million for the quarter ended September 30, 2008. The Acquisitions
accounted for $8.8 million, or 54.4%, of this increase. The remainder of the
increase in educational services and facilities expenses was primarily due to
instructional expenses which increased by $4.9 million, or 24.3%, and books and
tools expenses, which increased by $2.1 million, or 27.5%, respectively, over
the same quarter in 2008. These increases were attributable to a 19.5% increase
in student starts for the third quarter of 2009 as compared to the third quarter
of 2008 coupled with a 28.0% increase in average student population and higher
tool sales during the third quarter of 2009 compared to the third quarter of
2008.  On a same school basis, we began the third quarter of 2009 with
approximately 5,400 more students than we had on July 1, 2008, and as of
September 30, 2009 our student population on a same school basis was
approximately 5,700 higher than as of September 30, 2008. Also contributing to
the increase in educational services and facilities expenses were higher
facilities expenses, which increased by approximately $0.4 million over the same
quarter in 2008.   This increase was primarily due to an increase
in depreciation expense of $0.2 million resulting from capital expenditures and
higher repairs and maintenance expense at our campuses. Educational services and
facilities expenses as a percentage of revenues decreased to 38.9% for the third
quarter of 2009 from 41.4% for the second quarter of 2008.





Selling, general
and administrative expenses.    Our selling, general
and administrative expenses for the quarter ended September 30, 2009 were $66.6
million, an increase of $18.1 million, or 37.3%, from $48.5 million for the
quarter ended September 30, 2008. Approximately $8.2 million, or 45.3%, of this
increase was attributable to the Acquisitions. The remainder of the increase in
our selling, general and administrative expenses for the quarter ended September
30, 2009 was primarily due to: (a) a $0.8 million, or 19.2%, increase in student
services; (b) a $1.7 million, or 9.3%, increase in sales and marketing; and (c)
a $7.4 million, or 28.5%, increase in administrative expenses as compared to the
quarter ended September 30, 2008.





The
increase in student services during the third quarter of 2009 as compared to the
third quarter of 2008 was primarily due to annual increases in compensation and
benefit expenses to our financial aid and career services
personnel.  Additionally, during 2009, we increased the number of
financial aid and career services personnel as a result of a larger student
population during the third quarter of 2009 as compared to the third quarter of
2008 and to further assist our students’ opportunities during these difficult
times.


15
 Index


The
increase in sales and marketing expense during the third quarter of 2009 as
compared to the third quarter of 2008 was primarily due to: (a) annual
compensation increases to sales representatives; (b) additional sales
representatives to facilitate our recent and anticipated growth; and (c)
increased call center support as compared to the third quarter of
2008.  In addition, we continued to invest in marketing initiatives in
an effort to continue to grow our student population.





The
increase in administrative expenses during the third quarter of 2009 as compared
to the third quarter of 2008 was primarily due to: (a) a $3.5 million increase
in personnel costs relating to (i) annual compensation increases and an increase
in the number of personnel needed to serve the needs of a higher student
population during the quarter ended September 30, 2009 as compared to the third
quarter of 2008, (ii) an increase in accruals for incentive compensation and
cost of benefits provided to employees; (b) a $3.0 million increase in bad debt
expense; (c) $0.5 million of  legal costs; and (d) a net increase of
$0.4 million incurred in connection with the sale of stock by our largest
shareholder on September 30, 2009 compared to the expenses incurred in the same
period of 2008 in connection with the S-3 registration statement
filing.  As a percentage of revenues, selling, general and
administrative expenses for the third quarter of 2009 decreased to 44.8% from
48.3% for the third quarter of 2008.




For the
quarter ended September 30, 2009, including the Acquisitions, our bad debt
expense as a percentage of revenue was 6.8% as compared to 6.3% for the same
quarter in 2008.  This increase was primarily attributable to higher
accounts receivable due to a 28.0% increase in average student population and a
47.7% increase in revenue for the third quarter of 2009 as compared to the third
quarter of 2008.  Additionally, during 2009 we considered the current
economic environment which has produced high unemployment rates and decided to
increase our reserve on graduate receivables to 17% from 10% in
2008.  This is offset by a decrease in the number of days sales
outstanding as of September 30, 2009 to 24.4 days, compared to 26.3 days as of
September 30, 2008. This decrease was primarily attributable to our efforts in
centralizing the back office administration of our financial aid department in
an effort to improve the effectiveness and timeliness of our financial aid
processing. As of September 30, 2009, we had outstanding loan commitments to our
students of $25.3 million as compared to $24.6 million at June 30, 2009 and
$24.8 million at December 31, 2008.  Loan commitments, net of interest
that would be due on the loans through maturity, were $17.6 million at September
30, 2009 as compared to $17.0 million at June 30, 2009 and $17.0 million at
December 31, 2008.





