Lincoln Educational Services Annual Report 2016

Plain-text annual report

U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 Form 10-K☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016 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 340West Orange, NJ 07052(Address of principal executive offices)(973) 736-9340(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of exchange on which registeredCommon Stock, no par value per share The NASDAQ Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒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 1934during 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 filingrequirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K. ☒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 thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer ☐Accelerated filer ☐Non-accelerated filer ☐Smaller reporting company ☒Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒The aggregate market value of the 22,107,983 shares of common stock held by non-affiliates of the registrant issued and outstanding as of June 30, 2016, thelast business day of the registrant’s most recently completed second fiscal quarter, was $44,658,126. This amount is based on the closing price of the commonstock on the Nasdaq Global Select Market of $2.02 per share on June 30, 2016. Shares of common stock held by executive officers and directors and personswho own 5% or more of outstanding common stock have been excluded since such persons may be deemed affiliates. This determination of affiliate status isnot a determination for any other purpose.The number of shares of the registrant’s common stock outstanding as of March 8, 2017 was 24,719,105.Documents Incorporated by ReferencePortions of the Proxy Statement for the Registrant’s 2017 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report onForm 10-K. With the exception of those portions that are specifically incorporated by reference in this Annual Report on Form 10-K, such Proxy Statementshall not be deemed filed as part of this Report or incorporated by reference herein. LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESINDEX TO FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2016PART I. 1 ITEM 1.BUSINESS1 ITEM 1A.RISK FACTORS18 ITEM 1B.UNRESOLVED STAFF COMMENTS24 ITEM 2.PROPERTIES25 ITEM 3.LEGAL PROCEEDINGS26 ITEM 4.MINE SAFETY DISCLOSURES26 PART II. 27 ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASESOF EQUITY SECURITIES27 ITEM 6.SELECTED FINANCIAL DATA30 ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS32 ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK49 ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA49 ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE49 ITEM 9A.CONTROLS AND PROCEDURES49 ITEM 9B.OTHER INFORMATION50 PART III. 50 ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE50 ITEM 11.EXECUTIVE COMPENSATION50 ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS50 ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE50 ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES50 PART IV. 51 ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULE51 IndexForward-Looking StatementsThis Annual Report on Form 10-K contains “forward-looking statements,” within the meaning of Section 21E of the Securities Exchange Act of1934, as amended, which include information relating to future events, future financial performance, strategies, expectations, competitive environment,regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new programs;expectations that regulatory developments or other matters will or will not have a material adverse effect on our consolidated financial position, results ofoperations or liquidity; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operating resultsand future economic performance; and statements of management’s goals and objectives and other similar expressions concerning matters that are nothistorical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,”“believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of thetimes at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time thosestatements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that couldcause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that couldcause such differences include, but are not limited to:·our failure to comply with the extensive existing regulatory framework applicable to our industry or our failure to obtain timely regulatoryapprovals in connection with a change of control of our company or acquisitions;·the promulgation of new regulations in our industry as to which we may find compliance challenging;·our success in updating and expanding the content of existing programs and developing new programs in a cost-effective manner or on a timelybasis;·our ability to implement our strategic plan;·risks associated with changes in applicable federal laws and regulations including pending rulemaking by the U.S. Department of Education;·uncertainties regarding our ability to comply with federal laws and regulations regarding the 90/10 rule and cohort default rates;·risks associated with opening new campuses and closing existing campuses;·risks associated with integration of acquired schools;·industry competition;·conditions and trends in our industry;·general economic conditions; and·other factors discussed under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition andResults of Operations.”Forward-looking statements speak only as of the date the statements are made. Except as required under the federal securities laws and rules andregulations of the United States Securities and Exchange Commission (the “SEC”), we undertake no obligation to update or revise forward-lookingstatements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. We caution you not to undulyrely on the forward-looking statements when evaluating the information presented herein. IndexPART I.ITEM 1.BUSINESSOVERVIEWLincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable) provide diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company, which currently operates 28 schools in 15 states,offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electronic systemstechnology, among other programs), healthcare services (which include nursing, dental assistant, medical administrative assistant and pharmacy technician,among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and business and informationtechnology (which includes information technology and criminal justice programs). The schools operate under Lincoln Technical Institute, Lincoln Collegeof Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brandnames. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of the campuses aredestination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attractstudents from their local communities and surrounding areas. All of the campuses are nationally or regionally accredited and are eligible to participate infederal financial aid programs by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions whichallow students to apply for and access federal student loans as well as other forms of financial aid.In the first quarter of 2015, we reorganized our operations into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare andOther Professions (“HOPS”), and (c) Transitional which refers to businesses that have been or are currently being taught out. In November 2015 the Board ofDirectors approved a plan for the Company to divest the schools included in the HOPS business segment. Divestiture of the Company’s HOPS businesssegment marks a strategic shift in business strategy that will enable us to focus energy and resources predominantly on the Transportation and Skilled Tradesbusiness segment. The Company continues to actively market the schools comprising the HOPS business segment and has offers which are underconsideration. The results of operations of the campuses included in the HOPS business segment are reflected as discontinued operations in the consolidatedfinancial statements.The following table lists the schools that are included in the HOPS and Transitional Segments and their status as of December 31, 2016 and 2015: Segment Status School 2015 2016 2015 2016 Allentown, PA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Edison, NJ HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Moorestown, NJ HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Paramus, NJ HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Lincoln, RI HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Brockton, MA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Somerville, MA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Lowell, MA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1New Britain, CT HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Shelton, CT HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Las Vegas (Summerlin), NV HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Southington, CT HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Marietta, GA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Hartford, CT Transitional (Continuing Operations) HOPS (Discontinued Operations) Teach-out Closed 2Henderson (Green Valley), NV HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Closed 3Center City Philadelphia, PA HOPS (Discontinued Operations) Transitional (Continuing Operations) Held for sale Teach-out 4Northeast Philadelphia, PA HOPS (Discontinued Operations) Transitional (Continuing Operations) Held for sale Teach-out 4West Palm Beach, FL HOPS (Discontinued Operations) Transitional (Continuing Operations) Held for sale Teach-out 5Fern Park, FL Transitional (Continuing Operations) Transitional (Continuing Operations) Teach-out Closed 6 1In November 2015, the Board of Directors approved a plan to divest these schools and thus they are included in discontinued operations as ofDecember 31, 2016 and 2015.2In November 2015, the Board of Directors approved a plan to divest this school. In December 2015, the Board of Directors approved a plan to ceaseoperations at this school. The school was included in the Transitional Segment and included in continuing operations until it closed in the fourthquarter of 2016; it is included in discontinued operations as of December 31, 2016.3In November 2015, the Board of Directors approved a plan to divest this school. In the fourth quarter of 2016, the Board of Directors approved aplan to cease operations at this school, which closed in the fourth quarter of 2016 and is included in discontinued operations as of December 31,2016. 1Index4In November 2015, the Board of Directors approved a plan to divest these schools. In the fourth quarter of 2016, the Board of Directors approved aplan to cease operations at these schools which are being taught-out and expected to be closed in 2017. These schools are included in theTransitional segment and continuing operations as of December 31, 2016.5In November 2015, the Board of Directors approved a plan to divest this school. In the third quarter of 2016, the Board of Directors approved a planto teach–out certain programs at this school. Then, in the fourth quarter of 2016, the Board of Directors approved a plan to teach-out the remainderof the programs at this school. The school is expected to be closed in 2017. This school’s operations are included in the Transitional segment andcontinuing operations as of December 31, 2016. However, as part of this plan, the Board of Directors approved the divestiture of the properties forthis school and therefore the properties are included in held for sale as of December 31, 2016.6On February 27, 2015, our Board of Directors approved a plan to cease operations at this school, which was fully taught out and officially closed asof March 31, 2016 and is included in the Transitional segment and continuing operations as of December 31, 2016. The plan to teach out thisschool was approved prior to the plan to exit the HOPS segment and as such does not meet the discontinued operations criteria.As of December 31, 2016, we had 11,235 students enrolled at 28 campuses, 7,295 of those students are enrolled at campuses that are included in continuingoperations. Our average enrollment for the year ended December 31, 2016 was 11,864 students which represented a decrease of 8.6% from averageenrollment in 2015. Average enrollment at campuses that are included in continuing operations of 7,725 students represented a decrease of 8.0% fromaverage enrollment in 2015 from such continuing operations. For the year ended December 31, 2016, our revenues were $285.6 million, which represented adecrease of 6.7 % from the prior year. Revenues were $196.9 million from continuing operations, which represented a decrease of 5.4% from the prior year.For more information relating to our revenues, profits and financial condition, please refer to “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and our consolidated financial statements included in this Annual Report on Form 10-K.We believe that we provide our students with the highest quality career-oriented training available for our areas of study in our markets. We offer programs inareas of study that we believe are typically underserved by traditional providers of post-secondary education and for which we believe there exists significantdemand among students and employers. Furthermore, we believe our convenient class scheduling, career-focused curricula and emphasis on job placementoffer our students valuable advantages that have been neglected by the traditional academic sector. By combining substantial hands-on training withtraditional classroom-based training led by experienced instructors, we believe we offer our students a unique opportunity to develop practical job skills inmany of the key areas of expected job demand. We believe these job skills enable our students to compete effectively for employment opportunities and topursue on-going salary and career advancement.The Company was incorporated in New Jersey in 2003 but a predecessor entity had opened its first campus in Newark, New Jersey in 1946.AVAILABLE INFORMATIONOur website is www.lincolnedu.com. We make available on this website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reportson Form 8-K, annual proxy statements on Schedule 14A and amendments to those reports and statements as soon as reasonably practicable after weelectronically file or furnish such materials to the SEC. You can access this information on our website, free of charge, by clicking on “Investor Relations.”The information contained on or connected to our website is not a part of this Annual Report on Form 10-K. We will provide paper copies of such filings freeof charge upon request. The public may read and copy any materials filed by us with the SEC at the SEC's Public Reference Room at 100 F Street, NE,Washington, D.C. 20549. Information regarding the operation of the SEC's Public Reference Room is available by calling the SEC at 1-800-SEC-0330. Inaddition, the SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding us, which is available atwww.sec.gov.BUSINESS STRATEGYOur goal is to strengthen our position as a leading provider of career‑oriented post-secondary education by continuing to pursue the following strategy: Expand Existing Areas of Study and Existing Facilities. We believe we can leverage our operations to expand our program offerings in existing areas ofstudy and expand into new areas of study in the Transportation and Skilled Trades segment to capitalize on demand from students and employers in ourtarget markets. Whenever possible, we seek to replicate programs across our campuses. Maximize Utilization of Existing Facilities. We are focused on improving capacity utilization of existing facilities through increased enrollments, theintroduction of new programs and partnerships with industry. Expand Market. We believe that we can enter new markets and broaden the Lincoln brand by partnering with nationally recognized brands to provide theskills needed to train our nation’s workforce. We continue to expand our industry relationships both to attract new students and to offer our graduates moreemployment opportunities. We continue to establish partnerships with companies like BMW, 2IndexChrysler (FCA), Raytheon, Volkswagen and Audi that will enable graduates to receive higher wages. We expect to continue investing in marketing,recruiting and retention resources to increase enrollment. Concentrate on Transportation and Skilled Trades. During the fourth quarter of 2015 we announced our plan to sell 17 of the 18 schools comprising ourHOPS business segment. The planned divestiture allows us to concentrate our resources on our Transportation and Skilled Trades business segment. Webelieve that we can further penetrate this market and create a more profitable Company. PROGRAMS AND AREAS OF STUDYWe structure our program offerings to provide our students with a practical, career-oriented education and position them for attractive entry-level jobopportunities in their chosen fields. Our diploma/certificate programs typically take between 22 to 136 weeks to complete, with tuition ranging from $6,600to $36,000. Our associate’s degree programs typically take between 48 to 156 weeks to complete, with tuition ranging from $20,000 to $70,000. Ourbachelor’s degree programs typically take between 104 and 208 weeks to complete, with tuition ranging from $40,000 to $80,000. As of December 31, 2016,all of our schools offer diploma and certificate programs, 12 of our schools are currently approved to offer associate’s degree programs and one school isapproved to offer bachelor’s degree programs. In order to accommodate the schedules of our students and maximize classroom utilization at some of ourcampuses, we typically offer courses four to five days per week in three shifts per day and start new classes every month. Other campuses are structured morelike a traditional college and start classes every quarter. We update and expand our programs frequently to reflect the latest technological advances in thefield, providing our students with the specific skills and knowledge required in the current marketplace. Classroom instruction combines lectures anddemonstrations by our experienced faculty with comprehensive hands-on laboratory exercises in simulated workplace environments. 3IndexThe following table lists the programs offered as of December 31, 2016:Current Programs OfferedArea of Study Bachelor'sDegree Associate's Degree Diploma and Certificate Automotive Automotive Service Management,Automotive Technology, CollisionRepair & Refinishing ServiceManagement, Diesel & TruckService Management Automotive Mechanics, Automotive Technology,Automotive Technology with BMW FastTrack,Automotive Technology with Mopar X-Press,Automotive Technology with High Performance,Collision Repair and Refinishing Technology, Diesel& Truck Mechanics, Diesel & Truck Technology,Diesel & Truck Technology with TransportRefrigeration, Diesel & Truck with AutomotiveTechnology, Heavy Equipment MaintenanceTechnology, Heavy Equipment and TruckTechnology Health Sciences Health InformationAdministration, RN to BSN Medical Assisting Technology,Dental Office Management, HealthInformation Technology, MedicalOffice Management, MortuaryScience, Occupational TherapyAssistant, Dental Hygiene, DentalAdministrative Assistant, AdvancedMedical Coding & Billing Medical Office Assistant, Medical Assistant, PatientCare Technician, Pharmacy Technician, MedicalCoding & Billing, Dental Assistant, LicensedPractical Nursing Skilled Trades Electronic EngineeringTechnology, HVAC, ElectronicsSystems Service Management Electrical Technology & Electronic SystemsTechnology, Electrical Technology, ElectronicsSystems Technician, HVAC, Welding Technology,CNC Hospitality Services Culinary Arts, Cosmetology, Aesthetics,International Baking and Pastry, Nail Technolgy,Therapeutic Massage & Bodywork Technician Business and InformationTechnology Business Management,Criminal Justice, FuneralService Management Criminal Justice, BusinessManagement, Broadcasting andCommunications, Paralegal,Computer Networking and Support,Human Services Criminal Justice, Computer & Network SupportTechnicianAutomotive Technology. Automotive technology is our largest area of study, with 42% of our total average student enrollment for the year ended December31, 2016. Our automotive technology programs are 28 to 136 weeks in length, with tuition rates of $11,500 to $37,000. We believe we are a leading providerof automotive technology education in each of our local markets. Graduates of our programs are qualified to obtain entry level employment ranging frompositions as technicians and mechanics to various apprentice level positions. Our graduates are employed by a wide variety of companies, ranging fromautomotive and diesel dealers, to independent auto body paint and repair shops to trucking and construction companies. 4IndexAs of December 31, 2016, 12 campuses offered programs in automotive technology and most of these campuses offer other technical programs. Our campusesin East Windsor, Connecticut; Nashville, Tennessee; Grand Prairie, Texas; Indianapolis, Indiana; and Denver, Colorado are destination campuses, attractingstudents throughout the United States and, in some cases, from abroad.Health Sciences. For the year ended December 31, 2016, health sciences was our second largest area of study, representing 29% of our total average studentenrollment. Our health science programs are 32 to 208 weeks in length, with tuition rates of $13,600 to $76,000. Graduates of our programs are qualified toobtain positions such as licensed practical nurse, registered nurse, dental assistant, medical assistant, medical administrative assistant, EKG technician, claimsexaminer and pharmacy technician. Our graduates are employed by a wide variety of employers, including hospitals, laboratories, insurance companies,doctors' offices and pharmacies. Our practical nursing and medical assistant programs are our largest health science programs. As of December 31, 2016, weoffered health science programs at 13 of our campuses.Skilled Trades. For the year ended December 31, 2016, 19% of our total average student enrollment was in our skilled trades programs. Our skilled tradesprograms are 36 to 97 weeks in length, with tuition rates of $16,800 to $32,000. Our skilled trades programs include electrical, heating and air conditioningrepair, welding, computerized numerical control and electronic systems technology. Graduates of our programs are qualified to obtain entry levelemployment positions such as electrician, cable installer, welder, wiring and heating, ventilating and air conditioning, or HVAC installer. Our graduates areemployed by a wide variety of employers, including residential and commercial construction, telecommunications installation companies and architecturalfirms. As of December 31, 2016, we offered skilled trades programs at 13 campuses.Hospitality Services. For the year ended December 31, 2016, 7% of our total average student enrollment was in our hospitality services programs. Ourhospitality services programs are 22 to 66 weeks in length, with tuition rates of $6,600 to $20,000. Our hospitality programs include culinary, therapeuticmassage, cosmetology and aesthetics. Graduates work in salons, spas or cruise ships or are self-employed. We offer massage programs at two campuses andcosmetology programs at one campus. Our culinary graduates are employed by restaurants, hotels, cruise ships and bakeries. As of December 31, 2016, weoffered culinary programs at one campus.Business and Information Technology. For the year ended December 31, 2016, 3% of our total average student enrollment was in our business andinformation technology programs, which include our diploma and degree criminal justice programs. Our business and information technology programs are40 to 208 weeks in length, with tuition rates of $13,000 to $80,000. We have focused our current information technology, or IT, program offerings onoccupations that are most in demand, such as computer and network support technician. Our IT and business graduates work in entry level positions for bothsmall and large corporations. Our criminal justice graduates work in the security industry and for various government agencies and departments. As ofDecember 31, 2016, we offered these programs at 8 of our campuses.MARKETING AND STUDENT RECRUITMENTWe utilize a variety of marketing and recruiting methods to attract students and increase enrollment. Our marketing and recruiting efforts are targeted atprospective students who are high school graduates entering the workforce, or who are currently underemployed or unemployed and require additionaltraining to enter or re-enter the workforce.Marketing and Advertising. We utilize an integrated marketing approach in our admissions efforts that includes the use of traditional media such astelevision, radio, billboards, direct mail, various print media and event marketing campaigns. Our digital marketing efforts, including paid search, searchengine optimization and online video and display advertising, have grown significantly in recent years and currently drive the majority of our new studentleads and enrollments. Our website’s integrated marketing campaigns direct prospective students to call or visit the Lincoln website where they may requestadditional information on a program or campus of interest. Our internal systems enable us to closely monitor and track the effectiveness of eachadvertisement on a daily or weekly basis and make adjustments accordingly to enhance efficiency and limit our student acquisition costs. In 2016, werelaunched our website with a new primary domain. The new structure of the website has enhanced the user experience providing easier access to key contentand information. The site was also redesigned using a “mobile first” approach that maintains the website’s format and structure even on smaller devicesincluding smart phones and tablets on which the growing majority of initial online searches for education options are conducted.Referrals. Referrals from current students, high school counselors and satisfied graduates and their employers have historically represented 17% of our newenrollments. Our school administrators actively work with our current students to encourage them to recommend our programs to prospective students. Wecontinue to build strong relationships with high school guidance counselors and instructors by offering annual seminars at our training facilities to furtherfamiliarize these individuals on the strengths of our programs.Recruiting. Our recruiting efforts are conducted by a group of approximately 250 field and campus-based representatives who meet directly withprospective students during presentations conducted at high schools, in the prospective students homes or during a visit to one of our campuses. 5IndexDuring 2016, we recruited approximately 24% of our students directly out of high school. In addition, we have added ten field representatives to our team of83. Field sales continues to be a large part of our business and developing local community relationships is one of our most important functions.STUDENT ADMISSIONS, ENROLLMENT AND RETENTIONAdmissions. In order to attend our schools, students must complete an application and pass an entrance assessment. While each of our programs hasdifferent admissions criteria, we screen all applications and counsel the students on the most appropriate program to increase the likelihood that our studentscomplete the requisite coursework and obtain and sustain employment following graduation.Enrollment. We enroll students continuously throughout the year, with our largest classes enrolling in late summer or early fall following high schoolgraduation. From continuing operations, we had 7,295 students enrolled as of December 31, 2016 and our average enrollment for the year ended December31, 2016 was 7,725 students, a decrease of 8.0% in average enrollment from December 31, 2015. We had 7,545 students enrolled as of December 31, 2015and our average enrollment for that year was 8,395 students, a decrease of 7.1% in average enrollment from December 31, 2014.Retention. To maximize student retention, the staff at each school is trained to recognize the early warning signs of a potential drop and to assist and advisestudents on academic, financial, employment and personal matters. We monitor our retention rates by instructor, course, program and school. When webecome aware that a particular instructor or program is experiencing a higher than normal dropout rate, we quickly seek to determine the cause of the problemand attempt to correct it. When we identify that a student is experiencing difficulty academically, we offer tutoring.JOB PLACEMENTWe believe that assisting our graduates in securing employment after completing their program of study is critical to our ability to attract high qualitystudents and enhancing our reputation in the industry. In addition, we believe that high job placement rates result in low student loan default rates, animportant requirement for continued participation in Title IV of the Higher Education Act of 1965, as amended (“Title IV Programs”). See "RegulatoryEnvironment—Regulation of Federal Student Financial Aid Programs." Accordingly, we dedicate significant resources to maintaining an effective graduateplacement program. Our non-destination schools work closely with local employers to ensure that we are training students with skills that employers need.Each school has an advisory council comprised of local employers who provide us with direct feedback on how well we are preparing our students to succeedin the workplace. This enables us to tailor our programs to the marketplace. The placement staff in each of our destination schools maintains databases ofpotential employers throughout the country, allowing us to more effectively assist our graduates in securing employment in their career field upongraduation. Throughout the year, we hold numerous job fairs at our facilities where we provide the opportunity for our students to meet and interact withpotential employers. In addition, many of our schools have internship programs that provide our students with opportunities to work with employers prior tograduation. For example, some of the students in our automotive programs have the opportunity to complete a portion of their hands-on training in an actualwork environment. In addition, some of our healthcare students are required to participate in an externship program during which they work in the field aspart of their career training. We also assist students with resume writing, interviewing and other job search skills.FACULTY AND EMPLOYEESWe hire our faculty in accordance with established criteria, including relevant work experience, educational background and accreditation and stateregulatory standards. We require meaningful industry experience of our teaching staff in order to maintain the quality of instruction in all of our programsand to address current and industry-specific issues in our course content. In addition, we provide intensive instructional training and continuing education,including quarterly instructional development seminars, annual reviews, technical upgrade training, faculty development plans and weekly staff meetings.The staff of each school typically includes a school director, a director of graduate placement, an education director, a director of student services, a financial-aid director, an accounting manager, a director of admissions and instructors, all of whom are industry professionals with experience in our areas of study.As of December 31, 2016, we had approximately 2,197 employees, including 533 full-time faculty and 432 part-time instructors. At six of our campuses, theteaching professionals are represented by unions. These employees are covered by collective bargaining agreements that expire between 2017 and 2020. Webelieve that we have good relationships with these unions and with our employees. 6IndexCOMPETITIONThe for-profit, post-secondary education industry is highly competitive and highly fragmented with no one provider controlling significant market share.Direct competition between career-oriented schools like us and traditional four-year colleges or universities is limited. Thus, our main competitors are otherfor-profit, career-oriented schools, not-for-profit public, private schools, public and private two-year junior and community colleges most of which areeligible to receive funding under the federal programs of student financial aid authorized by Title IV Programs. Competition is generally based on location,the type of programs offered, the quality of instruction, placement rates, reputation, recruiting and tuition rates. Public institutions are generally able tocharge lower tuition than our school, due in part to government subsidies and other financial sources not available to for-profit schools. In addition, some ofour other competitors have a more extensive network of schools and campuses than we do, which enables them to recruit students more efficiently from awider geographic area. Nevertheless, we believe that we are able to compete effectively in our local markets because of the diversity of our program offerings,quality of instruction, the strength of our brands, our reputation and our graduates’ success in securing employment after completing their program of study.Our competition differs in each market depending on the curriculum that we offer. For example, a school offering automotive, healthcare and skilled tradesprograms will have a different group of competitors than a school offering healthcare, business/IT and skilled trades. Also, because schools can add newprograms within six to twelve months, competition can emerge relatively quickly. Moreover, with the introduction of online education, the number ofcompetitors in each market has increased because students can now attend classes from an online institution. On average, each of our schools has at leastthree direct competitors and at least a dozen indirect competitors.ENVIRONMENTAL MATTERSWe use hazardous materials at our training facilities and campuses, and generate small quantities of waste such as used oil, antifreeze, paint and car batteries.As a result, our facilities and operations are subject to a variety of environmental laws and regulations governing, among other things, the use, storage anddisposal of solid and hazardous substances and waste, and the clean-up of contamination at our facilities or off-site locations to which we send or have sentwaste for disposal. We are also required to obtain permits for our air emissions and to meet operational and maintenance requirements. In the event we do notmaintain compliance with any of these laws and regulations, or are responsible for a spill or release of hazardous materials, we could incur significant costsfor clean-up, damages, and fines or penalties. Climate change has not had and is not expected to have a significant impact on our operations.REGULATORY ENVIRONMENTStudents attending our schools finance their education through a combination of family contributions, individual resources, private loans and federalfinancial aid programs. Each of our schools participates in the Title IV Programs, which are administered by the DOE. For the year ended December 31, 2016,approximately 79% (calculated based on cash receipts) of our revenues were derived from the Title IV Programs. Students obtain access to federal studentfinancial aid through a DOE prescribed application and eligibility certification process.In connection with the students' receipt of federal financial aid under the Title IV Programs, our schools are subject to extensive regulation by governmentalagencies and licensing and accrediting bodies. In particular, the Higher Education Act of 1965, as amended, and the regulations issued thereafter by the DOE,subject us to significant regulatory scrutiny in the form of numerous standards that each of our schools must satisfy in order to participate in the Title IVPrograms. To participate in the Title IV Programs, a school must be authorized to offer its programs of instruction by the applicable state education agenciesin the states in which it is physically located, be accredited by an accrediting commission recognized by the DOE and be certified as an eligible institutionby the DOE. The DOE defines an eligible institution to consist of both a main campus and its additional locations, if any. Each of our schools is either a maincampus or an additional location of a main campus. Each of our schools is subject to extensive regulatory requirements imposed by state education agencies,accrediting commissions, and the DOE. Because the DOE periodically revises its regulations and changes its interpretations of existing laws and regulations,we cannot predict with certainty how Title IV Program requirements will be applied in all circumstances. Our schools also participate in other federal andstate financial aid programs that assist students in paying the cost of their education and that impose standards that we must satisfy.State AuthorizationEach of our schools must be authorized by the applicable education agencies in the states in which the school is physically located, and in some cases otherstates, in order to operate and to grant degrees, diplomas or certificates to its students. State agency authorization is also required in each state in which aschool is physically located in order for the school to become and remain eligible to participate in Title IV Programs. If we are found not to be in compliancewith the applicable state regulation and a state seeks to restrict one or more of our business activities within its boundaries, we may not be able to recruit orenroll students in that state and may have to stop providing services in that state, which could have a significant impact on our business and results ofoperations. Currently, each of our schools is authorized by the applicable state education agencies in the states in which the school is physically located andin which it recruits students.Our schools are subject to extensive, ongoing regulation by each of these states. State laws typically establish standards for instruction, curriculum,qualifications of faculty, location and nature of facilities and equipment, administrative procedures, marketing, recruiting, financial operations, studentoutcomes and other operational matters. State laws and regulations may limit our ability to offer educational programs and to award degrees, diplomas orcertificates. Some states prescribe standards of financial responsibility that are different from, and in certain cases more stringent than, those prescribed by theDOE. Some states require schools to post a surety bond. We have posted surety bonds on behalf of our schools and education representatives with multiplestates in a total amount of approximately $14.3 million. 7IndexThe DOE published regulations that took effect on July 1, 2011, that expanded the requirements for an institution to be considered legally authorized in thestate in which it is physically located for Title IV purposes. In some cases, the regulations required states to revise their current requirements and/or to licenseschools in order for institutions to be deemed legally authorized in those states and, in turn, to participate in Title IV Programs. If the states do not amendtheir requirements where necessary and if schools do not receive approvals where necessary that comply with these new requirements, then the institutioncould be deemed to lack the state authorization necessary to participate in Title IV Programs. The DOE stated when it published the final regulations that itwill not publish a list of states that meet, or fail to meet, the requirements, and it is uncertain how the DOE will interpret these requirements in each state. If any of our schools fail to comply with state licensing requirements, they are subject to the loss of state licensure or authorization. If any one of our schoolslost its authorization from the education agency of the state in which the school is located, or failed to comply with the DOE’s state authorizationrequirements, that school would lose its eligibility to participate in Title IV Programs, the Title IV eligibility of its related additional locations could beaffected, the impacted schools would be unable to offer its programs, and we could be forced to close the schools. If one of our schools lost its stateauthorization from a state other than the state in which the school is located, the school would not be able to recruit students or to operate in that state.Due to state budget constraints in certain states in which we operate, it is possible that those states may continue to reduce the number of employees in, orcurtail the operations of, the state education agencies that oversee our schools. A delay or refusal by any state education agency in approving any changes inour operations that require state approval could prevent us from making such changes or could delay our ability to make such changes. States periodicallychange their laws and regulations applicable to our schools and such changes could require us to change our practices and could have a significant impact onour business and results of operations.AccreditationAccreditation is a non-governmental process through which a school submits to ongoing qualitative and quantitative review by an organization of peerinstitutions. Accrediting commissions primarily examine the academic quality of the school's instructional programs, and a grant of accreditation is generallyviewed as confirmation that the school's programs meet generally accepted academic standards. Accrediting commissions also review the administrative andfinancial operations of the schools they accredit to ensure that each school has the resources necessary to perform its educational mission.Accreditation by an accrediting commission recognized by the DOE is required for an institution to be certified to participate in Title IV Programs. In order tobe recognized by the DOE, accrediting commissions must adopt specific standards for their review of educational institutions. As of December 31, 2016, 15of our campuses are accredited by the Accrediting Commission of Career Schools and Colleges, or ACCSC; 12 of our campuses are accredited by theAccrediting Council for Independent Colleges and Schools, or ACICS; and one of our campuses is accredited by the New England Association of Schoolsand Colleges of Technology, or NEASC. The following is a list of the dates on which each campus was accredited by its accrediting commission, the date bywhich its accreditation must be renewed and the type of accreditation. 8IndexAccrediting Commission of Career Schools and Colleges Reaccreditation DatesSchool Last Accreditation Letter Next Accreditation Type of AccreditationPhiladelphia, PA2 September 30, 2013 May 1, 2018 NationalUnion, NJ1 May 29, 2014 February 1, 2019 NationalMahwah, NJ1 March 11, 2015 August 1, 2019 NationalMelrose Park, IL2 March 13, 2015 November 1, 2019 NationalDenver, CO1 June 14, 2016 February 1, 2021 NationalColumbia, MD March 8, 2017 February 1, 2022 NationalGrand Prairie, TX1 December 7, 2011 August 1, 20163 NationalAllentown, PA2 March 8, 2017 February 1, 2022 NationalNashville, TN1 November 30, 2012 May 1, 2017 NationalIndianapolis, IN November 30, 2012 November 1, 20173 NationalNew Britain, CT June 5, 2014 January 1, 2018 NationalShelton, CT2 March 5, 2014 September 1, 2018 NationalQueens, NY1 June 4, 2013 June 1, 2018 NationalEast Windsor, CT2 December 4, 2013 February 1, 20183 NationalSouth Plainfield, NJ1 September 2, 2014 August 1, 2019 National 1Branch campus of main campus in Indianapolis, IN2Branch campus of main campus in New Britain, CT3Campus undergoing re-accreditation. Campus has received written confirmation that it remains accredited pending consideration of its applicationfor reaccreditation.Accrediting Council for Independent Colleges and Schools Reaccreditation DatesSchool Last Accreditation Letter Next Accreditation Type of AccreditationBrockton, MA1 August 28, 2014 December 31, 2020 NationalLincoln, RI1 August 28, 2014 December 31, 2019 NationalLowell, MA1 January 5, 2015 December 31, 2019 NationalSomerville, MA1 August 28, 2014 December 31, 2019 NationalPhiladelphia (Center City), PA1 Sepember 14, 2016 August 31, 2017 NationalIselin, NJ December 20, 2016 December 31, 2022 NationalMarietta, GA1 August 28, 2014 December 31, 2019 NationalMoorestown, NJ1 December 20, 2016 December 31, 2022 NationalParamus, NJ1 December 20, 2016 December 31, 2022 NationalPhiladelphia (Northeast), PA1 December 20, 2016 December 31, 2022 NationalWest Palm Beach, FL1 August 28, 2014 December 31, 2019 NationalLas Vegas (Summerlin), NV1 August 29, 2014 December 31, 2019 National 1Branch campus of main campus in Iselin, NJ2Campus undergoing re-accreditation. New England Association of Schools and Colleges of Technology Reaccreditation DatesSchool Last Accreditation Letter Comprehensive Evaluation Type of AccreditationSouthington, CT June 29, 2012 Fall 2017 Regional 9IndexOn December 12, 2016, the DOE Secretary upheld a decision by a senior DOE official to cease DOE’s recognition of ACICS as a nationally recognizedaccrediting agency and denying ACICS’s petition for DOE recognition based on conclusions that ACICS was in violation of various DOE regulatory criteria. ACICS has appealed the DOE Secretary’s decision to Federal court; however, unless otherwise directed by the court, the DOE Secretary’s decision is notstayed during the appeal to Federal court and, therefore, ACICS is not a DOE-recognized accrediting agency.Under DOE regulations, the DOE may (but is not required to) provisionally certify our ACICS-accredited institution and its campuses to continueparticipating in the Title IV programs for a period of up to 18 months after the date that DOE withdrew its recognition of ACICS in order to provide theinstitution with time to apply for and obtain accreditation from another DOE-recognized accrediting body. In December 2016, the DOE issued an addendumto the program participation agreement for our ACICS-accredited institution that moved the institution to provisional certification and imposed severalconditions on the institution’s Title IV participation.We are in the process of applying for accreditation of our ACICS-accredited institution and its campuses from ACCSC. Our efforts to obtain accreditationcould be unsuccessful and could result in the loss of the institution’s eligibility to participate in the Title IV programs. We have met all the milestonesestablished by the DOE, thus far, to continue in the Title IV programs for the schools accredited by ACICS.The loss of DOE recognition by an institution’s accrediting agency also could result in a loss of state authorization (and, in turn, Title IV eligibility),programmatic accreditation, and/or authorization to participate in certain state or federal financial aid programs if accreditation by a DOE-recognizedaccrediting agency is required for the impacted campuses of our ACICS-accredited institution to qualify for such state authorization, programmaticaccreditation, or state or federal financial aid programs. We have not identified any state, federal or accrediting agencies that condition approval of ourACICS-accredited campuses on accreditation by a DOE-recognized accrediting body. However, agency requirements are imprecise or unclear in someinstances and could be subject to different interpretation by one or more agencies.If one of our schools fails to comply with accrediting commission requirements, the institution and its main and/or branch campuses are subject to the loss ofaccreditation or may be placed on probation or a special monitoring or reporting status which, if the noncompliance with accrediting commissionrequirements is not resolved, could result in loss of accreditation. If any one of our schools loses its accreditation, students attending that school would nolonger be eligible to receive Title IV Program funding, and we could be forced to close that school.Programmatic accreditation is the process through which specific programs are reviewed and approved by industry and program-specific accrediting entities.Although programmatic accreditation is not generally necessary for Title IV eligibility, such accreditation may be required to allow students to sit for certainlicensure exams or to work in a particular profession or career or to meet other requirements. Failure to obtain or maintain such programmatic accreditationmay lead to a decline in enrollments in such programs. Under new gainful employment issued by the DOE, institutions may be required to certify that theyhave programmatic accreditation under certain circumstances. See “—Regulatory Environment – Gainful Employment.”Nature of Federal and State Support for Post-Secondary EducationThe federal government provides a substantial part of the support for post-secondary education through Title IV Programs, in the form of grants and loans tostudents who can use those funds at any institution that has been certified as eligible by the DOE. Most aid under Title IV Programs is awarded on the basis offinancial need, generally defined as the difference between the cost of attending the institution and the expected amount a student and his or her family canreasonably contribute to that cost. A recipient of Title IV Program funds must maintain a satisfactory grade point average and progress in a timely mannertoward completion of his or her program of study and must meet other applicable eligibility requirements for the receipt of Title IV funds. In addition, eachschool must ensure that Title IV Program funds are properly accounted for and disbursed in the correct amounts to eligible students.Other Financial Assistance ProgramsSome of our students receive financial aid from federal sources other than Title IV Programs, such as programs administered by the U.S. Department ofVeterans Affairs and under the Workforce Investment Act. In addition, some states also provide financial aid to our students in the form of grants, loans orscholarships. The eligibility requirements for state financial aid and these other federal aid programs vary among the funding agencies and by program. Statesthat provide financial aid to our students are facing significant budgetary constraints. Some of these states have reduced the level of state financial aidavailable to our students. Due to state budgetary shortfalls and constraints in certain states in which we operate, we believe that the overall level of statefinancial aid for our students is likely to continue to decrease in the near term, but we cannot predict how significant any such reductions will be or how longthey will last. Federal budgetary shortfalls and constraints, or decisions by federal lawmakers to limit or prohibit access by our institutions or their students tofederal financial aid, could result in a decrease in the level of federal financial aid for our students.In addition to Title IV and other government-administered programs, all of our schools participate in alternative loan programs for their students. Alternativeloans fill the gap between what the student receives from all financial aid sources and what the student may need to cover the full cost of his or her education.Students or their parents can apply to a number of different lenders for this funding at current market interest rates. 10IndexWe also extend credit for tuition and fees to many of our students that attend our campuses.Regulation of Federal Student Financial Aid ProgramsTo participate in Title IV Programs, an institution must be authorized to offer its programs by the relevant state education agencies in the state in which it isphysically located, be accredited by an accrediting commission recognized by the DOE and be certified as eligible by the DOE. The DOE will certify aninstitution to participate in Title IV Programs only after reviewing and approving an institution’s application to participate in the Title IV Programs. TheDOE defines an institution to consist of both a main campus and its additional locations, if any. Under this definition, for DOE purposes, we had thefollowing five institutions as of December 31, 2016, collectively consisting of five main campuses and 23 additional locations:Main Institution/Campus(es) Additional Location(s)Iselin, NJ Moorestown, NJ Paramus, NJ Philadelphia, PA (Center City) Philadelphia, PA (Northeast) Somerville, MA Lowell, MA Brockton, MA Lincoln, RI Marietta, GA West Palm Beach, FL Las Vegas, NV (Summerlin) New Britain, CT Shelton, CT Philadelphia, PA East Windsor, CT Melrose Park, IL Allentown, PA Indianapolis, IN Grand Prairie, TX Nashville, TN Denver, CO Union, NJ Mahwah, NJ Queens, NY South Plainfield, NJ Columbia, MD Southington, CT Each institution must periodically apply to the DOE for continued certification to participate in Title IV Programs. The institution also must apply forrecertification when it undergoes a change in ownership resulting in a change of control. The institution also may come under DOE review when it undergoesa substantive change that requires the submission of an application, such as opening an additional location or raising the highest academic credential itoffers. All institutions are recertified on various dates for various amounts of time. The following table sets forth the expiration dates for each of ourinstitutions' current Title IV Program participation agreements:Institution Expiration Date of CurrentProgram ParticipationAgreementColumbia, MD September 30, 2017Iselin, NJ June 12, 20181Indianapolis, IN September 30, 20161 2New Britain, CT March 31, 2020Southington, CT June 30, 20171Provisionally certified.2Month-to-month certification during review process. 