Net interest
expense.    Our net interest expense for the quarter
ended September 30, 2009 was $1.1 million, an increase of $0.6 million from $0.5
million for the quarter ended September 30, 2008.  This increase was
attributable to real estate capital leases assumed in connection with the
Acquisitions.





Income
taxes.    Our provision for income taxes for the
quarter ended September 30, 2009 was $9.4 million, or 40.8% of pretax
income, compared to $4.1 million, or 42.0% of pretax income for the quarter
ended September 30, 2008. The decrease in our effective tax rate for the quarter
ended September 30, 2009 was primarily attributable to a change in the mix in
state taxable income among various states.





Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008





Revenues. 
Revenues increased by $125.5 million, or 46.6%, to $395.1 million for
the nine months ended September 30, 2009 from $269.6 million for the nine
months ended September 30, 2008. The Acquisitions accounted for approximately
$39.5 million, or 31.5%, of this increase. The remainder of the increase in
revenues was primarily attributable to a 26.5% increase in average student
population, which increased to 24,311 for the nine months ended September 30,
2009 from 19,221 for the nine months ended September 30,
2008.  Average revenue per student on a same school basis increased
4.3% for the nine months ended September 30, 2009 from the nine months ended
September 30, 2008 primarily from tuition increases which ranged from 3% to 5%
annually and by a shift in student population from lower to higher tuition
programs.  For a general discussion of trends in our student
enrollment, see “Seasonality and Trends” below.





Educational
services and facilities expenses.   Our educational
services and facilities expenses increased by $43.0 million, or 37.6%, to
$157.1 million for the nine months ended September 30, 2009 from
$114.1 million for the nine months ended September 30, 2008. The
Acquisitions accounted for $23.4 million, or 54.4%, of this increase. The
remainder of the increase in educational services and facilities expenses was
primarily due to instructional expenses which increased by $11.7 million, or
19.9%, and books and tools expenses, which increased by $6.0 million, or 37.4%,
respectively, over the same period in 2008. These increases were attributable to
a 27.1% increase in student starts for the nine months ended September 30, 2009
as compared to the same period in 2008 coupled with a 26.5% increase in average
student population and higher tool sales during the nine months ended September
30, 2009 compared to the same period in 2008.  On a same school basis,
we began 2009 with approximately 3,000 more students than we had on January 1,
2008, and as of September 30, 2009, our population on a same school basis was
approximately 5,700 higher than as of September 30, 2008.  Also
contributing to the increase in educational services and facilities expenses
were higher facilities expenses, which increased by approximately $1.9 million
over the same period in 2008.  This increase was primarily
attributable to: (a) a $0.6 million increase in rent expense resulting from the
expansion of our Melrose Park, Illinois and Vine Street, Ohio campuses,
our  new campus in Toledo, Ohio and lease extensions at our existing
campuses; (b) a $0.7 million increase in repairs and maintenance costs due to
overall higher common area charges as well as charges relating to our lease
expansions and new locations; and (c) a $0.4 million increase in real-estate
taxes due to additional campus space as well as annual property value and tax
rate increases.  Educational services and facilities expenses as a
percentage of revenues decreased to 39.8% from 42.3% for the nine months ended
September 30, 2009 compared to the same period in 2008.


16
 Index


Selling, general
and administrative expenses.    Our selling, general
and administrative expenses for the nine months ended September 30, 2009 were
$189.7 million, an increase of $48.7 million, or 34.5%, from $141.1 million
for the quarter ended September 30, 2008.  Approximately $22.0
million, or 45.2%, of this increase was attributable to the Acquisitions. The
remainder of the increase in our selling, general and administrative expenses
for the quarter ended September 30, 2009 was primarily due to: (a) a $2.0
million, or 16.6%, increase in student services; (b) a $4.6 million, or 8.6%,
increase in sales and marketing; and (c) a $20.0 million, or 26.6%, increase in
administrative expenses as compared to the same period in 2008.