11IndexThe DOE typically provides provisional certification to an institution following a change in ownership resulting in a change of control and also mayprovisionally certify an institution for other reasons, including, but not limited to, noncompliance with certain standards of administrative capability andfinancial responsibility. Two of our five institutions (Iselin and Indianapolis) generate 71% of the Company’s revenues are provisionally certified. Indianapolis is provisionally certified based on the existence of pending program reviews with DOE. Iselin is provisionally certified based on its accreditingagency’s loss of DOE recognition. An institution that is provisionally certified receives fewer due process rights than those received by other institutions inthe event the DOE takes certain adverse actions against the institution, is required to obtain prior DOE approvals of new campuses and educational programs,and may be subject to heightened scrutiny by the DOE. However, provisional certification does not otherwise limit an institution’s access to Title IVProgram funds. Our Iselin campus also is subject to additional conditions on its Title IV participation based on its accrediting agency’s loss of DOErecognition.The DOE is responsible for overseeing compliance with Title IV Program requirements. As a result, each of our schools is subject to detailed oversight andreview, and must comply with a complex framework of laws and regulations. Because the DOE periodically revises its regulations and changes itsinterpretation of existing laws and regulations, we cannot predict with certainty how the Title IV Program requirements will be applied in all circumstances.Significant factors relating to Title IV Programs that could adversely affect us include the following:Congressional Action. Political and budgetary concerns significantly affect Title IV Programs. Congress periodically revises the Higher Education Act of1965, as amended (“HEA”) and other laws governing Title IV Programs. Congress is currently considering reauthorization of Title IV Programs, but it isunknown when Congress will complete that process or what changes will be made to the HEA or other laws affecting federal student aid.In addition, Congress reviews and determines federal appropriations for Title IV Programs on an annual basis. Congress can also make changes in the lawsaffecting Title IV Programs in the annual appropriations bills and in other laws it enacts between the HEA reauthorizations. Because a significant percentageof our revenues are derived from Title IV Programs, any action by Congress or the DOE that significantly reduces Title IV Program funding, that limits orrestricts the ability of our schools, programs, or students to receive funding through the Title IV Programs, or that imposes new restrictions or constraints uponour business or operations could reduce our student enrollment and our revenues, and could increase our administrative costs and require us to modify ourpractices in order for our schools to comply fully with Title IV Program requirements.In addition, current requirements for student or school participation in Title IV Programs may change or one or more of the present Title IV Programs could bereplaced by other programs with materially different student or school eligibility requirements. If we cannot comply with the provisions of the HEA, as theymay be amended, or if the cost of such compliance is excessive, or if funding is materially reduced, our revenues or profit margin could be materiallyadversely affected.Gainful Employment. In October 2014, the DOE issued final gainful employment regulations requiring each educational program offered by our institutionsto achieve threshold rates in at least one of two debt measure categories related to an annual debt to annual earnings ratio and an annual debt to discretionaryincome ratio. The various formulas are calculated under complex methodologies and definitions outlined in the final regulations and, in some cases, arebased on data that may not be readily accessible to institutions, such as income information compiled by the Social Security Administration. The regulationsoutline various scenarios under which programs could lose Title IV eligibility for failure to achieve threshold rates in one or more measures over certainperiods of time ranging from two to four years. The regulations also require an institution to provide warnings to students in programs which may lose TitleIV eligibility at the end of an award year. The final regulations also contain other provisions that, among other things, include disclosure, reporting, newprogram approval, and certification requirements. The certification requirements require each institution to certify to the DOE, among other things, that eachgainful employment program is programmatically accredited, if such accreditation is required by a Federal governmental entity or by governmental entity inthe state in which the institution is physically located.The final regulations had a general effective date of July 1, 2015. In January 2017, the DOE issued the first set of gainful employment rates for each of ourprograms for the 2015 debt measure year. Sixty of our programs achieved passing rates, 13 of our programs had rates that are in a category called the “zone,”and five of our programs had failing rates. Our programs with rates in the zone are not subject to loss of Title IV eligibility unless they accumulate acombination of zone and failing rates for four consecutive years (or failing rates for two out of any three consecutive years). We are in the process ofappealing to the DOE one of the five programs that failed; teaching out one of the programs that failed; and the remaining three failing programs are fromschools that have closed or are closing. Each of our programs with failing rates will lose its Title IV eligibility if it receives a failing gainful employment ratefor either of the 2016 or 2017 debt measure years. The gainful employment rates for the 2016 debt measure year are expected to be issued in late 2017. If, infact, we lost the appeal to the DOE the applicable school would need to notify its current and future students that it may lose Title IV eligibility. Moreover,the potential for one or more of these programs to lose their Title IV eligibility could trigger a requirement to submit a letter of credit or other financialprotection to the DOE under the new Borrower Defense to Repayment Regulations that take effect on July 1, 2017. On March 6, 2017, the DOE publishedinformation in the form of an electronic announcement that provides additional time for institutions to appeal a zone or failing rate and to update disclosuresfor all gainful employment programs. The new deadline established by the DOE is now July 1, 2017, for appeals and disclosures. See “FinancialResponsibility Standards.” 12IndexBorrower Defense to Repayment Regulations. In January 2016, the DOE began negotiated rulemaking to develop proposed regulations regarding, amongother things, a borrower’s ability to allege acts or omissions by an institution as a defense to the repayment of certain Title IV loans and the consequences tothe borrower, the DOE, and the institution. On November 1, 2016, the DOE published in the Federal Register the final version of these regulations with ageneral effective date of July 1, 2017 and which, among other things, include rules for:·establishing new processes, and updating existing processes, for enabling borrowers to obtain from the DOE a discharge of some or all of theirfederal student loans based on circumstances such as certain acts or omissions of the institution and for the DOE to impose and collect liabilitiesagainst the institution following the loan discharges;·establishing expanded standards of financial responsibility (see “Regulatory Environment – Financial Responsibility Standards”);·requiring institutions to make disclosures to current and prospective students regarding the existence of certain of the circumstances identified in theexpanded standards of financial responsibility;·calculating a loan repayment rate for each proprietary institution under standards established by the regulations and requiring institutions to providewarnings to current and prospective students if the institution has a loan repayment rate below specified thresholds;·prohibiting certain contractual provisions imposed by or on behalf of schools on students regarding arbitration, dispute resolution, and participationin class actions; and·expanding the existing definition of misrepresentations that could result in grounds for discharge of student loans and in liabilities and sanctionsagainst the institution, including, without limitation, potential loss of Title IV eligibility.On January 19, 2017, the DOE issued new regulations with an effective date of January 19, 2017 that update the Department’s hearing procedures for actionsto establish liability against an institution and to establish procedural rules governing recovery proceedings under the DOE’s borrower defense to repaymentregulations. We are still in the process of evaluating the impact of these new and complex regulations on our business. Among other things, the precisestandards for student loan discharges are unclear and may be subject to unfavorable interpretations that could result in liabilities and other sanctions for ourschools. The "90/10 Rule." Under the HEA, a proprietary institution that derives more than 90% of its total revenue from Title IV Programs (its “90/10 Rulepercentage”) for two consecutive fiscal years becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility until theend of at least two fiscal years. An institution with revenues exceeding 90% for a single fiscal year will be placed on provisional certification and may besubject to other enforcement measures. If an institution violated the 90/10 Rule and became ineligible to participate in Title IV Programs but continued todisburse Title IV Program funds, the DOE would require the institution to repay all Title IV Program funds received by the institution after the effective dateof the loss of eligibility. We have calculated that, for our 2016 fiscal year, our institutions' 90/10 Rule percentages ranged from 55% to 84%. For 2015 and 2014, none of our existinginstitutions derived more than 90% of their revenues from Title IV Programs. Our calculations are subject to review by the DOE. If Congress or the DOE were to amend the 90/10 Rule to treat other forms of federal financial aid as Title IV revenue for 90/10 Rule purposes, lower the 90%threshold, or otherwise change the calculation methodology (each of which has been proposed by some Congressional members in proposed legislation), ormake other changes to the 90/10 Rule, those changes could make it more difficult for our institutions to comply with the 90/10 Rule. If any of ourinstitutions loses eligibility to participate in Title IV Programs, that loss would have a significant impact on the rate at which our students enroll in ourprograms and on our business and results of operations. Student Loan Defaults. The HEA limits participation in Title IV Programs by institutions whose former students defaulted on the repayment of federallyguaranteed or funded student loans above a prescribed rate (the “cohort default rate”). The DOE calculates these rates based on the number of students whohave defaulted, not the dollar amount of such defaults. The cohort default rate is calculated on a federal fiscal year basis and measures the percentage ofstudents who enter repayment of a loan during the federal fiscal year and default on the loan on or before the end of the federal fiscal year or the subsequenttwo federal fiscal years.Under the HEA, an institution whose Federal Family Education Loan, or FFEL, and Federal Direct Loan, or FDL, cohort default rate is 30% or greater for threeconsecutive federal fiscal years loses eligibility to participate in the FFEL, FDL, and Pell programs for the remainder of the federal fiscal year in which theDOE determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. An institution whose FFEL and FDL cohortdefault rate for any single federal fiscal year exceeds 40% loses its eligibility to participate in the FFEL and FDL programs for the remainder of the federalfiscal year in which the DOE determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. If an institution’s three-year cohort default rate equals or exceeds 30% in two of the three most recent federal fiscal years for which the DOE has issued cohort default rates, theinstitution may be placed on provisional certification status and, under new regulations that take effect on July 1, 2017, could be required to submit a letterof credit to the DOE. 13IndexIn September 2016, the DOE released the final cohort default rates for the 2013 federal fiscal year. These are the most recent final rates published by theDOE. The rates for our existing institutions for the 2013 federal fiscal year range from 10.5% to 15.4%. None of our institutions had a cohort default rateequal to or greater than 30% for the 2013 federal fiscal year.In February 2016, the DOE released draft three-year cohort default rates for the 2014 federal fiscal year. The draft cohort default rates are subject to changepending receipt of the final cohort default rates, which the DOE is expected to publish in September 2017. The draft rates for our institutions for the 2014federal fiscal year range from 5.2% to 13.6%. None of our institutions had draft cohort default rates of 30% or more.Financial Responsibility Standards.All institutions participating in Title IV Programs must satisfy specific standards of financial responsibility. The DOE evaluates institutions for compliancewith these standards each year, based on the institution's annual audited financial statements, as well as following a change in ownership resulting in achange of control of the institution.The most significant financial responsibility measurement is the institution's composite score, which is calculated by the DOE based on three ratios:·The equity ratio, which measures the institution's capital resources, ability to borrow and financial viability;·The primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and·The net income ratio, which measures the institution's ability to operate at a profit.The DOE assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive 3.0, with negative 1.0 reflecting financialweakness and positive 3.0 reflecting financial strength. The DOE then assigns a weighting percentage to each ratio and adds the weighted scores for the threeratios together to produce a composite score for the institution. The composite score must be at least 1.5 for the institution to be deemed financiallyresponsible without the need for further oversight.If an institution's composite score is below 1.5, but is at least 1.0, it is in a category denominated by the DOE as "the zone." Under the DOE regulations,institutions that are in the zone typically may be permitted by the DOE to continue to participate in the Title IV Programs by choosing one of twoalternatives: 1) the “Zone Alternative” under which an institution is required to make disbursements to students under the Heightened Cash Monitoring 1(HCM1) payment method and to notify the DOE within 10 days after the occurrence of certain oversight and financial events or 2) submit a letter of credit tothe DOE equal to 50 percent of the Title IV Program funds received by the institution during its most recent fiscal year. The DOE permits an institution toparticipate under the “Zone Alternative” for a period of up to three consecutive fiscal years. Under the HCM1 payment method, the institution is required tomake Title IV disbursements to eligible students and parents before it requests or receives funds for the amount of those disbursements from the DOE. Aslong as the student accounts are credited before the funding requests are initiated, an institution is permitted to draw down funds through the DOE’selectronic system for grants management and payments for the amount of disbursements made to eligible students. Unlike the HCM2 and reimbursementpayment methods, the HCM1 payment method typically does not require schools to submit documentation to the DOE and wait for DOE approval beforedrawing down Title IV Program funds. Effective July 1, 2016, a school under HCM1, HCM2 or reimbursement payment methods must also pay any creditbalances due to a student before drawing down funds for the amount of those disbursements from the DOE, even if the student or parent provides writtenauthorization for the school to hold the credit balance.If an institution's composite score is below 1.0, the institution is considered by the DOE to lack financial responsibility. If the DOE determines that aninstitution does not satisfy the DOE's financial responsibility standards, depending on its composite score and other factors, that institution may establish itsfinancial responsibility on an alternative basis by, among other things:·Posting a letter of credit in an amount equal to at least 50% of the total Title IV Program funds received by the institution during the institution'smost recently completed fiscal year;·Posting a letter of credit in an amount equal to at least 10% of such prior year's Title IV Program funds, accepting provisional certification,complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under an arrangement other than the DOE'sstandard advance funding arrangementThe DOE has evaluated the financial responsibility of our institutions on a consolidated basis. We have submitted to the DOE our audited financialstatements for the 2015 and 2014 fiscal year reflecting a composite score of 1.9 and 1.3, respectively, based upon our calculations. The DOE reviewed our2015 composite score and concluded that we were no longer required to operate under the Zone Alternative requirements that we had operated underfollowing the DOE’s review of our 2014 composite score. 14IndexFor the 2016 fiscal year, we have calculated our composite score to be 1.5. This number is subject to determination by the DOE once it receives and reviewsour audited financial statements for the 2016 fiscal year.On November 1, 2016, the DOE published new regulations that establish expanded standards of financial responsibility that could result in a requirementthat we submit to DOE a substantial letter of credit or other form of financial protection in an amount determined by the DOE, and be subject to otherconditions and requirements, based on any one of an extensive list of triggering circumstances. The expanded financial responsibility regulations may resultin the DOE recalculating and reducing our composite score to account for DOE estimates of potential losses under some of the circumstances listed above andalso may result in requirements to provide financial protection in amounts that are difficult to predict, calculated by the DOE under potentially subjectivestandards, and, in some cases, may be based solely on the existence of proceedings or circumstances that ultimately may lack merit or otherwise not result inliabilities or losses. For example, the regulations state that the letter of credit or other form of financial protection required for an institution under theprovisional certification alternative must equal 10 percent of the total amount of Title IV funds received by the institution during its most recently completedfiscal year plus any additional amount that DOE determines is necessary to fully cover any estimated losses unless the institution demonstrates that theadditional amount if unnecessary to protect, or is contrary to, the Federal interest.Return of Title IV Funds. An institution participating in Title IV Programs must calculate the amount of unearned Title IV Program funds that have beendisbursed to students who withdraw from their educational programs before completing them, and must return those unearned funds to the DOE or theapplicable lending institution in a timely manner, which is generally within 45 days from the date the institution determines that the student has withdrawn.If an institution is cited in an audit or program review for returning Title IV Program funds late for 5% or more of the students in the audit or program reviewsample, the institution may be required to post a letter of credit in favor of the DOE in an amount equal to 25% of the total amount of Title IV Program fundsthat should have been returned for students who withdrew in the institution's previous fiscal year. None of our institutions are currently required to submit aletter of credit to the DOE based on late return of Title IV Program funds.School Acquisitions. When a company acquires a school that is eligible to participate in Title IV Programs, that school undergoes a change of ownershipresulting in a change of control as defined by the DOE. Upon such a change of control, a school's eligibility to participate in Title IV Programs is generallysuspended until it has applied for recertification by the DOE as an eligible school under its new ownership, which requires that the school also re-establish itsstate authorization and accreditation. The DOE may temporarily and provisionally certify an institution seeking approval of a change of control under certaincircumstances while the DOE reviews the institution's application. The time required for the DOE to act on such an application may vary substantially. DOErecertification of an institution following a change of control will be on a provisional basis. Thus, any plans to expand our business through acquisition ofadditional schools and have them certified by the DOE to participate in Title IV Programs must take into account the approval requirements of the DOE andthe relevant state education agencies and accrediting commissions.Change of Control. In addition to school acquisitions, other types of transactions can also cause a change of control. The DOE, most state educationagencies and our accrediting commissions have standards pertaining to the change of control of schools, but these standards are not uniform. DOEregulations describe some transactions that constitute a change of control, including the transfer of a controlling interest in the voting stock of an institutionor the institution's parent corporation. For a publicly traded corporation, DOE regulations provide that a change of control occurs in one of two ways: (a) if aperson acquires ownership and control of the corporation so that the corporation is required to file a Current Report on Form 8-K with the Securities andExchange Commission disclosing the change of control or (b) if the corporation has a shareholder that owns at least 25% of the total outstanding votingstock of the corporation and is the largest shareholder of the corporation, and that shareholder ceases to own at least 25% of such stock or ceases to be thelargest shareholder. These standards are subject to interpretation by the DOE. A significant purchase or disposition of our common stock could bedetermined by the DOE to be a change of control under this standard.Most of the states and our accrediting commissions include the sale of a controlling interest of common stock in the definition of a change of controlalthough some agencies could determine that the sale or disposition of a smaller interest would result in a change of control. A change of control under thedefinition of one of these agencies would require the affected school to reaffirm its state authorization or accreditation. Some agencies would requireapproval prior to a sale or disposition that would result in a change of control in order to maintain authorization or accreditation. The requirements to obtainsuch reaffirmation from the states and our accrediting commissions vary widely.A change of control could occur as a result of future transactions in which our Company or our schools are involved. Some corporate reorganizations andsome changes in the board of directors of the Company are examples of such transactions. Moreover, the potential adverse effects of a change of controlcould influence future decisions by us and our stockholders regarding the sale, purchase, transfer, issuance or redemption of our stock. In addition, theadverse regulatory effect of a change of control also could discourage bids for shares of our common stock and could have an adverse effect on the marketprice of our shares. 15IndexOpening Additional Schools and Adding Educational Programs. For-profit educational institutions must be authorized by their state education agenciesand be fully operational for two years before applying to the DOE to participate in Title IV Programs. However, an institution that is certified to participate inTitle IV Programs may establish an additional location and apply to participate in Title IV Programs at that location without reference to the two-yearrequirement, if such additional location satisfies all other applicable DOE eligibility requirements. Our expansion plans are based, in part, on our ability toopen new schools as additional locations of our existing institutions and take into account the DOE's approval requirements.A student may use Title IV Program funds only to pay the costs associated with enrollment in an eligible educational program offered by an institutionparticipating in Title IV Programs. Generally, unless otherwise required by the DOE, an institution that is eligible to participate in Title IV Programs may adda new educational program without DOE approval if that new program leads to an associate’s level or higher degree and the institution already offersprograms at that level, or if that program prepares students for gainful employment in the same or a related occupation as an educational program that haspreviously been designated as an eligible program at that institution and meets minimum length requirements. Institutions that are provisionally certifiedmay be required to obtain approval of certain educational programs. Two of our institutions (Iselin and Indianapolis) are provisionally certified and requiredto obtain prior DOE approval of new degree, non-degree, and short-term training educational programs. Our Iselin institution also is subject to prior approvalrequirements for substantive changes such as new campuses and educational programs as a result of its accrediting agency’s loss of DOE recognition, and theDOE has indicated that such changes only will be approved in limited circumstances. If an institution erroneously determines that an educational program iseligible for purposes of Title IV Programs, the institution would likely be liable for repayment of Title IV Program funds provided to students in thateducational program. Our expansion plans are based, in part, on our ability to add new educational programs at our existing schools.Some of the state education agencies and our accrediting commission also have requirements that may affect our schools' ability to open a new campus,establish an additional location of an existing institution or begin offering a new educational program.Administrative Capability. The DOE assesses the administrative capability of each institution that participates in Title IV Programs under a series ofseparate standards. Failure to satisfy any of the standards may lead the DOE to find the institution ineligible to participate in Title IV Programs or to place theinstitution on provisional certification as a condition of its participation. These criteria require, among other things, that the institution:·Comply with all applicable federal student financial aid requirements;·Have capable and sufficient personnel to administer the federal student Title IV Programs;·Administer Title IV Programs with adequate checks and balances in its system of internal controls over financial reporting;·Divide the function of authorizing and disbursing or delivering Title IV Program funds so that no office has the responsibility for both functions;·Establish and maintain records required under the Title IV regulations;·Develop and apply an adequate system to identify and resolve discrepancies in information from sources regarding a student’s application forfinancial aid under Title IV;·Have acceptable methods of defining and measuring the satisfactory academic progress of its students;·Refer to the Office of the Inspector General any credible information indicating that any applicant, student, employee, third party servicer or otheragent of the school has been engaged in any fraud or other illegal conduct involving Title IV Programs;·Not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause fordebarment or suspension;·Provide adequate financial aid counseling to its students;·Submit in a timely manner all reports and financial statements required by the regulations; and·Not otherwise appear to lack administrative capability.Failure by an institution to satisfy any of these or other administrative capability criteria could cause the institution to be subject to sanctions or other actionsby the DOE or to lose its eligibility to participate in Title IV Programs, which would have a significant impact on our business and results of operations.Restrictions on Payment of Commissions, Bonuses and Other Incentive Payments. An institution participating in Title IV Programs may not provide anycommission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entityengaged in any student recruiting or admission activities or in making decisions regarding the awarding of Title IV Program funds. The DOE’s regulationsestablished twelve “safe harbors” identifying types of compensation that could be paid without violating the incentive compensation rule. On October 29,2010, the DOE adopted final rules that took effect on July 1, 2011 and amended the incentive compensation rule by, among other things, eliminating thetwelve safe harbors (thereby reducing the scope of permissible compensatory payments under the rule) and expanding the scope of compensatory paymentsand employees subject to the rule. The DOE has stated that it does not intend to provide private guidance regarding particular compensation structures in thefuture and will enforce the regulations as written. We cannot predict how the DOE will interpret and enforce the revised incentive compensation rule. Theimplementation of the final regulations required us to change our compensation practices and has had and will continue to have a significant impact on therate at which students enroll in our programs and on our business and results of operations. 16IndexCompliance with Regulatory Standards and Effect of Regulatory Violations. Our schools are subject to audits, program reviews, site visits, and otherreviews by various federal and state regulatory agencies, including, but not limited to, the DOE, the DOE's Office of Inspector General, state educationagencies and other state regulators, the U.S. Department of Veterans Affairs and other federal agencies, and by our accrediting commissions. In addition, eachof our institutions must retain an independent certified public accountant to conduct an annual audit of the institution's administration of Title IV Programfunds. The institution must submit the resulting audit report to the DOE for review.On January 2, 2013, the DOE notified our New Britain, Connecticut, campus that an on-site Program Review was scheduled to begin on January 28, 2013. The Program Review assessed the institution’s administration of Title IV Programs for the 2011-2012 and 2012-2013 award years. The Program Reviewconcluded on January 31, 2013. On April 22, 2013, the DOE issued a Program Review Report that required our New Britain campus to respond toinformation requests made in such report. Our New Britain campus responded to the Program Review Report in correspondence delivered to the DOE on July18, 2013. On September 29, 2014, the DOE issued a Final Program Review Determination (“FPRD”) that closed the review, identified liabilities resultingfrom the DOE’s review, and also noted some issues that required our New Britain campus to provide further responses to the DOE. Our New Britain campusresponded to the DOE’s request and is currently waiting for the DOE’s response. The liabilities calculated in the FPRD resulted in a payment of $102.75 tothe DOE.On January 7, 2013, the DOE notified our Columbia, Maryland campus that an on-site Program Review was scheduled to begin on March 4, 2013. TheProgram Review assessed the institution’s administration of Title IV Programs in which the campus participated for the 2011-2012 and 2012-2013 awardyears. On June 29, 2015, the DOE issued a Program Review Report that required our Columbia campus to respond to information in the report. OurColumbia campus responded on September 11, 2015, and is waiting for the DOE’s response.On April 26, 2013, the DOE notified our Union, New Jersey campus that an on-site Program Review was scheduled to begin on May 20, 2013. The ProgramReview assessed the institution’s administration of Title IV Programs in which the campus participated for the 2011-2012 and 2012-2013 award years. OnSeptember 30, 2016, the Union, New Jersey campus received the Program Review Report from the DOE. Subsequently, the campus responded to the DOEand are awaiting a response.If one of our schools fails to comply with accrediting or state licensing requirements, such school and its main and/or branch campuses could be subject tothe loss of state licensure or accreditation, which in turn could result in a loss of eligibility to participate in Title IV Programs. If the DOE or another agencydetermined that one of our institutions improperly disbursed Title IV Program funds or violated a provision of the HEA or DOE regulations, the institutioncould be required to repay such funds and related costs to the DOE and lenders, and could be assessed an administrative fine. The DOE could also place theinstitution on provisional certification status and/or transfer the institution to the reimbursement or cash monitoring system of receiving Title IV Programfunds, under which an institution must disburse its own funds to students and document the students' eligibility for Title IV Program funds before receivingsuch funds from the DOE. See “Regulatory Environment – Financial Responsibility Standards.”Significant violations of Title IV Program requirements by the Company or any of our institutions could be the basis for DOE to limit, suspend or terminatethe participation of the affected institution in Title IV Programs or to seek civil or criminal penalties. Generally, such a termination of Title IV Programeligibility extends for 18 months before the institution may apply for reinstatement of its participation. There is no DOE proceeding pending to fine any ofour institutions or to limit, suspend or terminate any of our institutions' participation in Title IV Programs.We and our schools are also subject to claims and lawsuits relating to regulatory compliance brought not only by federal and state regulatory agencies andour accrediting bodies, but also by third parties, such as present or former students or employees and other members of the public. If we are unable tosuccessfully resolve or defend against any such claim or lawsuit, we may be required to pay money damages or be subject to fines, limitations, loss of federalfunding, injunctions or other penalties. Moreover, even if we successfully resolve or defend against any such claim or lawsuit, we may have to devotesignificant financial and management resources in order to reach such a result. 17IndexItem 1A.RISK FACTORSThe risk factors described below and other information included elsewhere in this Form 10-K are among the numerous risked faced by our Company andshould be carefully considered before deciding to invest in, sell or retain shares of our common stock. The risks and uncertainties described below are notthe only ones we face.RISKS RELATED TO OUR INDUSTRYOur failure to comply with the extensive regulatory requirements for participation in Title IV Programs and school operations could result in financialpenalties, restrictions on our operations and loss of external financial aid funding, which could affect our revenues and impose significant operatingrestrictions on us.Our industry is highly regulated by federal and state governmental agencies and by accrediting commissions. In particular, the HEA and DOE regulationsspecify extensive criteria and numerous standards that an institution must satisfy to establish to participate in the Title IV Programs. For a description ofthese criteria, see “Regulatory Environment.”If we are found not to have satisfied the DOE's requirements for Title IV Programs funding, one or more of our institutions, including its additional locations,could be limited in its access to, or lose, Title IV Program funding could adversely affect our revenue, as we received approximately 79% of our revenue(calculated based on cash receipts) from Title IV Programs in 2016, which would have a significant impact on our business and results of operations. Furthermore, if any of our schools fails to comply with applicable regulatory requirements, the school and its related main campus and/or additional locationscould be subject to, among other things, the loss of state licensure or accreditation, the loss of eligibility to participate in and receive funds under the Title IVPrograms, the loss of the ability to grant degrees, diplomas and certificates, provisional certification, or the imposition of liabilities or monetary penalties,each of which could adversely affect our revenues and impose significant operating restrictions upon us. In addition, the loss by any of our schools of itsaccreditation, its state authorization or license, or its eligibility to participate in Title IV Programs would constitute an event of default under our creditagreement with our lender which could result in the acceleration of all amounts then outstanding with respect to our outstanding loan obligations. Thevarious regulatory agencies applicable to our business periodically revise their requirements and modify their interpretations of existing requirements andrestrictions. We cannot predict with certainty how any of these regulatory requirements will be applied or whether each of our schools will be able to complywith these requirements or any additional requirements instituted in the future.If we fail to demonstrate "administrative capability" to the DOE, our business could suffer.DOE regulations specify extensive criteria an institution must satisfy to establish that it has the requisite "administrative capability" to participate in Title IVPrograms. For a description of these criteria, see “Regulatory Environment – Administrative Capability.”If we are found not to have satisfied the DOE's "administrative capability" requirements, or otherwise failed to comply with one or more DOE requirements,one or more of our institutions, including its additional locations, could be limited in its access to, or lose, Title IV Program funding. A loss or decrease inTitle IV funding could adversely affect our revenue, as we received approximately 79% of our revenue (calculated based on cash receipts) from Title IVPrograms in 2016, which would have a significant impact on our business and results of operations.Congress and the DOE may make changes to the laws and regulations applicable to, or reduce funding for, Title IV Programs, which could reduce ourstudent population, revenues or profit margin.Congress periodically revises the HEA and other laws governing Title IV Programs and annually determines the funding level for each Title IV Program. Wecannot predict what if any legislative or other actions will be taken or proposed by Congress in connection with the reauthorization of the HEA or with otheractivities of Congress. See “Regulatory Environment – Congressional Action.” Because a significant percentage of our revenues are derived from the TitleIV programs, any action by Congress or the DOE that significantly reduces funding for Title IV Programs or that limits or restricts the ability of our schools,programs, or students to receive funding through those Programs or that imposes new restrictions or constraints upon our business or operations could reduceour student enrollment and our revenues, and could increase our administrative costs and require us to modify our practices in order for our schools to complyfully with Title IV program requirements. In addition, current requirements for student or school participation in Title IV Programs may change or one ormore of the present Title IV Programs could be replaced by other programs with materially different student or school eligibility requirements. If we cannotcomply with the provisions of the HEA, as they may be revised, or if the cost of such compliance is excessive, or if funding is materially reduced, ourrevenues or profit margin could be materially adversely affected. 18IndexThe DOE has changed its regulations, and may make other changes in the future, in a manner which could require us to incur additional costs inconnection with our administration of the Title IV Programs, affect our ability to remain eligible to participate in the Title IV Programs, imposerestrictions on our participation in the Title IV Programs, affect the rate at which students enroll in our programs, or otherwise have a significantimpact on our business and results of operations.In October 2014, the DOE issued final regulations on gainful employment requiring each educational program to achieve threshold rates in two debt measurecategories related to an annual debt to annual earnings ratio and an annual debt to discretionary income ratio. The regulations outline various scenariosunder which programs could lose Title IV eligibility for failure to achieve threshold rates in one or more measures over certain periods of time ranging fromtwo to four years. The regulations also require an institution to provide warnings to students in programs which may lose Title IV eligibility at the end of anaward year. The final regulations also contain other provisions that, among other things, include disclosure, reporting, new program approval, andcertification requirements. See “Regulatory Environment – Gainful Employment.”In January 2016, the DOE began negotiated rulemaking to develop proposed regulations regarding a borrower’s ability to allege acts or omissions by aninstitution as a defense to the repayment of certain Title IV loans and the consequences to the borrower, the DOE, and the institution. On November 1, 2016,the DOE published in the Federal Register the final version of these regulations with a general effective date of July 1, 2017 and which, among other things,include rules for:·establishing new processes, and updating existing processes, for enabling borrowers to obtain from the DOE a discharge of some or all of theirfederal student loans based on circumstances such as certain acts or omissions of the institution and for the DOE to impose and collect liabilitiesagainst the institution following the loan discharges;·establishing expanded standards of financial responsibility (see “Financial Responsibility Standards”);·requiring institutions to make disclosures to current and prospective students regarding the existence of certain of the circumstances identified in theexpanded standards of financial responsibility;·calculating a loan repayment rate for each proprietary institution under standards established by the regulations and requiring institutions to providewarnings to current and prospective students if the institution has a loan repayment rate below specified thresholds;·prohibiting certain contractual provisions imposed by or on behalf of schools on students regarding arbitration, dispute resolution, and participationin class actions; and·expanding the existing definition of misrepresentations that could result in grounds for discharge of student loans and in liabilities and sanctionsagainst the institution, including, without limitation, potential loss of Title IV eligibility.On January 19, 2017, the DOE issued new regulations with an effective date of January 19, 2017 that update the Department’s hearing procedures for actionsto establish liability against an institution and to establish procedural rules governing recovery proceedings under the DOE’s borrower defense to repaymentregulations. We are still in the process of evaluating the impact of these new and complex regulations on our business. Among other things, the precisestandards for student loan discharges are unclear and may be subject to unfavorable interpretations that could result in liabilities and other sanctions for ourschools. The expanded financial responsibility regulations may result in the DOE recalculating and reducing our composite score to account for DOEestimates of potential losses under some of the circumstances listed above and also may result in requirements to provide financial protection in amounts thatare difficult to predict, calculated by the DOE under potentially subjective standards, and, in some cases, may be based solely on the existence of proceedingsor circumstances that ultimately may lack merit or otherwise not result in liabilities or losses. For example, the regulations state that the letter of credit orother form of financial protection required for an institution under the provisional certification alternative must equal 10 percent of the total amount of TitleIV funds received by the institution during its most recently completed fiscal year plus any additional amount that DOE determines is necessary to fullycover any estimated losses unless the institution demonstrates that the additional amount if unnecessary to protect, or is contrary to, the Federal interest.We cannot predict the ultimate content of any new regulations the DOE may propose and implement in the future, or the potential impact of such regulationson us or our institutions. The implementation of any new regulations by the DOE could have a significant impact on the rate at which students enroll in ourprograms and on our business and results of operations.If we or our eligible institutions do not meet the financial responsibility standards prescribed by the DOE, we may be required to post letters of credit orour eligibility to participate in Title IV Programs could be terminated or limited, which could significantly reduce our student population and revenues.To participate in Title IV Programs, an eligible institution must satisfy specific measures of financial responsibility prescribed by the DOE or post a letter ofcredit in favor of the DOE and possibly accept other conditions on its participation in Title IV Programs. The DOE published new regulations that establishexpanded standards of financial responsibility that could result in a requirement that we submit to DOE a substantial letter of credit or other form of financialprotection in an amount determined by the DOE, and be subject to other conditions and requirements, based on any one of an extensive list of triggeringcircumstances. See “Regulatory Environment – Financial Responsibility Standards.” Any obligation to post one or more letters of credit would increase ourcosts of regulatory compliance. Our inability to obtain a required letter of credit or limitations on, or termination of, our participation in Title IV Programscould limit our students' access to various government-sponsored student financial aid programs, which could significantly reduce our student populationand revenues. 19IndexWe are subject to fines and other sanctions if we pay impermissible commissions, bonuses or other incentive payments to individuals involved in certainrecruiting, admissions or financial aid activities, which could increase our cost of regulatory compliance and adversely affect our results of operations.An institution participating in Title IV Programs may not provide any commission, bonus or other incentive payment based directly or indirectly on successin enrolling students or securing financial aid to any person involved in any student recruiting or admission activities or in making decisions regarding theawarding of Title IV Program funds. See “Regulatory Environment -- Restrictions on Payment of Commissions, Bonuses and Other Incentive Payments.” Wecannot predict how the DOE will interpret and enforce the incentive compensation rule. The implementation of these regulations has required us to changeour compensation practices and has had and may continue to have a significant impact on the rate at which students enroll in our programs and on ourbusiness and results of operations. If we are found to have violated this law, we could be fined or otherwise sanctioned by the DOE or we could face litigationfiled under the qui tam provisions of the Federal False Claims Act. If our schools do not maintain their accreditation, they may not participate in Title IV programs, which could adversely affect our student populationand revenues. An institution must be accredited by an accrediting commission recognized by the DOE in order to participate in Title IV Programs. See “RegulatoryEnvironment – Accreditation.” If one of our schools fails to comply with accrediting commission requirements, the institution and its main and/or branchcampuses are subject to the loss of accreditation or may be placed on probation or a special monitoring or reporting status which, if the noncompliance withaccrediting commission requirements is not resolved, could result in loss of accreditation. Loss of accreditation by any of our main campuses would result inthe termination of eligibility of that school and all of its branch campuses to participate in Title IV Programs and could cause us to close the school and itsbranches, which could have a significant impact on our business and operations.Programmatic accreditation is the process through which specific programs are reviewed and approved by industry- and program-specific accrediting entities.Although programmatic accreditation is not generally necessary for Title IV eligibility, such accreditation may be required to allow students to sit for certainlicensure exams or to work in a particular profession or career or to meet other requirements. Failure to obtain or maintain such programmatic accreditationmay lead to a decline in enrollments in such programs. Moreover, under new gainful employment regulations issued by the DOE, institutions are required tocertify that they have programmatic accreditation under certain circumstances. See “Regulatory Environment – Gainful Employment.” Failure to complywith these new requirements could impact the Title IV eligibility of educational programs that are required to maintain such programmatic accreditation.Our institutions would lose eligibility to participate in Title IV Programs if the percentage of their revenues derived from those programs exceeds 90%,which could reduce our student population and revenues. Under the HEA reauthorization, a proprietary institution that derives more than 90% of its total revenue from Title IV Programs for two consecutive fiscalyears becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility until the end of at least two fiscal years. Aninstitution with revenues exceeding 90% for a single fiscal year will be placed on provisional certification and may be subject to other enforcementmeasures. See “Regulatory Environment – 90/10 Rule.” If any of our institutions loses eligibility to participate in Title IV Programs, that loss would cause anevent of default under our credit agreement, would also adversely affect our students’ access to various government-sponsored student financial aid programs,and would have a significant impact on the rate at which our students enroll in our programs and on our business and results of operations.Our institutions would lose eligibility to participate in Title IV Programs if their former students defaulted on repayment of their federal student loansin excess of specified levels, which could reduce our student population and revenues.An institution may lose its eligibility to participate in some or all Title IV Programs if the rates at which the institution's current and former students defaulton their federal student loans exceed specified percentages. See “Regulatory Environment – Student Loan Defaults.” If former students defaulted onrepayment of their federal student loans in excess of specified levels, our institutions would lose eligibility to participate in Title IV Programs, would causean event of default under our credit agreement, would also adversely affect our students’ access to various government-sponsored student financial aidprograms, and would have a significant impact on the rate at which our students enroll in our programs and on our business and results of operations. . 