The
increase in student services during the nine months ended September 30, 2009 as
compared to the same period in 2008 was primarily due to annual increases in
compensation and benefit expenses to our financial aid and career services
personnel.  Additionally, during 2009, we increased the number of
financial aid and career services personnel as a result of a larger student
population during the nine months ended September 30, 2009 as compared to the
same period in 2008 and to further assist our students’ opportunities during
these difficult economic times.





The
increase in sales and marketing expense during the nine months ended September
30, 2009 as compared to the same period in 2008 was primarily due to: (a) annual
compensation increases to sales representatives; (b) additional sales
representatives to facilitate our recent and anticipated growth; and (c)
increased call center support as compared to the same period in
2008.  In addition, we continued to invest in marketing initiatives in
an effort to continue to grow our student population.





The
increase in administrative expenses during the nine months ended September 30,
2009 as compared to the same period in 2008 was primarily due to: (a) a $8.1
million increase in personnel costs relating to (i) annual compensation
increases and an increase in the number of personnel needed to serve the needs
of a higher student population during the nine months ended September 30, 2009
as compared to the same period in 2008,  (ii) an increase in accruals
for incentive compensation and increased cost of benefits provided to employees;
(b) a $7.4 million increase in bad debt expense; (c) $1.0 million
of  legal costs; (d) a $0.2 million increase in software maintenance
expenses resulting from increased software licenses for our student management
system; (e) $0.3 million incurred due to the re-branding of our Florida Culinary
Institute in West Palm Beach, Florida; (f) $1.4 million in connection with our
acquisition of BAR on January 20, 2009; (g) a net increase of $0.2 million
incurred in connection with the sale of stock by our largest shareholder on
September 30, 2009 and our public offering on February 18, 2009 compared to the
expenses incurred in the same period of 2008 in connection with the S-3
registration statement filing; and (h) $0.6 million related to repairs and
maintenance of equipment and general administrative supplies.  As a
percentage of revenues, selling, general and administrative expenses for the
nine months ended September 30, 2009 decreased to 48.0% from 52.3% for the same
period in 2008.




For the
nine months ended September 30, 2009, including the Acquisitions, our bad debt
expense as a percentage of revenue was 6.6% as compared to 5.9% for the same
period in 2008.  This increase was primarily attributable to higher
accounts receivable due to a 26.5% increase in average student population and a
46.6% increase in revenue for the nine months ended September 30, 2009 as
compared to the same period in 2008.  Additionally, during 2009 we
considered the current economic environment which has produced high unemployment
rates and decided to increase our reserve on graduate receivables to 17% from
10% in 2008. This is offset by a decrease in the number of days sales
outstanding at September 30, 2009 to 27.2 days, compared to 29.2 days at
September 30, 2008. This decrease was primarily attributable to efforts in
centralizing the back office administration of our financial aid department in
an effort to improve the effectiveness and timeliness of our financial aid
processing.





Net interest
expense.    Our net interest expense for the nine
months ended September 30, 2009 was $3.2 million, an increase of $1.6 million,
from $1.6 million for the same period in 2008.  This increase was
attributable to real estate capital leases assumed in connection with the
Acquisitions.





Income
taxes.    Our provision for income taxes for the nine
months ended September 30, 2009 was $18.2 million, or 40.3% of pretax
income, compared to $5.3 million, or 41.7% of pretax income for the same period
in 2008. The decrease in our effective tax rate for the nine months ended
September 30, 2009 was primarily attributable to a change in the mix in state
taxable income among various states.





Liquidity
and Capital Resources





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


17
 Index


The
following chart summarizes the principal elements of our cash
flows:





Nine
      Months EndedSeptember
      30,2009
            
            
            2008(In
      thousands)Net
      cash provided by operating activities
            
            $
            42,865
            
            
            $
            30,003Net
      cash used in investing activities
            
            $
            (36,038
            )
            
            $
            (15,919
            )Net
      cash provided by (used in) financing activities
            
            $
            15,995
            
            
            $
            (11,441
            )





At
September 30, 2009, we had $38.1 million in cash and cash equivalents,
representing an increase of approximately $22.8 million as compared to $15.2
million as of December 31, 2008.  Historically, we have financed our
operating activities and organic growth primarily through cash generated from
operations.  We have financed acquisitions primarily through borrowings
under our credit agreement and cash generated from operations.  During the
first nine months of 2009, we borrowed $44.0 million to finance our acquisition
of BAR and to finance our working capital needs and subsequently repaid all
borrowings.  We currently anticipate that we will be able to meet both
our short-term cash needs, as well as our need to fund operations and meet our
obligations beyond the next twelve months with cash generated by operations,
existing cash balances and, if necessary, borrowings under our credit agreement.
In February 2009, we sold common stock in a public offering and received net
proceeds of approximately $14.9 million.  The proceeds of this
offering were used to repay borrowings under our credit agreement.  In
addition, we may also consider accessing the financial markets in the future as
a source of liquidity for capital requirements, acquisitions and general
corporate purposes to the extent such requirements are not satisfied by cash on
hand, borrowings under our credit agreement or operating cash
flows.  However, we cannot assure you that we will be able to raise
additional capital on favorable terms, if at all.  At September 30,
2009, we had net borrowings available under our $100 million credit agreement of
approximately $94.4 million, including a $14.4 million sub-limit on letters of
credit.  The credit agreement terminates on February 15,
2010.  We intend to refinance our credit agreement prior to the
maturity date; however, we cannot assure you that we will be able to do so or
that any refinancing would be on terms favorable to us.





Our
primary source of cash is tuition collected from our students. The majority of
students enrolled at our schools rely on funds received under various
government-sponsored student financial aid programs to pay a substantial portion
of their tuition and other education-related expenses. The largest of these
programs are Title IV Programs which represented approximately 79% of our cash
receipts relating to revenues in 2008. Students must apply for a new loan for
each academic period. Federal regulations dictate the timing of disbursements of
funds under Title IV Programs and loan funds are generally provided by lenders
in two disbursements for each academic year. The first disbursement is usually
received approximately 31 days after the start of a student's academic year
and the second disbursement is typically received at the beginning of the
sixteenth week from the start of the student's academic year. Certain types of
grants and other funding are not subject to a 30-day delay. Our programs range
from 14 to 102 weeks. In certain instances, if a student withdraws from a
program prior to a specified date, any paid but unearned tuition or prorated
Title IV financial aid is refunded according to state and federal
regulations.





As a
result of the significance of the Title IV funds received by our students, we
are highly dependent on these funds to operate our business. Any reduction in
the level of Title IV funds that our students are eligible to receive or any
impact on our ability to be able to receive Title IV funds would have a
significant impact on our operations and our financial condition.  See
“Risk Factors” in Item 1A, included in our Annual Report on Form 10-K for the
year ended December 31, 2008.





Cash
Flow Operating Activities





Net cash
provided by operating activities was $42.9 million for the nine months ended
September 30, 2009 compared to $30.0 million for the nine months ended September
30, 2008.  The $12.9 million increase in net cash provided by operating
activities was primarily due to an increase in net income of approximately $19.5
million and an increase in other working capital items offset by $15.2 million
of higher tax payments during the nine months ended September 30, 2009 as
compared to the nine months ended September 30, 2008.





Cash
Flow Investing Activities





Net cash
used in investing activities increased by $20.1 million to $36.0 million for the
nine months ended September 30, 2009 from $15.9 million for the nine months
ended September 30, 2008.  This increase was primarily attributable to a
$27.6 million increase in cash used towards the BAR and Clemens acquisitions
offset by a $7.0 million decrease in capital expenditures for the quarter ended
September 30, 2009 as compared to the same quarter of 2008.   Our
capital expenditures primarily resulted from facility expansion, leasehold
improvements, and investments in classroom and shop technology.





Capital
expenditures are expected to continue to increase in the remainder of 2009 as we
upgrade and expand current equipment and facilities or open new facilities to
meet increased student enrollments. We anticipate capital expenditures to
approximate 5% of revenues in 2009 and expect to fund these capital expenditures
with cash generated from operating activities and, if necessary, with borrowings
under our credit agreement.


18
 Index


Cash
Flow Financing Activities





Net cash
provided by financing activities was $16.0 million for the nine months ended
September 30, 2009, as compared to net cash used in financing activities of
$11.4 million for the nine months ended September 30, 2008.  This increase
of $27.4 million was primarily due to: (a) $14.9 million received from our sale
of common stock in a public offering during the nine months ended September 30,
2009 as compared to $6.4 million in repurchases of our common stock during the
nine months ended September 30, 2008; (b) a $5.0 million decrease in net
payments on borrowings under our credit agreement; (c) $1.5 million increase in
proceeds from the exercise of stock options; and (d) offset by $0.8 increase in
capital lease payments.