20IndexWe are subject to sanctions if we fail to correctly calculate and timely return Title IV Program funds for students who withdraw before completing theireducational program, which could increase our cost of regulatory compliance and decrease our profit margin.An institution participating in Title IV Programs must correctly calculate the amount of unearned Title IV Program funds that have been credited to studentswho withdraw from their educational programs before completing them and must return those unearned funds in a timely manner, generally within 45 days ofthe date the institution determines that the student has withdrawn. If the unearned funds are not properly calculated and timely returned, we may have to posta letter of credit in favor of the DOE or may be otherwise sanctioned by the DOE, which could increase our cost of regulatory compliance and adversely affectour results of operations. Regulatory agencies or third parties may conduct compliance reviews, bring claims or initiate litigation against us. If the results of these reviews orclaims are unfavorable to us, our results of operations and financial condition could be adversely affected.Because we operate in a highly regulated industry, we are subject to compliance reviews and claims of noncompliance and lawsuits by government agenciesand third parties. If the results of these reviews or proceedings are unfavorable to us, or if we are unable to defend successfully against third-party lawsuits orclaims, we may be required to pay money damages or be subject to fines, limitations on the operations of our business, loss of federal and state funding,injunctions or other penalties. Even if we adequately address issues raised by an agency review or successfully defend a third-party lawsuit or claim, we mayhave to divert significant financial and management resources from our ongoing business operations to address issues raised by those reviews or defend thoselawsuits or claims. Certain of our institutions are subject to ongoing reviews and proceedings. See “Regulatory Environment – State Authorization,”“Regulatory Environment – Accreditation,” and “Regulatory Environment - Compliance with Regulatory Standards and Effect of Regulatory Violations.”A decline in the overall growth of enrollment in post-secondary institutions, or in our core disciplines, could cause us to experience lower enrollment atour schools, which could negatively impact our future growth.Enrollment in post-secondary institutions over the next ten years is expected to be slower than in the prior ten years. In addition, the number of high schoolgraduates eligible to enroll in post-secondary institutions is expected to fall before resuming a growth pattern for the foreseeable future. In order to increaseour current growth rates in degree granting programs, we will need to attract a larger percentage of students in existing markets and expand our markets bycreating 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 ornational economic downturn or otherwise, fewer students may seek the types of diploma or degree granting programs that we offer or seek to offer. Our failureto attract new students, or the decisions by prospective students to seek diploma or degree programs in other disciplines, would have an adverse impact onour future growth.Our business could be adversely impacted by additional legislation, regulations, or investigations regarding private student lending because studentsattending our schools rely on private student loans to pay tuition and other institutional charges.The U.S. Consumer Financial Protection Bureau (“CFPB”), under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has supervisoryauthority over private education loan providers. The CFPB has been active in conducting investigations into the private student loan market and issuingseveral reports with findings that are critical of the private student loan market. The CFPB has initiated investigations into the lending practices of otherinstitutions in the for-profit education sector. The CFPB has issued procedures for further examination of private education loans and published requests forinformation regarding repayment plans and regarding arrangements between schools and financial institutions. We cannot predict whether any of thisactivity, or other activities, will result in Congress, the CFPB or other regulators adopting new legislation or regulations, or conducting new investigations,into the private student loan market or into the loans received by our students to attend our institutions. Any new legislation, regulations, or investigationsregarding private student lending could limit the availability of private student loans to our students, which could have a significant impact on our businessand operations.RISKS RELATED TO OUR BUSINESSIf we are unable to sell our Healthcare and Other Professions segment, our cash flows and operations could be adversely affected.For the last several years, the Company and the proprietary school sector have faced deteriorating earnings. In light of this, the Company has incurredsignificant operating losses as a result of a lower student population. To fund the Company’s business plans and improve cash flow by aligning cost structureto our lower student population, the Company intends to divest our Healthcare and Other Professions segment. If we are unable to sell our Healthcare andOther Professions segment, our cash flows and operations could be adversely affected. The Company continues to actively market these schools and hasoffers which are under consideration. 21IndexOur success depends in part on our ability to update and expand the content of existing programs and develop new programs in a cost-effective mannerand on a timely basis.Prospective employers of our graduates increasingly demand that their entry-level employees possess appropriate technological skills. These skills arebecoming more sophisticated in line with technological advancements in the automotive, diesel, information technology, and skilled trades. Accordingly,educational programs at our schools must keep pace with those technological advancements. The expansion of our existing programs and the development ofnew programs may not be accepted by our students, prospective employers or the technical education market. Even if we are able to develop acceptable newprograms, we may not be able to introduce these new programs as quickly as our competitors or as quickly as employers demand. If we are unable toadequately respond to changes in market requirements due to financial constraints, unusually rapid technological changes or other factors, our ability toattract and retain students could be impaired, our placement rates could suffer and our revenues could be adversely affected.In addition, if we are unable to adequately anticipate the requirements of the employers we serve, we may offer programs that do not teach skills useful toprospective employers or students seeking a technical or career-oriented education which could affect our placement rates and our ability to attract and retainstudents, causing our revenues to be adversely affected.We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow our business.Our success has depended, and will continue to depend, largely on the skills, efforts and motivation of our executive officers who generally have significantexperience within the post-secondary education industry. Our success also depends in large part upon our ability to attract and retain highly qualifiedfaculty, school directors, administrators and corporate management. Due to the nature of our business, we face significant competition in the attraction andretention of personnel who possess the skill sets that we seek. In addition, key personnel may leave us and subsequently compete against us. Furthermore, wedo not currently carry "key man" life insurance on any of our employees. The loss of the services of any of our key personnel, or our failure to attract andretain other qualified and experienced personnel on acceptable terms, could have an adverse effect on our ability to operate our business efficiently and toexecute our growth strategy.Competition could decrease our market share and cause us to lower our tuition rates.The post-secondary education market is highly competitive. Our schools compete for students and faculty with traditional public and private two-year andfour-year colleges and universities and other proprietary schools, many of which have greater financial resources than we do. Some traditional public andprivate colleges and universities, as well as other private career-oriented schools, offer programs that may be perceived by students to be similar to ours. Mostpublic institutions are able to charge lower tuition than our schools, due in part to government subsidies and other financial resources not available to for-profit schools. Some of our competitors also have substantially greater financial and other resources than we have which may, among other things, allow ourcompetitors to secure strategic relationships with some or all of our existing strategic partners or develop other high profile strategic relationships, or devotemore resources to expanding their programs and their school network, or provide greater financing alternatives to their students, all of which could affect thesuccess of our marketing programs. In addition, some of our competitors have a larger network of schools and campuses than we do, enabling them to recruitstudents more effectively from a wider geographic area. If we are unable to compete effectively with these institutions for students, our student enrollmentand revenues will be adversely affected.We may be required to reduce tuition or increase spending in response to competition in order to retain or attract students or pursue new marketopportunities. As a result, our market share, revenues and operating margin may be decreased. We cannot be sure that we will be able to compete successfullyagainst current or future competitors or that the competitive pressures we face will not adversely affect our revenues and profitability.Our financial performance depends in part on our ability to continue to develop awareness and acceptance of our programs among high schoolgraduates and working adults looking to return to school.The awareness of our programs among high school graduates and working adults looking to return to school is critical to the continued acceptance andgrowth of our programs. Our inability to continue to develop awareness of our programs could reduce our enrollments and impair our ability to increase ourrevenues or maintain profitability. The following are some of the factors that could prevent us from successfully marketing our programs:·Student dissatisfaction with our programs and services;·Diminished access to high school student populations;·Our failure to maintain or expand our brand or other factors related to our marketing or advertising practices; and·Our inability to maintain relationships with employers in the automotive, diesel, skilled trades and IT services industries.An increase in interest rates could adversely affect our ability to attract and retain students.Interest rates have reached historical lows in recent years, creating a favorable borrowing environment for our students. Much of the financing our studentsreceive is tied to floating interest rates. Increases in interest rates result in a corresponding increase in the cost to our existing and prospective students offinancing their education which could result in a reduction in the number of students attending our schools and could adversely affect our results ofoperations and revenues. Higher interest rates could also contribute to higher default rates with respect to our students' repayment of their education loans.Higher default rates may in turn adversely impact our eligibility for Title IV Program participation or the willingness of private lenders to make private loanprograms available to students who attend our schools, which could result in a reduction in our student population. 22IndexOur total assets include substantial intangible assets. In the event that our schools do not achieve satisfactory operating results, we may be required towrite-off of a significant portion of unamortized intangible assets which would negatively affect our results of operations.Our total assets reflect substantial intangible assets. At December 31, 2016, goodwill and identified intangibles, net, associated with our acquisitionsincreased to approximately 8.9% from 7.0% of total assets at December 31, 2015. On at least an annual basis, we assess whether there has been an impairmentin the value of goodwill and other intangible assets with indefinite lives. If the carrying value of the tested asset exceeds its estimated fair value, impairmentis deemed to have occurred. In this event, the amount is written down to fair value. Under current accounting rules, this would result in a charge to operatingearnings. Any determination requiring the write-off of a significant portion of goodwill or unamortized identified intangible assets would negatively affectour results of operations and total capitalization, which could be material.We cannot predict our future capital needs, and if we are unable to secure additional financing when needed, our operations and revenues would beadversely affected.We may need to raise additional capital in the future to fund acquisitions, working capital requirements, expand our markets and program offerings orrespond to competitive pressures or perceived opportunities. We cannot be sure that additional financing will be available to us on favorable terms, or at allparticularly during times of uncertainty in the financial markets similar to that which is currently being experienced. If adequate funds are not available whenrequired or on acceptable terms, we may be forced to forego attractive acquisition opportunities, cease our operations and, even if we are able to continue ouroperations, our ability to increase student enrollment and revenues would be adversely affected.A substantial decrease in student financing options, or a significant increase in financing costs for our students, could have a significant impact on ourstudent population, revenues and financial results.The consumer credit markets in the United States have recently suffered from increases in default rates and foreclosures on mortgages. Adverse marketconditions for consumer and federally guaranteed student loans could result in providers of alternative loans reducing the attractiveness and/or decreasingthe availability of alternative loans to post-secondary students, including students with low credit scores who would not otherwise be eligible for credit-based alternative loans. Prospective students may find that these increased financing costs make borrowing prohibitively expensive and abandon or delayenrollment in post-secondary education programs. Private lenders could also require that we pay them new or increased fees in order to provide alternativeloans to prospective students. If any of these scenarios were to occur, our students’ ability to finance their education could be adversely affected and ourstudent population could decrease, which could have a significant impact on our financial condition, results of operations and cash flows. In addition, any actions by the U.S. Congress or by states that significantly reduce funding for Title IV Programs or other student financial assistanceprograms, or the ability of our students to participate in these programs, or establish different or more stringent requirements for our schools to participate inthose programs, could have a significant impact on our student population, results of operations and cash flows.Anti-takeover provisions in our amended and restated certificate of incorporation, our bylaws and New Jersey law could discourage a change ofcontrol that our stockholders may favor, which could negatively affect our stock price.Provisions in our amended and restated certificate of incorporation and our bylaws and applicable provisions of the New Jersey Business Corporation Actmay make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of ourstockholders. These provisions could discourage potential takeover attempts and could adversely affect the market price of our common stock. For example,applicable provisions of the New Jersey Business Corporation Act may discourage, delay or prevent a change in control by prohibiting us from engaging in abusiness combination with an interested stockholder for a period of five years after the person becomes an interested stockholder. Furthermore, our amendedand restated certificate of incorporation and bylaws:·authorize the issuance of blank check preferred stock that could be issued by our board of directors to thwart a takeover attempt;·prohibit cumulative voting in the election of directors, which would otherwise allow holders of less than a majority of stock to elect some directors;·require super-majority voting to effect amendments to certain provisions of our amended and restated certificate of incorporation;·limit who may call special meetings of both the board of directors and stockholders;·prohibit stockholder action by non-unanimous written consent and otherwise require all stockholder actions to be taken at a meeting of thestockholders; 23Index·establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be actedupon by stockholders at stockholders' meetings; and·require that vacancies on the board of directors, including newly created directorships, be filled only by a majority vote of directors then in office.We can issue shares of preferred stock without stockholder approval, which could adversely affect the rights of common stockholders.Our amended and restated certificate of incorporation permits us to establish the rights, privileges, preferences and restrictions, including voting rights, offuture series of our preferred stock and to issue such stock without approval from our stockholders. The rights of holders of our common stock may suffer as aresult of the rights granted to holders of preferred stock that may be issued in the future. In addition, we could issue preferred stock to prevent a change incontrol of our Company, depriving common stockholders of an opportunity to sell their stock at a price in excess of the prevailing market price.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 thesoftware and related hosting and maintenance services for our online platform and our student information system from third-party software providers. Anysystem 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 suchsystem disruptions could impact our ability to generate revenue and affect our ability to access information about our students and could also damage thereputation of our institutions.We are subject to privacy and information security laws and regulations due to our collection and use of personal information, and any violations ofthose laws or regulations, or any breach, theft or loss of that information, could adversely affect our reputation and operations.Our efforts to attract and enroll students result in us collecting, using and keeping substantial amounts of personal information regarding applicants, ourstudents, their families and alumni, including social security numbers and financial data. We also maintain personal information about our employees in theordinary course of our activities. Our services, the services of many of our health plan and benefit plan vendors, and other information can be accessedglobally through the Internet. We rely extensively on our network of interconnected applications and databases for day to day operations as well as financialreporting and the processing of financial transactions. Our computer networks and those of our vendors that manage confidential information for us orprovide services to our student may be vulnerable to unauthorized access, inadvertent access or display, theft or misuse, hackers, computer viruses, or thirdparties in connection with hardware and software upgrades and changes. Such unauthorized access, misuse, theft or hacks could evade our intrusion detectionand prevention precautions without alerting us to the breach or loss for some period of time or may never be detected. Regular patching of our computersystems and frequent updates to our virus detection and prevention software with the latest virus and malware signatures may not catch newly introducedmalware and viruses or “zero-day” viruses, prior to their infecting our systems and potentially disrupting our data integrity, taking sensitive information oraffecting financial transactions. While we utilize security and business controls to limit access to and use of personal information, any breach of student oremployee privacy or errors in storing, using or transmitting personal information could violate privacy laws and regulations resulting in fines or otherpenalties. A wide range of high profile data breaches in recent years has led to renewed interest in federal data and cybersecurity legislation that couldincrease our costs and/or require changes in our operating procedures or systems. A breach, theft or loss of personal information held by us or our vendors, ora violation of the laws and regulations governing privacy could have a material adverse effect on our reputation or result in lawsuits, additional regulation,remediation and compliance costs or investments in additional security systems to protect our computer networks, the costs of which may be substantial.ITEM 1B.UNRESOLVED STAFF COMMENTSNone. 24IndexITEM 2.PROPERTIESAs of December 31, 2016, we leased all of our facilities, except for our campuses in West Palm Beach, Florida, Nashville, Tennessee, Grand Prairie, Texas, andDenver, Colorado, all of which we own. We continue to re-evaluate our facilities to maximize our facility utilization and efficiency and to allow us tointroduce new programs and attract more students. As of December 31, 2016, all of our existing leases expire between May 2017 and May 2030.Our Board of Directors approved a plan to cease operations at our campuses in Henderson, Nevada; West Palm Beach, Florida; Northeast Philadelphia,Pennsylvania; and Center City Philadelphia, Pennsylvania. These properties are expected to be sold, subleased or the lease is expected to expire in 2017.The following table provides information relating to our facilities as of December 31, 2016, including our corporate office:Location Brand Approximate Square FootageHenderson, Nevada Euphoria Institute 18,000Las Vegas, Nevada Euphoria Institute 19,000Southington, Connecticut Lincoln College of New England 113,000Columbia, Maryland Lincoln College of Technology 110,000Denver, Colorado Lincoln College of Technology 212,000Grand Prairie, Texas Lincoln College of Technology 146,000Indianapolis, Indiana Lincoln College of Technology 189,000Marietta, Georgia Lincoln College of Technology 30,000Melrose Park, Illinois Lincoln College of Technology 88,000West Palm Beach, Florida Lincoln College of Technology 117,000Allentown, Pennsylvania Lincoln Technical Institute 26,000Brockton, Massachusetts Lincoln Technical Institute 22,000East Windsor, Connecticut Lincoln Technical Institute 289,000Iselin, New Jersey Lincoln Technical Institute 32,000Lincoln, Rhode Island Lincoln Technical Institute 39,000Lowell, Massachusetts Lincoln Technical Institute 21,000Mahwah, New Jersey Lincoln Technical Institute 79,000Moorestown, New Jersey Lincoln Technical Institute 35,000New Britain, Connecticut Lincoln Technical Institute 35,000Northeast Philadelphia, Pennsylvania Lincoln Technical Institute 25,000Paramus, New Jersey Lincoln Technical Institute 30,000Philadelphia, Pennsylvania Lincoln Technical Institute 36,000Philadelphia, Pennsylvania Lincoln Technical Institute 29,000Queens, New York Lincoln Technical Institute 48,000Shelton, Connecticut Lincoln Technical Institute 47,000Somerville, Massachusetts Lincoln Technical Institute 33,000South Plainfield, New Jersey Lincoln Technical Institute 60,000Union, New Jersey Lincoln Technical Institute 56,000Nashville, Tennessee Lincoln College of Technology 281,000West Orange, New Jersey Corporate Office 52,000Plymouth Meeting, Pennsylvania Corporate Office 6,000Suffield, Connecticut 132,000We believe that our facilities are suitable for their present intended purposes. 