Under the
terms of our credit agreement, a lending syndicate provided us with a $100
million credit facility for a term of five years which terminates on February
15, 2010.  The credit agreement permits the issuance of letters of credit
of up to $20 million, the amount of which reduces the availability of permitted
borrowings under the agreement.




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





September 30,
            
            
            December 31,2009
            
            
            2008Finance
      obligation
            
            $
            9,672
            
            
            $
            9,672Note
      payable
            
            
            43
            
            
            
            -Capital
      lease-property (with a rate of 8.0%)
            
            
            27,260
            
            
            
            -Capital
      leases-equipment (with a rate of 8.5%)
            
            
            403
            
            
            
            502Subtotal
            
            
            37,378
            
            
            
            10,174Less
      current maturities
            
            
            (391
            )
            
            
            (130
            )Total
      long-term debt
            
            $
            36,987
            
            
            $
            10,044





See Note
5 to our unaudited condensed consolidated financial statements for more
information regarding our long term debt and lease obligations.





Contractual
Obligations





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





Lease
Commitments.  We lease offices, educational facilities and equipment
for varying periods through the year 2030 at base annual rentals (excluding
taxes, insurance, and other expenses under certain leases).





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





Payments
      Due by PeriodTotal
            
            
            Less than
              1
      year
            
            
            2-3
      years
            
            
            4-5
      years
            
            
            After
              5
      yearsCapital
      leases (including interest)
            
            $
            60,876
            
            
            $
            2,419
            
            
            $
            5,207
            
            
            $
            5,083
            
            
            $
            48,167Notes
      payable (including interest)
            
            
            43
            
            
            
            43
            
            
            
            -
            
            
            
            -
            
            
            
            -Operating
      leases
            
            
            195,413
            
            
            
            21,101
            
            
            
            42,248
            
            
            
            39,105
            
            
            
            92,959Rent
      on finance obligation
            
            
            10,337
            
            
            
            1,426
            
            
            
            2,852
            
            
            
            2,852
            
            
            
            3,207Total
      contractual cash obligations
            
            $
            266,669
            
            
            $
            24,989
            
            
            $
            50,307
            
            
            $
            47,040
            
            
            $
            144,333





Off-Balance
Sheet Arrangements





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


19
 Index


Seasonality
and Trends





Our net
revenues and operating results normally fluctuate as a result of seasonal
variations in our business, principally due to changes in total student
population. Student population varies as a result of new student enrollments,
graduations and student attrition. Historically, our schools have had lower
student populations in our first and second quarters and we have experienced
large class starts in the third and fourth quarters and student attrition in the
first half of the year. Our second half growth is largely dependent on a
successful high school recruiting season. We recruit our high school students
several months ahead of their scheduled start dates, and thus, while we have
visibility on the number of students who have expressed interest in attending
our schools, we cannot predict with certainty the actual number of new student
enrollments and the related impact on revenue. Our expenses, however, do not
vary significantly over the course of the year with changes in our student
population and net revenues. During the first half of the year, we make
significant investments in marketing, staff, programs and facilities to ensure
that we meet our second half of the year targets and, as a result, such expenses
do not fluctuate significantly on a quarterly basis. To the extent new student
enrollments, and related revenues, in the second half of the year fall short of
our estimates, our operating results could suffer. We expect quarterly
fluctuations in operating results to continue as a result of seasonal enrollment
patterns. Such patterns may change as a result of new school openings, new
program introductions, and increased enrollments of adult students and/or
acquisitions.





Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





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





Our
interest rate risk is associated with miscellaneous capital equipment leases and
notes payable, which are not significant.





Item 4.  CONTROLS AND PROCEDURES





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





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





PART II. OTHER INFORMATION





Item 1.  LEGAL PROCEEDINGS





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





Item 1A.  RISK FACTORS





Part 1,
Item 1A, “Risk Factors,” of our Annual Report on Form 10-K includes a detailed
discussion of our risk factors.  The information presented below
updates, and should be read in conjunction with, the risk factors and
information disclosed in our Annual Report on Form 10-K and subsequent quarterly
and current reports filed with the SEC.  The risks described in this
report and in our Annual Report on Form 10-K are not the only risks that we
face.  Additional risks and uncertainties not currently known to us,
or that we currently deem to be immaterial, also may materially adversely affect
our business, financial condition, prospects and future
results.


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 Index


A
protracted economic slowdown and rising unemployment could harm our business if
our students are unable to obtain employment upon completion of their programs,
are unable to repay student loans or elect not to pursue education with
us.





We
believe that many students pursue postsecondary education to be more competitive
in the job market. However, the current economic recession has adversely
affected job markets and a protracted economic slowdown could further increase
unemployment and diminish job prospects and placement rates. Our placement rates
declined in 2008 compared to 2007, and further diminished job prospects and
placement rates and heightened financial worries could affect the willingness of
students to incur loans to pay for postsecondary education and to pursue
postsecondary education in general. As a result, our enrollment and operating
performance could suffer. The recent weakness in the job markets could also
affect the prospects for long-term job growth, and there can be no assurance
that the growth projected by the U.S. Bureau of Labor Statistics through 2016
will materialize.





In
addition, many of our students borrow Title IV loans to pay for tuition,
fees and other expenses. A protracted economic slowdown could negatively impact
our students' ability to repay those loans which could negatively impact the
cohort default rates of our institutions. Our 2006 cohort default rates at our
institutions, including Briarwood and the Baran schools, as reported by the DOE
range from 5.8% to 19.3%. Our 2007 cohort default rates as reported by the DOE
range from 0% to 22.9%, and were higher than the 2006 cohort default rates for
most of our schools, and the weakness in the economy could continue to increase
default rates. For information regarding the historical default rates for our
schools, see "Business—Regulatory Environment—Federal Family Education Loan
Program" in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008. An increase in our cohort default rates in excess of
specified levels could cause our institutions to lose their eligibility to
participate in some or all Title IV Programs which could have a material
adverse effect on our operations. See "Risk Factors—Risks Related to Our
Industry—Our institutions would lose eligibility to participate in Title IV
Programs if their former students defaulted on repayment of their federal
student loans in excess of specified levels, which could reduce our student
population and revenues" in our Annual Report on Form 10-K for the year
ended December 31, 2008.





Our
failure to comply with regulations promulgated by the DOE could result in
financial penalties, or the limitation, suspension, or termination of our
continued participation in the Title IV programs.





The
issues addressed in the regulations that have been or are expected to be
proposed by the DOE, as well as the issues to be addressed in the upcoming
negotiated rulemaking process, which are described under "Recent
Developments—Regulation" in our Current Report on Form 8-K that we filed on
September 21, 2009, are broad and complex and concern a number of significant
aspects of the Title IV programs, including eligibility and certification,
administrative capability, school-lender relationships, the 90/10 rule,
incentive compensation and student loan default rates. At this time, we cannot
be certain whether and to what extent any changes may affect our ability to
remain eligible to participate in the Title IV programs or require us to
incur additional costs in connection with our administration of the
Title IV programs. Any future changes that jeopardize our eligibility to
participate in some or all of the Title IV programs could materially
adversely affect us. Failure of an institution to comply with new or existing
DOE regulations could result in sanctions, including loss of eligibility to
participate in Title IV programs; requirement to repay Title IV funds and
related costs to the DOE and lenders; transfer of the institution to the
heightened cash monitoring level two method of payment or to the reimbursement
method of payment, which would adversely affect the timing of the institution's
receipt of Title IV funds; requirement to post a letter of credit in favor of
the DOE as a condition for continued Title IV certification; requirement to
provide timely information regarding certain oversight and financial events;
proceedings to impose a fine or to limit, suspend or terminate the institution's
participation in Title IV programs; an emergency action to suspend the
institution's participation in Title IV programs without prior notice or a prior
opportunity for a hearing; denial or refusal to consider an institution's
application for renewal of its certification to participate in Title IV
programs; or referral of a matter for possible civil or criminal
investigation.





Our
regulatory environment and our reputation may be negatively influenced by the
actions of other postsecondary institutions.





In recent
years, regulatory investigations and civil litigation have been commenced
against several postsecondary educational institutions. These investigations and
lawsuits have alleged, among other things, deceptive trade practices and
non-compliance with DOE regulations. These allegations have attracted adverse
media coverage and have been the subject of federal and state legislative
hearings. Although the media, regulatory and legislative focus has been
primarily on the allegations made against these specific companies, broader
allegations against the overall postsecondary sector may negatively impact
public perceptions of postsecondary educational institutions, including us. Such
allegations could result in increased scrutiny and regulation by the DOE, U.S.
Congress, accrediting bodies, state legislatures or other governmental
authorities on all postsecondary institutions, including us.