25IndexITEM 3.LEGAL PROCEEDINGSOn November 21, 2012, the Company received a Civil Investigative Demand from the Attorney General of the Commonwealth of Massachusetts relating toits investigation of whether the Company and certain of its academic institutions have complied with certain Massachusetts state consumer protection laws. On July 29, 2013 and January 17, 2014, the Company received additional Civil Investigative Demands, pursuant to which the Attorney General requestedfrom the Company and certain of its academic institutions in Massachusetts documents and detailed information for the time period from January 1, 2008 tothe present.On July 13, 2015, the Commonwealth of Massachusetts filed a complaint against the Company in the Suffolk County Superior Court alleging certainviolations of the Massachusetts Consumer Protection Act since at least 2010 and continuing through 2013. At the same time, the Company agreed to theentry of a Final Judgment by Consent in order to avoid the time, burden, and expense of contesting such liability. As part of the Final Judgment by Consent,the Company denied all allegations of wrongdoing and any liability for the claims asserted in the complaint. The Company, however, paid the sum of$850,000 to the Attorney General and has agreed to forgive $165,000 of debt consisting of unpaid balances owed to the Company by certain graduates in thesole discretion of the Massachusetts Attorney General. The Final Judgment by Consent also provided certain requirements for calculation of job placementrates in Massachusetts and imposed certain disclosure obligations that are consistent with the regulations that have been previously enacted by theMassachusetts Attorney General’s Office.On December 15, 2015, the Company received an administrative subpoena from the Attorney General of the State of Maryland. Pursuant to the subpoena,Maryland’s Attorney General has requested from the Company documents and detailed information relating to its Columbia, Maryland campus. TheCompany has responded to this request and intends to continue cooperating with the Maryland Attorney General’s Office.In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including, but not limited to, claims involvingstudents or graduates and routine employment matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations andclaims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have a material effect on our business,financial condition, results of operations or cash flows.ITEM 4.MINE SAFETY DISCLOSURESNot applicable. 26IndexPART II.ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket for our Common StockOur common stock, no par value per share, is quoted on the Nasdaq Global Select Market under the symbol “LINC”.The following table sets forth the range of high and low sales prices per share for our common stock, as reported by the Nasdaq Global Select Market, for theperiods indicated and the cash dividends per share declared on our common stock: Price Range of Common Stock High Low Dividend Fiscal Year Ended December 31, 2016 First Quarter $3.05 $1.92 $- Second Quarter $2.49 $1.37 $- Third Quarter $2.58 $1.37 $- Fourth Quarter $2.20 $1.58 $- Price Range of Common Stock High Low Dividend Fiscal Year Ended December 31, 2015 First Quarter $3.10 $2.08 $- Second Quarter $2.71 $1.93 $- Third Quarter $1.93 $0.20 $- Fourth Quarter $2.40 $0.53 $- On March 7, 2017, the last reported sale price of our common stock on the Nasdaq Global Select Market was $2.17 per share. As of March 7, 2017, based onthe information provided by Continental Stock Transfer & Trust Company, there were 39 stockholders of record of our common stock.Dividend PolicyOn February 27, 2015, our Board of Directors discontinued the quarterly cash dividend.Share RepurchasesThe Company did not repurchase any shares of our common stock during the fourth quarter of the fiscal year ended December 31, 2016. 27IndexStock Performance GraphThis stock performance graph compares our total cumulative stockholder return on our common stock during the period from December 31, 2011 throughDecember 31, 2016 with the cumulative return on the Russell 2000 Index and a Peer Issuer Group Index. The peer issuer group consists of the companiesidentified below, which were selected on the basis of the similar nature of their business. The graph assumes that $100 was invested on December 31, 2011and any dividends were reinvested on the date on which they were paid.The information provided under the heading "Stock Performance Graph" shall not be considered "filed" for purposes of Section 18 of the SecuritiesExchange Act of 1934 or incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to theextent that we specifically incorporate it by reference into a filing.Companies in the Peer Group include Apollo Group, Inc., Career Education Corp., DeVry, Inc., ITT Educational Services, Inc., Strayer Education, Inc. andUniversal Technical Institute, Inc. 28IndexEquity Compensation Plan Information We have various equity compensation plans under which equity securities are authorized for issuance. Information regarding these securities as of December31, 2016 is as follows: Plan Category Number ofSecurities to beissued uponexercise ofoutstandingoptions,warrants andrights Weighted-averageexerciseprice ofoutstandingoptions,warrants andrights Number ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplans (excludingsecuritiesreflected incolumn (a)) (a) Equity compensation plans approved by security holders 218,167 $12.11 2,315,016 Equity compensation plans not approved by security holders - - - Total 218,167 $12.11 2,315,016 29IndexITEM 6.SELECTED FINANCIAL DATAThe following table sets forth our selected historical consolidated financial and operating data as of the dates and for the periods indicated. You should readthese data together with Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financialstatements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The selected historical consolidated statement of operations datafor each of the years in the three-year period ended December 31, 2016 and historical consolidated balance sheet data at December 31, 2016 and 2015 havebeen derived from our audited consolidated financial statements which are included elsewhere in this Annual Report on Form 10-K. The selected historicalconsolidated statements of operations data for the fiscal years ended December 31, 2013 and 2012 and historical consolidated balance sheet data as ofDecember 31, 2014, 2013 and 2012 have been derived from our consolidated financial information not included in this Annual Report on Form 10-K. Ourhistorical results are not necessarily indicative of our future results. 2016 2015 2014 2013 2012 (In thousands, except per share amounts) Statement of Operations Data, Year Ended December 31: Revenue $196,910 $208,256 $218,040 $225,742 $248,724 Cost and expenses: Educational services and facilities 94,922 94,970 103,299 104,330 111,008 Selling, general and administrative 103,129 105,380 116,573 122,253 133,158 Loss (gain) on sale of assets 120 1,741 (58) (279) (70)Impairment of goodwill and long-lived assets 3,902 216 21,885 1,701 10,739 Total costs and expenses 202,073 202,307 241,699 228,005 254,835 Operating (loss) income (5,163) 5,949 (23,659) (2,263) (6,111)Other: Interest income 155 52 62 37 2 Interest expense (6,001) (5,727) (3,431) (2,507) (2,293)Other income 6,711 109 - 18 14 (Loss) income from continuing operations before incometaxes (4,298) 383 (27,028) (4,715) (8,388)Provision (benefit) for income taxes (1) 200 242 (1,479) 19,830 (1,333)(Loss) income from continuing operations (4,498) 141 (25,549) (24,545) (7,055)Loss from discontinued operations, net of income taxes (23,806) (3,491) (30,584) (26,741) (30,131)Net loss $(28,304) $(3,350) $(56,133) $(51,286) $(37,186)Basic (Loss) earnings per share from continuing operations $(0.19) $0.01 $(1.12) $(1.09) $(0.32)Loss per share from discontinued operations (1.02) (0.15) (1.34) (1.19) (1.36)Net loss per share $(1.21) $(0.14) $(2.46) $(2.28) $(1.68)Diluted (Loss) earnings per share from continuing operations $(0.19) $0.01 $(1.12) $(1.09) $(0.32)Loss per share from discontinued operations (1.02) (0.15) (1.34) (1.19) (1.36)Net loss per share $(1.21) $(0.14) $(2.46) $(2.28) $(1.68)Weighted average number of common shares outstanding: Basic 23,453 23,167 22,814 22,513 22,195 Diluted 23,453 23,227 22,814 22,513 22,195 Other Data: Capital expenditures $3,596 $2,218 $7,472 $6,538 $8,839 Depreciation and amortization from continuing operations 10,975 10,346 14,589 14,590 15,787 Number of campuses 28 31 31 33 33 Average student population from continuing operations (2) 7,725 8,395 9,037 9,178 10,083 Cash dividend declared per common share $- $- $0.18 $0.28 $0.28 Balance Sheet Data, At December 31: Cash, cash equivalents and restricted cash $47,715 $61,041 $42,299 $67,386 $61,708 Working (deficit) capital (3) (1,733) 33,818 29,585 47,041 40,939 Total assets 163,207 210,279 213,707 305,949 346,774 Total debt (4) 41,957 58,224 65,181 90,116 73,527 Total stockholders' equity 54,926 80,997 83,010 145,196 198,477 30IndexAll amounts have been restated to give effect to discontinued operations in 2015, 2014 and 2013.(1) Provision (benefit) for income taxes includes a valuation allowance from continuing operations of $54.6 million, $43.9 million, $46.7 million and$23.5 million for the year ended December 31, 2016, 2015, 2014 and 2013, respectively.(2) Average student population includes diploma and above students and excludes short certificate programs.(3) Working (deficit) capital is defined as current assets less current liabilities.(4) Total debt consists of long-term debt including current portion, capital leases, auto loans and a finance obligation of $9.7 million for each of theyears in the four-year period ended December 31, 2015 incurred in connection with a sale-leaseback transaction as further described in Note 8 to theconsolidated financial statements included elsewhere in this Annual Report on Form 10-K. 31IndexITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSYou should read the following discussion together with the “Selected Financial Data,” “Forward-Looking Statements” and the consolidated financialstatements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements thatare based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materiallyfrom those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under“Risk Factors” and “Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K.GENERALLincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable) provide diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company, which currently operates 28 schools in 15 states,offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electronic systemstechnology, among other programs), healthcare services (which include nursing, dental assistant, medical administrative assistant and pharmacy technician,among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and business and informationtechnology (which includes information technology and criminal justice programs). The schools operate under Lincoln Technical Institute, Lincoln Collegeof Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brandnames. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of the campuses aredestination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attractstudents from their local communities and surrounding areas. All of the campuses are nationally or regionally accredited and are eligible to participate infederal financial aid programs by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions whichallow students to apply for and access federal student loans as well as other forms of financial aid.In the first quarter of 2015, we reorganized our operations into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare andOther Professions (“HOPS”), and (c) Transitional which refers to businesses that have been or are currently being taught out. In November 2015 the Board ofDirectors approved a plan for the Company to divest the schools included in the HOPS business segment. Divestiture of the Company’s HOPS businesssegment marks a strategic shift in business strategy that will enable us to focus energy and resources predominantly on the Transportation and Skilled Tradesbusiness segment. The Company continues to actively market the schools comprising the HOPS business segment and has offers which are underconsideration. The results of operations of the campuses included in the HOPS business segment are reflected as discontinued operations in the consolidatedfinancial statements.The following table lists the schools that are included in the HOPS and Transitional Segments and their status as of December 31, 2016 and 2015: Segment Status School 2015 2016 2015 2016 Allentown, PA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Edison, NJ HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Moorestown, NJ HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Paramus, NJ HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Lincoln, RI HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Brockton, MA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Somerville, MA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Lowell, MA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1New Britain, CT HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Shelton, CT HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Las Vegas (Summerlin), NV HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Southington, CT HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Marietta, GA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale 1Hartford, CT Transitional (Continuing Operations) HOPS (Discontinued Operations) Teach-out Closed 2Henderson (Green Valley), NV HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Closed 3Center City Philadelphia, PA HOPS (Discontinued Operations) Transitional (Continuing Operations) Held for sale Teach-out 4Northeast Philadelphia, PA HOPS (Discontinued Operations) Transitional (Continuing Operations) Held for sale Teach-out 4West Palm Beach, FL HOPS (Discontinued Operations) Transitional (Continuing Operations) Held for sale Teach-out 5Fern Park, FL Transitional (Continuing Operations) Transitional (Continuing Operations) Teach-out Closed 61In November 2015, the Board of Directors approved a plan to divest these schools and thus they are included in discontinued operations as ofDecember 31, 2016 and 2015. 32Index2In November 2015, the Board of Directors approved a plan to divest this school. In December 2015, the Board of Directors approved a plan to ceaseoperations at this school. The school was included in the Transitional Segment and included in continuing operations until it closed in the fourthquarter of 2016; it is included in discontinued operations as of December 31, 2016.3In November 2015, the Board of Directors approved a plan to divest this school. In the fourth quarter of 2016, the Board of Directors approved aplan to cease operations at this school, which closed in the fourth quarter of 2016 and is included in discontinued operations as of December 31,2016.4In November 2015, the Board of Directors approved a plan to divest these schools. In the fourth quarter of 2016, the Board of Directors approved aplan to cease operations at these schools which are being taught-out and expected to be closed in 2017. These schools are included in theTransitional segment and continuing operations as of December 31, 2016.5In November 2015, the Board of Directors approved a plan to divest this school. In the third quarter of 2016, the Board of Directors approved a planto teach–out certain programs at this school. Then, in the fourth quarter of 2016, the Board of Directors approved a plan to teach-out the remainderof the programs at this school. The school is expected to be closed in 2017. This school’s operations are included in the Transitional segment andcontinuing operations as of December 31, 2016. However, as part of this plan, the Board of Directors approved the divestiture of the properties forthis school and therefore the properties are included in held for sale as of December 31, 2016.6On February 27, 2015, our Board of Directors approved a plan to cease operations at this school, which was fully taught out and officially closed asof March 31, 2016 and is included in the Transitional segment and continuing operations as of December 31, 2016. The plan to teach out this schoolwas approved prior to the plan to exit the HOPS segment and as such does not meet the discontinued operations criteria.As of December 31, 2016, we had 11,235 students enrolled at 28 campuses, 7,295 students enrolled at campuses that are included in continuing operations.Our campuses, a majority of which serve major metropolitan markets, are located throughout the United States. Five of our campuses are destination schools,which attract students from across the United States and, in some cases, from abroad. Our other campuses primarily attract students from their localcommunities and surrounding areas. All of our schools are either nationally or regionally accredited and are eligible to participate in federal financial aidprograms.Our revenues consist primarily of student tuition and fees derived from the programs we offer. Our revenues are reduced by scholarships granted to ourstudents. We recognize revenues from tuition and one-time fees, such as application fees, ratably over the length of a program, including internships orexternships that take place prior to graduation. We also earn revenues from our bookstores, dormitories, cafeterias and contract training services. These non-tuition revenues are recognized upon delivery of goods or as services are performed and represent less than 10% of our revenues.From both continuing and discontinued operations, our revenues are directly dependent on the average number of students enrolled in our schools and thecourses in which they are enrolled. Our average enrollment is impacted by the number of new students starting, re-entering, graduating and withdrawing fromour schools. In addition, our diploma/certificate programs range from 22 to 136 weeks, our associate’s degree programs range from 48 to 156 weeks, and ourbachelor’s degree programs range from 104 to 208 weeks, and students attend classes for different amounts of time per week depending on the school andprogram in which they are enrolled. Because we start new students every month, our total student population changes monthly. The number of studentsenrolling or re-entering our programs each month is driven by the demand for our programs, the effectiveness of our marketing and advertising, theavailability of financial aid and other sources of funding, the number of recent high school graduates, the job market and seasonality. Our retention andgraduation rates are influenced by the quality and commitment of our teachers and student services personnel, the effectiveness of our programs, theplacement rate and success of our graduates and the availability of financial aid. Although similar courses have comparable tuition rates, the tuition ratesvary among our numerous programs.The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay asubstantial portion of their tuition and other education-related expenses. The largest of these programs are Title IV Programs which representedapproximately 79% and 80% of our revenue on a cash basis while the remainder is primarily derived from state grants and cash payments made by studentsduring 2016 and 2015, respectively. The Higher Education Act of 1965, as amended (the “HEA”) requires institutions to use the cash basis of accountingwhen determining its compliance with the 90/10 rule.We extend credit for tuition and fees to many of our students that attend our campuses. Our credit risk is mitigated through the students’ participation infederally funded financial aid programs unless students withdraw prior to the receipt by us of Title IV Program funds for those students. Under Title IVPrograms, the government funds a certain portion of a student’s tuition, with the remainder, referred to as “the gap,” financed by the students themselvesunder private party loans, including credit extended by us. The gap amount has continued to increase over the last several years as we have raised tuition onaverage for the last several years by 2-3% per year and restructured certain programs to reduce the amount of financial aid available to students, while fundsreceived from Title IV Programs increased at lower rates. 33IndexThe additional financing that we are providing to students may expose us to greater credit risk and can impact our liquidity. However, we believe that theserisks are somewhat mitigated due to the following:·Our internal financing is provided to students only after all other funding resources have been exhausted; thus, by the time this funding is available,students have completed approximately two-thirds of their curriculum and are more likely to graduate;·Funding for students who interrupt their education is typically covered by Title IV funds as long as they have been properly packaged for financialaid; and·Creditworthy criteria to demonstrate a student’s ability to pay.The operating expenses associated with an existing school do not increase or decrease proportionally as the number of students enrolled at the schoolincreases or decreases. We categorize our operating expenses as:·Educational services and facilities. Major components of educational services and facilities expenses include faculty compensation andbenefits, expenses of books and tools, facility rent, maintenance, utilities, depreciation and amortization of property and equipment used in theprovision of education services and other costs directly associated with teaching our programs excluding student services which is included inselling, general and administrative expenses.·Selling, general and administrative. Selling, general and administrative expenses include compensation and benefits of employees who are notdirectly associated with the provision of educational services (such as executive management and school management, finance and centralaccounting, legal, human resources and business development), marketing and student enrollment expenses (including compensation andbenefits of personnel employed in sales and marketing and student admissions), costs to develop curriculum, costs of professional services, baddebt expense, rent for our corporate headquarters, depreciation and amortization of property and equipment that is not used in the provision ofeducational services and other costs that are incidental to our operations. Selling, general and administrative expenses also includes the cost ofall student services including financial aid and career services. All marketing and student enrollment expenses are recognized in the periodincurred.DISCONTINUED OPERATIONS2016/2015In November 2015, the Board of Directors approved a plan for the Company to divest the schools included in the Healthcare and Other Professions businesssegment. In December 2015, the Board of Directors approved a plan to cease operations of the school in this segment located in Hartford, Connecticut whichclosed in the fourth quarter of 2016 and is included in discontinued operations. In addition, in the fourth quarter of 2016, the Board of Directors approved aplan to cease operations at our schools in Henderson (Green Valley), Nevada, Center City Philadelphia, Pennsylvania, Northeast Philadelphia, Pennsylvaniaand West Palm Beach, Florida. The Henderson, Nevada campus also closed in the fourth quarter of 2016 and is included in discontinued operations. Divestiture of the Company’s Healthcare and Other Professions business segment marks a strategic shift in business strategy that will enable us to focusenergy and resources predominantly on Transportation and Skilled Trades segment. The results of operations of the 15 campuses included in Healthcare andOther Professions business segment are reflected as discontinued operations in the consolidated financial statements. The Center City Philadelphia,Pennsylvania, Northeast Philadelphia, Pennsylvania and West Palm Beach, Florida campuses, which were previously included in the Healthcare and OtherProfessions segment are now included in the Transitional segment and continuing operations. Completion of the plan would result in the Company’soperations focused solely on the Transportation and Skilled Trades segment.The results of operations at these campuses for the three year periods ended December 31, 2016 were as follows (in thousands): Year Ended December 31, 2016 2015 2014 Revenue $88,649 $97,846 $106,982 Loss before income tax (6,341) (3,491) (26,684)Income tax benefit - - (2,746)Net loss from discontinued operations $(6,341) $(3,491) $(23,938)Amounts include impairments of goodwill and long-lived assets for these campuses of $17.5 million and $19.0 million for the year ended December 31, 2016and 2014, respectively.2014In December 2014, the Company’s Board of Directors approved a plan to cease operations at five training sites in Florida. The Company performed a costbenefit analysis on several schools and concluded that the training sites contained a high fixed cost component and have had difficulty attracting enoughstudents due to high competition to maintain a stable profit margin. Accordingly, the Company ceased operations at these campuses as of December 31,2014. This was a strategic shift to close all of the Company’s training sites and all locations that do not accept Title IV payments. The results of operationsof these campuses are reflected as discontinued operations in the consolidated financial statements. 