System
disruptions to our technology infrastructure could impact our ability to
generate revenue and could damage the reputation of our
institutions.





The
performance and reliability of our technology infrastructure is critical to our
reputation and to our ability to attract and retain students. We license the
software and related hosting and maintenance services for our online platform
and our student information system from third-party software providers. Any
system error or failure, or a sudden and significant increase in bandwidth
usage, could result in the unavailability of systems to us or our students. Any
such system disruptions could impact our ability to generate revenue and affect
our ability to access information about our students and could also damage the
reputation of our institutions.


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 Index


A
decline in the overall growth of enrollment in postsecondary institutions, or in
our core disciplines or in the number of students seeking degrees online, could
cause us to experience lower enrollment at our schools, which could negatively
impact our future growth.





According
to a March 2009 report from the NCES, enrollment in degree-granting,
postsecondary institutions is projected to grow 10.0% over the ten-year period
ending fall 2017 to approximately 20.1 million. This growth is slower than
the 25.8% increase reported in the prior ten-year period ended in fall 2007,
when enrollment increased from 14.5 million in 1997 to 18.2 million in
2007. Similarly, a 2008 study by Eduventures, LLC, projects a compound
annual growth rate of 12.5% in online postsecondary education enrollment over
the five-year period ending fall 2013, which represents an aggregate increase in
online enrollment of 1.5 million. This growth is slower than the 25.3%
compound annual growth rate in the prior five-year period ending fall 2008,
which represented an aggregate increase in online enrollment of
1.3 million. In addition, according to a March 2008 report from the
Western Interstate Commission for Higher Education, the number of high school
graduates that are eligible to enroll in degree-granting, postsecondary
institutions is expected to peak at approximately 3.3 million for the class
of 2008, falling in the period between 2007–08 and 2013–14 by about 150,000 in
total before resuming a growth pattern for the foreseeable future thereafter.
Although, as of September 30, 2009, only 22% of our students were enrolled
in degree granting programs (primarily at the associate's degree level), our
strategy is to expand our degree granting offerings. In order to increase our
current growth rates in degree granting programs, we will need to attract a
larger percentage of students in existing markets and expand our markets by
creating new academic programs. In addition, if job growth in the fields related
to our core disciplines is weaker than expected, as a result of any regional or
national economic downturn or otherwise, fewer students may seek the types of
diploma or degree granting programs that we offer and seek to offer. Our failure
to attract new students, or the decisions by prospective students to seek
diploma or degree programs in other disciplines, would have an adverse impact on
our future growth.





Item 6.  EXHIBITS





EXHIBIT
INDEX





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





Exhibit
              Number
            
            Description3.1
            
            Amended
      and Restated Certificate of Incorporation of the Company
    (1).3.2
            
            Amended
      and Restated By-laws of the Company (2).4.1
            
            Stockholders’
      Agreement, dated as of September 15, 1999, among Lincoln Technical
      Institute, Inc., Back to School Acquisition, L.L.C. and Five Mile River
      Capital Partners LLC (1).4.2
            
            Letter
      agreement, dated August 9, 2000, by Back to School Acquisition, L.L.C.,
      amending the Stockholders’ Agreement (1).4.3
            
            Letter
      agreement, dated August 9, 2000, by Lincoln Technical Institute, Inc.,
      amending the Stockholders’ Agreement (1).4.4
            
            Management
      Stockholders Agreement, dated as of January 1, 2002, by and among Lincoln
      Technical Institute, Inc., Back to School Acquisition, L.L.C. and the
      Stockholders and other holders of options under the Management Stock
      Option Plan listed therein (1).4.5
            
            Assumption
      Agreement and First Amendment to Management Stockholders Agreement, dated
      as of December 20, 2007, by and among Lincoln Educational Services
      Corporation, Lincoln Technical Institute, Inc., Back to School
      Acquisition, L.L.C. and the Management Investors parties therein
      (6).4.6
            
            Registration
      Rights Agreement between the Company and Back to School Acquisition,
      L.L.C. (2).4.7
            