34IndexThe results of operations at these five training sites for the year ended December 31, 2014 were as follows (in thousands): Year Ended December 31, 2014 Revenue $2,140 Loss before income tax (6,731)Income tax benefit (85)Net loss from discontinued operations $(6,646)Amounts include impairments of goodwill and long-lived assets for these campuses of $2.1 million for the year ended December 31, 2014.CRITICAL ACCOUNTING POLICIES AND ESTIMATESOur discussions of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in conformitywith GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. On an ongoingbasis, we evaluate our estimates and assumptions, including those related to revenue recognition, bad debts, fixed assets, goodwill and other intangibleassets, income taxes and certain accruals. Actual results could differ from those estimates. The critical accounting policies discussed herein are not intendedto be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated byGAAP and does not result in significant management judgment in the application of such principles. We believe that the following accounting policies aremost critical to us in that they represent the primary areas where financial information is subject to the application of management's estimates, assumptionsand 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 asnonrefundable application fees and course material fees, are recognized on a straight-line basis over the length of the applicable program as the studentproceeds through the program, which is the period of time from a student’s start date through his or her graduation date, including internships or externshipsthat take place prior to graduation, and we complete the performance of teaching the student which entitles us to the revenue. Other revenues, such as toolsales and contract training revenues are recognized as services are performed or goods are delivered. On an individual student basis, tuition earned in excessof cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as unearned tuition.We evaluate whether collectability of revenue is reasonably assured prior to the student attending class and reassess collectability of tuition and fees when astudent withdraws from a course. We calculate the amount to be returned under Title IV and its stated refund policy to determine eligible charges and, if thereis a balance due from the student after this calculation, we expect payment from the student and we have a process to pursue uncollected accounts whereby,based upon the student’s financial means and ability to pay, a payment plan is established with the student to ensure that collectability is reasonable. Wecontinuously monitor our historical collections to identify potential trends that may impact our determination that collectability of receivables for withdrawnstudents is realizable. If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded. Refunds are calculated andpaid in accordance with federal, state and accrediting agency standards. Generally, the amount to be refunded to a student is calculated based upon the periodof time the student has attended classes and the amount of tuition and fees paid by the student as of his or her withdrawal date. These refunds typically reducedeferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognize tuition revenue in our consolidated statements ofincome (loss) until the related refund provisions have lapsed. Based on the application of our refund policies, we may be entitled to incremental revenue onthe day the student withdraws from one of our schools. Prior to the year-ended December 31, 2015, we recorded this incremental revenue, any related studentreceivable and any estimate of the amount we did not expect to collect as bad debt expense during the quarter a student withdrew based on our analysis of thecollectability of such amounts on an aggregate student portfolio basis, for which we had significant historical experience. Beginning in October 2015, wenow record revenue for students who withdraw from one of our schools when payment is received because collectability on an individual student basis is notreasonably assured. We determined incremental revenue recognized for students who withdrew during the nine-months ended September 30, 2015 to be animmaterial error which was corrected during the fourth quarter of 2015. This resulted in a reduction of net revenues by $0.3 million and bad debt expense by$0.2 million, which resulted in an increase to the loss from continuing operations of $0.1 million for the year ended December 31, 2015. Additionally, thiscorrection reduced net student receivables from continuing operations by $0.1 million. Prior year amounts, including quarterly financial results were notrestated because the effects were not material. 35IndexAllowance for uncollectible accounts. Based upon experience and judgment, we establish an allowance for uncollectible accounts with respect to tuitionreceivables. We use an internal group of collectors in our collection efforts. In establishing our allowance for uncollectible accounts, we consider, amongother things, current and expected economic conditions, a student's status (in-school or out-of-school), whether or not a student is currently makingpayments, and overall collection history. Changes in trends in any of these areas may impact the allowance for uncollectible accounts. The receivablesbalances of withdrawn students with delinquent obligations are reserved for based on our collection history. Although we believe that our reserves areadequate, if the financial condition of our students deteriorates, resulting in an impairment of their ability to make payments, additional allowances may benecessary, which will result in increased selling, general and administrative expenses in the period such determination is made.Our bad debt expense as a percentage of revenues for the years ended December 31, 2016, 2015 and 2014 was 5.1%, 4.8% and 5.3%, respectively. Ourexposure 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 yearsended December 31, 2016, 2015 and 2014 would have resulted in an increase in bad debt expense of $2.0 million, $2.1 million and $2.2 million,respectively.We do not believe that there is any direct correlation between tuition increases, the credit we extend to students and our loan commitments. Our loancommitments to our students are made on a student-by-student basis and are predominantly a function of the specific student’s financial condition. We onlyextend credit to the extent there is a financing gap between the tuition and fees charged for the program and the amount of grants, loans and parental loanseach student receives. Each student’s funding requirements are unique. Factors that determine the amount of aid available to a student include whether theyare dependent or independent students, Pell grants awarded, Federal Direct loans awarded, Plus loans awarded to parents and family contributions. As a result,it is extremely difficult to predict the number of students that will need us to extend credit to them. Our tuition increases have averaged 2-3% annually andhave not meaningfully impacted overall funding requirements, since the amount of financial aid funding available to students in recent years has increased atgreater rates than our tuition increases.Because a substantial portion of our revenues are derived from Title IV Programs, any legislative or regulatory action that significantly reduces the fundingavailable under Title IV Programs or the ability of our students or schools to participate in Title IV Programs could have a material effect on the realizabilityof our receivables.Goodwill. We test our goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, bycomparing its fair value to its carrying value. Impairment may result from, among other things, deterioration in the performance of the acquired business,adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business, and avariety of other circumstances. If we determine that impairment has occurred, we are required to record a write-down of the carrying value and charge theimpairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill and otherindefinite-lived intangible assets, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of theacquired assets. Changes in strategy or market conditions could significantly impact these judgments in the future and require an adjustment to the recordedbalances.Goodwill represents a significant portion of our total assets. As of December 31, 2016, goodwill was approximately $14.5 million, or 8.9%, of our total assets,which was flat from approximately $14.5 million, or 7.0%, at December 31, 2015.We test our goodwill for impairment using a two-step approach. The first step is conducted utilizing the multiple of earnings and discounted cash flowapproach and comparing the carrying value of our reporting units to their implied fair value. If necessary, the second step is conducted comparing theimplied fair value of goodwill for our reporting units with the carrying amount of that goodwill.At December 31, 2016, we conducted our annual test for goodwill impairment and determined we did not have an impairment for continuing operations. Thefair value of our reporting units were determined using Level 3 inputs included in its multiple of earnings and discounted cash flow approach. Our disposalgroup assets held for sale are required to be measured at the lower of carrying value or fair value less cost to sell. As a result of the consideration of offersreceived on our disposal group assets held for sale, we concluded that a pre-tax non-cash impairment charge of $9.9 million was required for our goodwill andintangible assets relating to this group ($9.9 million was included in discontinued operations).At December 31, 2015, we conducted our annual test for goodwill impairment and determined we did not have an impairment. The fair value of our reportingunits were determined using Level 3 inputs included in our multiple of earnings and discounted cash flow approach. We concluded that as of September 30,2015 there was an indicator of potential impairment as a result of a decrease in market capitalization and, accordingly, we tested goodwill for impairment. The test indicated that one of our reporting units was impaired, which resulted in a pre-tax non-cash charge of $0.2 million for the three months endedSeptember 30, 2015.At December 31, 2014, we conducted our annual test for goodwill impairment and determined we did not have an impairment. The fair value of our reportingunits were determined using Level 3 inputs included in our multiple of earnings and discounted cash flow approach. We concluded that as of September 30,2014 there was an indicator of potential impairment as a result of a decrease in market capitalization and, accordingly, we tested goodwill for impairment. The test indicated that ten of our reporting units were impaired, which resulted in a pre-tax non-cash charge of $39.0 million for the three months endedSeptember 30, 2014 ($38.8 million of which is included in discontinued operations). 36IndexStock-based compensation. We currently account for stock-based employee compensation arrangements by using the Black-Scholes valuation model andutilize straight-line amortization of compensation expense over the requisite service period of the grant. We make an estimate of expected forfeitures at thetime options are granted.We measure the value of service and performance-based restricted stock on the fair value of a share of common stock on the date of the grant. We amortize thefair value of service-based restricted stock utilizing straight-line amortization of compensation expense over the requisite service period of the grant.We amortize the fair value of the performance-based restricted stock based on determination of the probable outcome of the performance condition. If theperformance condition is expected to be met, then we amortize the fair value of the number of shares expected to vest utilizing the straight-line basis over therequisite performance period of the grant. However, if the associated performance condition is not expected to be met, then we do not recognize the stock-based compensation expense.Income taxes. We account for income taxes in accordance with FASB ASC Topic 740, “Income Taxes” (“ASC 740”). This statement requires an asset and aliability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existingat each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered. In accordance with ASC 740, we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable. Avaluation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portionof a deferred tax asset will not be realized. In accordance with ASC 740, our assessment considers whether there has been sufficient income in recent years andwhether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferred income tax assets weconsidered, among other things, historical levels of income, expected future income, the expected timing of the reversals of existing temporary reportingdifferences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits.Significant judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statementsand/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidatedfinancial position or results of operations. Changes in, among other things, income tax legislation, statutory income tax rates, or future income levels couldmaterially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reportingperiods. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2016 and2015, the interest and penalties expense associated with uncertain tax positions are not significant to our results of operations or financial position.Results of Continuing Operations for the Three Years Ended December 31, 2016The following table sets forth selected consolidated statements of continuing operations data as a percentage of revenues for each of the periods indicated: Year Ended December 31, 2016 2015 2014 Revenue 100.0% 100.0% 100.0%Costs and expenses: Educational services and facilities 48.2% 45.6% 47.4%Selling, general and administrative 52.4% 50.6% 53.5%Gain on sale of assets 0.1% 0.8% 0.0%Impairment of goodwill and long-lived assets 1.9% 0.1% 10.0%Total costs and expenses 102.6% 97.1% 110.9%Operating (loss) income -2.6% 2.9% -10.9%Interest expense, net -3.0% -2.7% -1.5%Other income (loss) 3.4% 0.0% 0.0%(Loss) income from continuing opeartions before income taxes -2.2% 0.2% -12.4%Provision (benefit) for income taxes 0.1% 0.1% -1.9%(Loss) income from continuing operations -2.3% 0.1% -10.5% 37IndexYear Ended December 31, 2016 Compared to Year Ended December 31, 2015Consolidated Results of OperationsRevenue. Revenue decreased by $11.3 million, or 5.5%, to $196.9 million for the year ended December 31, 2016 from $208.3 million for the year endedDecember 31, 2015. The decrease in revenue can mainly be attributed to two main reasons. The first is due to our Transitional Segment which accounted for47.7% of the total revenue decline. The second is a result of a lower carry in population which has been one of the main contributing factors to the declinesin revenue over the past several years. We started 2016 with approximately 900 fewer students than we had on January 1, 2015 which led to an 8.0% declinein average student population to approximately 7,700 as of December 31, 2016 from 8,400 in the comparable period of 2015.Partially offsetting the revenue decline from lower student population was a 2.7% increase in average revenue per student due to program mix.Student start results decreased by 6.2% to approximately 8,464 from 9,021 for the year ended December 31, 2016 as compared to the prior year comparableperiod. Excluding the Transitional segment, student starts were down 2.2%. The decline in student starts was mainly a result of the underperformance of onecampus. Excluding this one campus and the Transitional segment our starts for the year would have grown 1.3% over the prior year.For a general discussion of trends in our student enrollment, see “Seasonality and Outlook” below.Educational services and facilities expense. Our educational services and facilities expense remained essentially flat at $94.9 million for the year endedDecember 31, 2016 when compared to the prior year comparable period.Instructional expenses decreased by $3.4 million, or 7.3%, as a result of a reduction in the number of instructors and other related costs resulting from loweraverage student population primarily attributable to the teach-out of the Company’s Fern Park, Florida which was completed in the first quarter of 2016.Offsetting the decrease in instructional expense was an increase in books and tools expense and an increase in facilities expense. Books and tools expenseincreased by $1.3 million, or 13.6% from the purchase of laptops which were provided to newly enrolled students in certain programs to enhance and expandthe student overall learning experience.Facilities expense increased by $2.0 million, or 5.3% primarily resulting from two main factors: a) increased rent expense of $1.3 million which was the resultof a modification of a lease at three of our campuses. These leases were previously accounted for as finance obligations and rent payments under the financeobligation were previously included in interest expense; and b) $0.6 million in additional depreciation expense resulting from the reclassification of twofacilities out of held for sale as of December 31, 2015.Our educational expenses contain a high fixed cost component and are not as scalable as some of our other expenses. As our student population decreases,we typically experience a reduction in average class size and therefore, are not always able to align these expenses with the corresponding decrease inpopulation. Educational services and facilities expenses, as a percentage of revenue, increased to 48.2% from 45.6% in the prior year comparable period.Selling, general and administrative expense. Our selling, general and administrative expense decreased by $2.3 million, or 2.1%, to $103.1 million for theyear ended December 31, 2016 from $105.4 million in the prior year. This decrease was primarily the result of $1.8 million in reduced costs relating to ourTransitional Segment, and $0.8 million in reduced salaries. Partially offsetting the decrease is an increase in marketing expense. The increase in marketingexpense was the result of additional spending made in an effort to reach more potential students, expand brand awareness, and increase enrollments.Bad debt expense as a percentage of revenue was 5.1% for the year ended December 31, 2016, compared to 4.8% for the same period in 2015. This increasewas mainly the result of incurring additional bad debt expense from increased reserves placed on our newly reclassified transitional campuses.As a percentage of revenues, selling, general and administrative expense increased to 52.4% for the year ended December 31, 2016 from 50.6% in thecomparable prior year period.As of December 31, 2016, we had total outstanding loan commitments to our students of $40.0 million, as compared to $33.4 million at December 31, 2015. Loan commitments, net of interest that would be due on the loans through maturity, were $30.0 million at December 31, 2016, as compared to $24.8 millionat December 31, 2015.Loss on sale of fixed assets. Loss on sale of assets decreased by $1.6 million primarily as a result of a non-cash charge in relation to two of our campusesthat were previously classified as held for sale in 2014. During 2015 the Company re-classed these campuses out of held for sale and booked catch-updepreciation in the amount of $2.0 million. This was partially offset by a non-cash charge in relation to three of our campuses that were previously classifiedas held for sale in 2015. During 2016 the Company re-classed these campuses out of held for sale and booked catch-up depreciation in the amount of $0.4million. 38IndexImpairment of goodwill and long-lived assets. At December 31, 2016, we tested long-lived assets and determined that there was sufficient evidence toconclude that an impairment existed at two properties, which resulted in a pre-tax non-cash charge of $3.9 million. As of September 30, 2015 we testedgoodwill and long-lived assets for impairment and determined that one of the Company’s reporting units relating to goodwill was impaired, which resulted ina pre-tax non-cash charge of $0.2 million.Operating Loss: Operating loss for the year ended December 31, 2016 was $5.2 million. Included in the loss is an operating loss of $6.3 million from ourTransitional Segment and a non-cash impairment charge of $1.4 million relating to one of the Company’s corporate properties. At December 31, 2015operating income was $6.0 million. Included in the income is an operating loss of $1.6 million from our Transitional Segment and a non-cash impairmentcharge of $0.2 million. The primary reason for the decrease in operating income was due to a decline in revenue as a result of starting 2016 withapproximately 600 fewer students than we had on January 1, 2015. Net interest expense. For the year ended December 31, 2016, our net interest expense increased by $0.2 million. The increase in interest expense wasprimarily the result of interest paid under our new term loan agreement which was entered into on July 31, 2015. Partially offsetting this expense was thetransition of our finance obligation at three of our campuses to operating leases coupled with the lease termination agreement at our Fern Park, Floridafacility which was previously accounted for as capital leases.Income taxes. Our provision for income taxes was $0.2 million, or 4.7% of pretax loss, for the year ended December 31, 2016, compared to $0.2 million, or63.2% of pretax income, in the prior year comparable period. No federal or state income tax benefit was recognized for the current period loss due to therecognition of a full valuation allowance. Income tax expense resulted from various minimal state tax expenses.Year Ended December 31, 2015 Compared to Year Ended December 31, 2014Consolidated Results of OperationsRevenue. Revenue decreased by $9.8 million, or 4.5%, to $208.3 million for the year ended December 31, 2015 from $218.0 million for the year endedDecember 31, 2014. The decrease was a result of lower student population levels of approximately 100, or 1%, as we began 2015 coupled with fewer newstudent starts of 929 which decreased to 9,021 for the year ended December 31, 2015 from 9,950 for the year ended December 31, 2014. These two factors ledto a decline of 7.1% in average student population to approximately 8,400 students from 9,040 students in the comparable period of 2014.Offsetting the revenue decline from lower student population was a 2.7% increase in average revenue per student due to improved student retention and ashift in program mix.In addition, revenue was lower in 2015 due to higher scholarship recognition in comparison to 2014. Scholarships are recognized ratably over the term of thestudent’s program. Scholarship discounts increased by $0.8 million for the year ended December 31, 2015 as compared to the prior year. While scholarshipshave negatively impacted revenue, we believe we provide more students with the opportunity to pursue their educational goals by assisting in theiraffordability challenge.We continue to face several challenges in sustaining our student population levels including the impact DOE incentive compensation regulations have oncompensation practices for our admissions representatives, a low national unemployment rate and increased competition from peers and communitycolleges. We remain focused on our strategy to expand corporate training and form partnership relationships to increase student population.For a general discussion of trends in our student enrollment, see “Seasonality and Outlook” below.Educational services and facilities expense. Our educational services and facilities expense decreased by $8.3 million, or 8.1%, to $94.9 million for theyear ended December 31, 2015 from $103.3 million in the prior comparable period.The expense reductions were primarily due to a $4.8 million, or 11.2%, decrease in facilities costs due to lower depreciation expense as a result ofdiscontinued depreciation expense in connection with two campuses classified as assets held for sale at December 31, 2014. Prior long-lived assetimpairment expenses and lower capital expenditures also contributed to the decrease.Our instructional and books and tools expense decreased by $3.5 million, or 5.8%, as a result of instructional savings which were a result of a reduction in thenumber of instructors and other related costs resulting from lower average student population. The decrease in books and tools expense is also attributable tolower student starts. 39IndexOur educational expenses contain a high fixed cost component and are not as scalable as some of our other expenses. As our student population decreases,we typically experience a reduction in average class size and, therefore, are not always able to align these expenses with the corresponding decrease inpopulation. Educational services and facilities expenses, as a percentage of revenue, decreased to 45.6% for the year ended December 31, 2015 from 47.4%in the prior year comparable period.Selling, general and administrative expense. Our selling, general and administrative expense decreased by $11.2 million, or 9.6%, to $105.4 million for theyear ended December 31, 2015 from $116.6 million for the year ended December 31, 2014.Administrative expense was lower by $7.0 million, or 11.0%, after giving consideration to a $3.7 decrease in salaries and benefit expenses as a result ofmanagement restructuring designed to help align our cost structure. Furthermore, sales expense decreased by $3.4 million, or 13.4%. The reduction in salesexpense was mainly attributable to a reduction in the number of admissions representatives, dedicated to the destination schools being replaced with acentralized call center, thereby reducing travel costs and salary expense. These costs savings were offset slightly by an increase in marketing expenses.Bad debt expense as a percentage of revenue was 4.8% for the year ended December 31, 2015, compared to 5.3% for the same period in 2014. Theimprovement in bad debt expense was mainly the result of improvement in current collections and collections history.Student services expense also decreased by $1.1 million, or 10.6%, to $9.4 million as a result of our smaller student population.As a percentage of revenues, selling, general and administrative expense decreased to 50.6% for the year ended December 31, 2015 from 53.5% in the prioryear comparable period.As of December 31, 2015, we had total outstanding loan commitments to our students of $33.4 million, as compared to $34.1 million at December 31, 2014. Loan commitments, net of interest that would be due on the loans through maturity, were $24.8 million at December 31, 2015, as compared to $24.1 millionat December 31, 2014.Loss (gain) on sale of fixed assets. Loss on sale of assets increased by $1.8 million primarily as a result of a one-time charge in relation to two of ourcampuses that were previously classified as held for sale in 2014. During 2015 the Company re-classed these campuses out of held for sale and booked catch-up depreciation in the amount of $2.0 million.Impairment of goodwill and long-lived assets. We tested our goodwill and long-lived assets as of December 31, 2015 and determined that there is nogoodwill impairment. The fair value of the Company’s reporting units were determined using Level 3 inputs included in its multiple of earnings anddiscounted cash flow approach. As of September 30, 2015 we tested goodwill and long-lived assets for impairment and determined that one of theCompany’s reporting units relating to goodwill was impaired, which resulted in a pre-tax non-cash charge of $0.2 million.As of September 30, 2014 we tested goodwill and long-lived assets for impairment and determined that ten of the Company’s reporting units were impaired,which resulted in a pre-tax non-cash charge of $39.0 million relating to goodwill ($38.8 million of which is included in discontinued operations).Operating Income: Operating income increased by $29.6 million, or 125.2% to $6.0 million for the year ended December 31, 2015 from an operating loss of$23.7 million for the prior year comparable period. The primary cause for the decrease was due to a $21.9 million non-cash impairment charge realized in2014 in combination with a $1.8 million non-cash charge relating to catch-up depreciation for two of our campuses that were re-classed out of held for saleduring 2015.Net interest expense. Our net interest expense increased by $2.3 million due to a higher outstanding loan balance and financing fees expense associatedwith our new term loan agreement.Income taxes. Our provision for income taxes was $0.2 million, or 63.2% of pretax income for the year-ended December 31, 2015, compared to a benefit forincome taxes of $1.5 million, or 5.5% of pretax loss in the same period in 2014. No federal or state income tax benefit was recognized for the current periodloss due to the recognition of a full valuation allowance against deferred tax assets. Income tax expense for 2015 resulted from various minimal state taxexpenses. 