            Specimen
      Stock Certificate evidencing shares of common stock
(1).10.1
            
            Credit
      Agreement, dated as of February 15, 2005, among the Company, the
      Guarantors from time to time parties thereto, the Lenders from time to
      time parties thereto and Harris Trust and Savings Bank, as Administrative
      Agent (1).  22
 Index
  10.2
            
            Amended
      and Restated Employment Agreement, dated as of February 1, 2007, between
      the Company and David F. Carney (3).10.3
            
            Amendment
      to Amended and Restated Employment Agreement, dated as of January 14,
      2009, between the Company and David F. Carney (8).10.4
            
            Separation
      and Release Agreement, dated as of October 15, 2007, between the Company
      and Lawrence E. Brown (4).10.5
            
            Amended
      and Restated Employment Agreement, dated as of February 1, 2007, between
      the Company and Scott M. Shaw (3).10.6
            
            Amendment
      to Amended and Restated Employment Agreement, dated as of January 14,
      2009, between the company and Scott M. Shaw (8).10.7
            
            Amended
      and Restated Employment Agreement, dated as of February 1, 2007, between
      the Company and Cesar Ribeiro (3).10.8
            
            Amendment
      to Amended and Restated Employment Agreement, dated as of January 14,
      2009, between the company and Cesar Ribeiro (8).10.9
            
            Amended
      and Restated Employment Agreement, dated as of February 1, 2007, between
      the Company and Shaun E. McAlmont (3).10.10
            
            Amendment
      to Amended and Restated Employment Agreement, dated as of January 14,
      2009, between the company and Shaun E. McAlmont (8).10.11
            
            Lincoln
      Educational Services Corporation 2005 Long Term Incentive Plan
      (1).10.12
            
            Lincoln
      Educational Services Corporation 2005 Non Employee Directors Restricted
      Stock Plan (1).10.13
            
            Lincoln
      Educational Services Corporation 2005 Deferred Compensation Plan
      (1).10.14
            
            Lincoln
      Technical Institute Management Stock Option Plan, effective January 1,
      2002 (1).10.15
            
            Form
      of Stock Option Agreement, dated January 1, 2002, between Lincoln
      Technical Institute, Inc. and certain participants (1).10.16
            
            Form
      of Stock Option Agreement under our 2005 Long Term Incentive Plan
      (7).10.17
            
            Form
      of Restricted Stock Agreement under our 2005 Long Term Incentive Plan
      (7).10.18
            
            Management
      Stock Subscription Agreement, dated January 1, 2002, among Lincoln
      Technical Institute, Inc. and certain management investors
      (1).10.19
            
            Stockholder’s
      Agreement among Lincoln Educational Services Corporation, Back to School
      Acquisition L.L.C., Steven W. Hart and Steven W. Hart 2003 Grantor
      Retained Annuity Trust (2).10.20
            
            Stock
      Purchase Agreement, dated as of March 30, 2006, among Lincoln Technical
      Institute, Inc., and Richard I. Gouse, Andrew T. Gouse, individually and
      as Trustee of the Carolyn Beth Gouse Irrevocable Trust, Seth A. Kurn and
      Steven L. Meltzer (5).10.21
            
            Stock
      Purchase Agreement, dated as of January 20, 2009, among Lincoln Technical
      Institute, Inc., NN Acquisition, LLC, Brad Baran, Barbara Baran, UGP
      Education Partners, LLC, UGPE Partners Inc. and Merion Investment
      Partners, L.P (8).  23
 Index
 
 10.22
            
            Stock
      Purchase Agreement, dated as of January 20, 2009, among Lincoln Technical
      Institute, Inc., NN Acquisition, LLC, Brad Baran, Barbara Baran, UGP
      Education Partners, LLC, Merion Investment Partners, L.P. and, for certain
      limited purposes only, UGPE Partners Inc (8).31.1 *
            
            Certification
      of President & Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2 *
            
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32 *
            
            Certification
      of President & Chief Executive Officer and Chief Financial Officer
      pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.




_____________________________________________




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





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





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





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





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





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





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





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





*
            Filed
      herewith.


24
 Index


SIGNATURES





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








LINCOLN
      EDUCATIONAL SERVICES CORPORATIONDate:
      November 6, 2009
            By:
            /s/ Cesar RibeiroCesar
      RibeiroChief
      Financial Officer(Duly
      Authorized Officer, Principal Accounting and Financial
      Officer)





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