40IndexSegment Results of Operations The for-profit education industry has been impacted by numerous regulatory changes, the changing economy and an onslaught of negative media attention.As a result of these actions, student populations have declined and operating costs have increased. Over the past few years, the Company has closed over tenlocations and exited its online business. On November 3, 2015, the Board of Directors approved a plan for the divestiture of the Company’s schools includedin the Healthcare and Other Professions business segment. In December 2015, the Board of Directors approved a plan to cease operations of the schoollocated in Hartford, Connecticut which closed in the fourth quarter of 2016. Then, in the fourth quarter of 2016, the Board of Directors approved plans tocease operations at our schools in Henderson (Green Valley), Nevada, Center City Philadelphia, Pennsylvania, Northeast Philadelphia, Pennsylvania andWest Palm Beach, Florida. The Henderson, Nevada campus closed in the fourth quarter of 2016. Divestiture of the Company’s Healthcare and OtherProfessions business segment marks a strategic shift in business strategy. The results of operations of the 15 campuses included in Healthcare and OtherProfessions business segment are reflected as discontinued operations in the consolidated financial statements. The Center City Philadelphia, Pennsylvania,Northeast Philadelphia, Pennsylvania and West Palm Beach, Florida campuses, which were previously included in the Healthcare and Other Professionssegment are now included in the Transitional segment except the West Palm Beach, Florida properties which remain held-for-sale. Implementation of theplan would result in the Company’s operations focused solely on the Transportation and Skilled Trades segment.In the past, we offered any combination of programs at any campus. We have changed our focus to program offerings that create greater differentiation andattain excellence to attract more students and gain market share. Also strategically, we began offering continuing education training to employers who hireour students and this is best achieved at campuses focused on their profession.As a result of the regulatory environment, market forces and strategic decisions, we now operate in two reportable segments: a) Transportation and SkilledTrades and b) Transitional.Our reportable segment represents a group of post-secondary education providers that offer a variety of degree and non-degree academic programs. Thesesegments are organized by key market segments to enhance operational alignment within each segment to more effectively execute our strategic plan. Eachof the Company’s schools is a reporting unit and an operating segment which have been determined based on a method by which we evaluate performanceand allocate resources. Our operating segments have been aggregated into two reportable segments because, in our judgment, the operating segments havesimilar services, types of customers, regulatory environment and economic characteristics. Our reportable segments are described below.Transportation and Skilled Trades – Transportation and Skilled Trades offers academic programs mainly in the career-oriented disciplines of transportationand skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).Transitional – Transitional refers to operations that are being phased out and consists of our campuses that are currently being taught out. These schools areemploying a gradual teach-out process that enables the schools to continue to operate while current students complete their course of study. These schoolsare no longer enrolling new students. During the year ended December 31, 2016 the Company had announced the closing of our Northeast Philadelphia,Pennsylvania; Center City, Pennsylvania; and West Palm Beach, Florida facilities. These schools are expected to be fully taught out on August 31, 2017,August 31, 2017, and September 30, 2017 respectively. In the first quarter of 2016 we had completed the teach-out of our Fern Park, Florida campus.We evaluate segment performance based on operating results. Adjustments to reconcile segment results to consolidated results are included under thecaption “Corporate,” which primarily includes unallocated corporate activity. 41IndexThe following table present results for our two reportable segments for the years ended December 31, 2016 and 2015: Twelve Months Ended December 31, 2016 2015 % Change Revenue: Transportation and Skilled Trades $177,882 $183,821 -3.2%Transitional 19,028 24,435 -22.1%Total $196,910 $208,256 -5.4% Operating Income (Loss): Transportation and Skilled Trades $21,278 $26,778 -20.5%Transitional (6,334) (1,689) -275.0%Corporate (20,107) (19,140) -5.1%Total $(5,163) $5,949 186.8% Starts: Transportation and Skilled Trades 7,626 7,794 -2.2%Transitional 838 1,227 -31.7%Total 8,464 9,021 -6.2% Average Population: Transportation and Skilled Trades 6,852 7,238 -5.3%Transitional 873 1,157 -24.5%Total 7,725 8,395 -8.0% End of Period Population: Transportation and Skilled Trades 6,700 6,617 1.3%Transitional 595 928 -35.9%Total 7,295 7,545 -3.3% Year Ended December 31, 2016 Compared to Year Ended December 31, 2015Transportation and Skilled TradesStudent start results decreased by 2.2% to 7,626 from 7,794 for the year ended December 31, 2016 as compared to the prior year. The decline in student startsis mainly the result of the underperformance of one campus. Excluding this campus student starts for the year would have grown 1.3% year over yearOperating income decreased by $5.5 million, or 20.5%, to $21.3 million from $26.8 million mainly driven by the following factors: ·Revenue decreased to $177.9 million for the year ended December 31, 2016, as compared to $183.8 million in the comparable period, primarilydriven by a 5.3% decrease in average student population, which decreased to approximately 6,900 from 7,200 in the prior comparable year. Thedecrease in average population was a result of starting 2016 with approximately 600 fewer students than we had on January 1, 2015. Therevenue decline from a lower population was slightly offset by a 2.2% increase in average revenue per student due to a shift in program mix.·Educational services and facilities expense increased by $1.9 million mainly due to a $2.0 million, or 5.9%, increase in facilities expenseprimarily due to (a) increased rent expense of $1.3 million which was the result of a modification of a lease at three of our campuses which werepreviously accounted for as finance obligations under which rent payments were previously included in interest expense; (b) $0.6 million inadditional depreciation expense resulting from the reclassification of one of our facilities out of held for sale as of December 31, 2015; and (c) a$1.5 million, or 17.4% increase in books and tools expenses resulting from the purchase of laptops provided to newly enrolled students incertain programs to enhance and expand their overall learning experience. Partially offsetting the above increases was a $1.6 million, or 4.1%,decrease in instructional expense as a result of realigning our cost structure to meet our population.·Selling, general and administrative expenses decreased by $0.5 million primarily as a result of a $1.6 million decrease in administrative andstudent services expense due to reduced salary and benefits. Partially offsetting the decrease was a $1.1 million increase in marketing expensewhich was largely the result of additional spending in a strategic effort to reach more potential students, expand brand awareness and increaseenrollments. 42Index·Loss on sale of asset decreased by $1.6 million as a result of a one-time charge in relation to one of our campuses that previously classified asheld for sale. During 2015 the company had reclassified this campus out of held for sale and recorded catch-up depreciation in the amount of$1.6 million.·Impairment of goodwill and long lived asset decreased by $0.2 million as a result of one-time charges in relation to one of our campuses duringthe year ended December 31, 2015.TransitionalThis segment consists of our Northeast Philadelphia, Pennsylvania; Center City, Pennsylvania; West Palm, Florida; and our Fern Park, Florida campuses. TheNortheast Philadelphia, Pennsylvania; Center City, Pennsylvania; West Palm, Florida are expected to be taught out in 2017. The Fern Park, Florida campushas fully taught out all of its existing students and was officially closed as of March 31, 2016.Revenue decreased by $5.4 million, or 22.1%, to $19.0 million as of December 31, 2016 from $24.4 million in the prior year period, primarily attributable tothe closure of the Fern Park, Florida campus in the first quarter of 2016 and the suspension of new student enrollments in 2016 relating to the Center City,Philadelphia, Pennsylvania; Northeast Philadelphia, Pennsylvania; and the West Palm Beach, Florida campuses.Operating loss increased by $4.6 million, or 275.0% to $6.3 million from $1.7 million primarily as a result of a non-cash impairment charge of $2.5 million in2016 coupled with a decrease in revenue due to a declining student population offset by minimized expenses including sales and marketing.Corporate and OtherThis category includes unallocated expenses incurred on behalf of the entire company. Corporate and Other costs increased by $1.0 million, or 5.1% to$20.1 million from $19.1 million, respectively, as compared to the prior year. This increase was primarily the result of a $1.4 million non-cash impairmentcharge in relation to one of our Corporate properties.The following table present results for our two reportable segments for the years ended December 31, 2015 and 2014. Year Ended December 31, 2015 2014 % Change Revenue: Transportation and Skilled Trades $183,821 $188,669 -2.6%Transitional 24,435 29,371 -16.8%Total $208,256 $218,040 -4.5% Operating Income (Loss): Transportation and Skilled Trades $26,778 $19,519 37.2%Transitional (1,689) (19,814) 91.5%Corporate (19,140) (23,364) 18.1%Total $5,949 $(23,659) 125.1% Starts: Transportation and Skilled Trades 7,794 8,289 -6.0%Transitional 1,227 1,661 -26.1%Total 9,021 9,950 -9.3% Average Population: Transportation and Skilled Trades 7,238 7,603 -4.8%Transitional 1,157 1,434 -19.3%Total 8,395 9,037 -7.1% End of Period Population: Transportation and Skilled Trades 6,617 7,210 -8.2%Transitional 928 1,270 -26.9%Total 7,545 8,480 -11.0% 43IndexYear Ended December 31, 2015 Compared to Year Ended December 31, 2014Transportation and Skilled TradesOperating income improved by $7.3 million, or 37.2%, to $26.8 million from $19.5 million driven by the following expense reductions:·Revenue decreased to $183.8 million for the year ended December 31, 2015, as compared to $188.7 million in the comparable period, primarilydriven by a 4.8% decline in average student population, which decreased to approximately 7,200 from 7,600 in the prior comparable year. Inaddition, we had fewer new starts of 495 which decreased our new student population to 7,794 for the year ended December 31, 2015 from 8,289for the year ended December 31, 2014. The revenue decline from lower population was slightly offset by a 2.3% increase in average revenue perstudent due to improved student retention and a shift in program mix. In addition, revenue was lower in 2015 due to higher scholarshiprecognition in comparison to 2014. Scholarships are recognized ratably over the term of the student’s program. Scholarship discounts increasedby $0.7 million for the year ended December 31, 2015 as compared to the prior year. While scholarships have negatively impacted revenue, webelieve we provide more students with the opportunity to pursue their educational goals by assisting in their affordability challenge·Educational services and facilities expense reduced by $6.5 million comprised of: (a) $3.7 million, or 9.8%, reduction in facilities expense,primarily due to lower depreciation expense as a result of discontinued depreciation for one campus included in assets held for sale and lowerasset base due to prior long-lived asset impairments; and (b) lower instructional expenses of $2.4 million, or 5.8%, and books and tools expenseof $0.4 million, or 4.7% as a result of lower student population.·Selling, general and administrative expenses reduced by $5.7 million comprised of: (a) $2.6 million, or 11.8%, reduction in sales expensesoffset by a $0.8 million, or 5.9%, increase in marketing. The decrease in sales expense was attributable to a reduction in the number ofadmissions representatives dedicated to the destination schools replaced with a centralized call center thus reducing travel costs and salaryexpense, while the marketing increase was a result of increased spending on production costs associated with our new marketing campaign as“Lincoln Tech, America’s Technical Institute”; (b) $1.1 million reduction in student services driven by lower student population; and (c) $2.8million, or 8.2%, reduction in administrative expenses primarily as a result of a reduction in bad debt expense. The improvement in bad debtexpense was mainly the result of improvement in current collections and collections history.·Gain on sale of assets increased by $1.6 million as a result of a non-cash charge in relation to one of our campuses that was previously classifiedas held for sale in 2014. During 2015 the Company had re-classified this campus out of held for sale and recorded catch-up depreciation in theamount of $1.6 million.·Impairment of goodwill and long-lived assets of $0.2 million compared to $1.7 million for the years ended December 31, 2015 and 2014,respectively.We continue to face several challenges in sustaining our population levels including DOE incentive compensation regulations that impact our compensationdecisions with respect to our admissions representatives, a low unemployment rate and increased competition from peers and community colleges. Weremain focused on our strategy to expand corporate training and form partnerships relationship to increase student population.TransitionalThis segment consists of our Northeast Philadelphia, Pennsylvania; Center City, Pennsylvania; West Palm, Florida; and our Fern Park, Florida campuses.Revenue decreased by $4.9 million, or 16.8%, to $24.4 million as of December 31, 2015 from $29.4 million in the comparable prior year period. Thisdecrease is primarily attributed to a 19.3% decrease in average student population due to suspension of new student enrollments at our Fern Park, Floridalocation effective February 2015.Operating loss decreased by $18.1 million, or 91.5%, to $1.7 million as of December 31, 2015 compared to $19.8 million in the comparable prior year periodprimarily as a result of a non-cash impairment charge of $20.2 million in 2014 coupled with a decrease in overall expenses as a result of ceased studentenrollments.Corporate and OtherThis category includes unallocated expenses incurred on behalf of the entire company. Corporate and Other costs decreased by $4.2 million, or 18.1%, to$19.1 million from $23.4 million, respectively, as compared to the prior year. This decrease was primarily a result of cost restructuring efforts during thesecond half of 2014. 44IndexLIQUIDITY AND CAPITAL RESOURCESOur primary capital requirements are for facilities expansion and maintenance, and the development of new programs. Our principal sources of liquidity havebeen cash provided by operating activities and borrowings under our term loan. The following chart summarizes the principal elements of our cash flow foreach of the three years in the period ended December 31, 2016: Year Ended December 31, 2016 2015 2014 (In thousands) Net cash (used in)provided by operating activities $(6,107) $14,337 $12,022 Net cash used in investing activities $(2,182) $(1,767) $(7,405)Net cash (used in) provided by financing activities $(9,067) $13,551 $(5,204)The Company had $47.7 million of cash, cash equivalents, and restricted cash at December 31, 2016 ($26.7 million of restricted cash at December 31, 2016)as compared to $61.0 million of cash, cash equivalents, and restricted cash as of December 31, 2015 ($22.6 million of restricted cash at December 31, 2015). This decrease is primarily the result of a net loss during the year ended December 31, 2016; $11.5 million of campus closing costs; $0.7 million loanmodification fee paid to the Company’s lender in connection with an amendment of a new term loan agreement resulting in more favorable covenants; and$0.7 million in severance paid during the year ended December 31, 2016.For the last several years, we and the proprietary school sector generally have faced deteriorating earnings growth. Government regulations have negativelyimpacted earnings by making it more difficult for prospective students to obtain loans, which when coupled with the overall economic environment havehindered prospective students from enrolling in our schools. In light of these factors, we have incurred significant operating losses as a result of lower studentpopulation. Despite these events, we believe that our likely sources of cash should be sufficient to fund operations for the next twelve months. At December31, 2016, our available sources of cash primarily included cash from operations, cash and cash equivalents of $21.1 million.To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures and principal and interest payments onborrowings, we leveraged our owned real estate that is not classified as held for sale. We are also continuing to take actions to improve cash flow by aligningour cost structure to our student population.In addition to the aforementioned current sources of capital that will provide short term liquidity, we also plan to sell approximately $13.2 million in netassets which are currently classified as assets held for sale and are expected to be sold within one year from the date of classification. The Companycontinues to actively market these schools and has offers which are under consideration. Some of the net proceeds of future sales of real property by theCompany and its subsidiaries must be used to prepay and permanently reduce the principal amount of our term loan.Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under variousgovernment-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The largest of theseprograms are Title IV Programs which represented approximately 79% of our cash receipts relating to revenues in 2016. Students must apply for a new loanfor each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV Programs and loan funds are generally provided bylenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student's academicyear 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 ofgrants and other funding are not subject to a 30-day delay. In certain instances, if a student withdraws from a program prior to a specified date, any paid butunearned tuition or prorated Title IV financial aid is refunded according to federal, state and accrediting agency standards.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 reductionin 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 significantimpact on our operations and our financial condition. See “Risk Factors” in Item 1A of this Annual Report on Form 10-K for the year ended December 31,2016.Operating ActivitiesNet cash used in operating activities was $6.1 million for the year ended December 31, 2016 compared to cash provided by operating activities of $14.3million for the comparable period of 2015. For the year ended December 31, 2016, changes in our operating assets and liabilities resulted in cash outflows of$20.6 million primarily attributable to changes in deferred revenue, accounts receivable, accounts payable and accrued expenses. The decrease in deferredrevenue resulted in a cash outflow of $6.9 million primarily attributable to the timing of student starts, the number of students in school and the status ofstudents in relation to the completion of their program at December 31, 2016 compared to December 31, 2015. The decrease in receivables resulted in a cashoutflow of $15.7 million primarily due to the timing of Title IV disbursements and other cash receipts on behalf of our students. The increase in accountspayable and accrued expenses resulted in a cash inflow of $1.9 million. This increase was primarily attributable to the timing of invoices. 45IndexInvesting Activities Net cash used in investing activities was $2.2 million compared to $1.8 million for the years ended December 31, 2016 and 2015, respectively. Our primaryuse of cash in investing activities was capital expenditures associated with investments in training technology classroom furniture, and new program buildouts. The use of cash for capital expenditures was partially offset by a reclassification of restricted cash to unrestricted cash during the year ended December31, 2016.We currently lease a majority of our campuses. We own our campuses in Grand Prairie, Texas; Nashville, Tennessee; West Palm Beach, Florida, Suffield,Connecticut; and Denver, Colorado. We have 13 campuses that are held for sale.Capital expenditures are expected to approximate 2% of revenues in 2017. We expect to fund future capital expenditures with cash generated from operatingactivities, our term loan agreement, and cash from our real estate monetization.Financing ActivitiesNet cash used in financing activities was $9.1 million as compared to net cash provided by financing activities of $13.6 million for the years ended December31, 2016 and 2015, respectively. The decrease of $22.7 million was primarily due to net borrowings of $22.0 million under our new term loan agreement forthe year ended December 31, 2015.Credit AgreementOn July 31, 2015, the Company entered into a credit agreement with three lenders, Alostar Bank of Commerce (“Alostar”), HPF Holdco, LLC and RushingCreek 4, LLC, led by HPF Service, LLC, as administrative agent and collateral agent (the “Agent”), for an aggregate principal amount of $45 million (the“Term Loan”). The July 31, 2015 credit agreement, along with subsequent amendments to the Credit Agreement dated December 31, 2015 and February 29,2016, are collectively referred to as the “Credit Agreement.” As of December 31, 2015 and prior to the effectiveness of a second amendment to the CreditAgreement on February 29, 2016 (the “Second Amendment”), the Term Loan consisted of a $30 million term loan (the “Term Loan A”) from HPF Holdco,LLC, Rushing Creek 4, LLC and Tiger Capital Group, LLC, secured by a first priority lien in favor of the Agent on substantially all of the real and personalproperty owned by the Company, and a $15 million term loan (the “Term Loan B”) from Alostar secured by a $15.3 million cash collateral account. Pursuantto the Second Amendment, the Company received an additional $5 million term loan from Alostar with which the Company repaid $5 million of theprincipal amount of the Term Loan A. Accordingly, upon the effectiveness of the Second Amendment, the aggregate term loans outstanding under the CreditAgreement were approximately $45 million, consisting of an approximate $25 million Term Loan A and a $20 million Term Loan B. In addition, pursuant tothe Second Amendment, the amount of cash collateral securing the Term Loan B was increased to $20.3 million. At the Company’s request, a percentage ofthe cash collateral may be released to the Company at the Agent’s sole discretion and with the consent of Alostar upon the satisfaction of certain criteria asoutlined in the Credit Agreement. The Term Loan, which matures on July 31, 2019, replaced a previously existing $20 million revolving credit facility withBank of America, N.A. and other lenders, which was due to expire on April 5, 2016.A portion of the proceeds of the Term Loan was used by the Company to (i) repay approximately $6.3 million in outstanding principal, accrued interest andfees due under the previously existing revolving credit facility, (ii) fund the $20.3 million cash collateral account securing the portion of the Term Loanprovided by Alostar, (iii) fund approximately $7.4 million in a cash collateral account securing the letters of credit issued under the previously existingrevolving credit facility that remain outstanding after the termination of that facility and (iv) pay transaction expenses in connection with the Term Loan andthe termination of the previously existing revolving credit facility. The remaining proceeds of the Term Loan of approximately $11.0 million may be usedby the Company to finance capital expenditures and for general corporate purposes consistent with the terms of the Credit Agreement.Interest will accrue on the Term Loan at a per annum rate equal to the greater of (i) 11% or (ii) 90-day LIBOR plus 9% determined monthly by the Agent andwill be payable monthly in arrears. The principal balance of the Term Loan will be repaid in equal monthly installments, commencing on August 1, 2017,determined as the quotient of (i) 10% of the outstanding principal balance of the Term Loan as of July 2, 2017 divided by (ii) 12. A final installment ofprincipal and all accrued and unpaid interest will be due on the maturity date of the Term Loan.The Term Loan may be prepaid, in whole or in part, at any time, subject to the payment of a prepayment premium equal to (i) 5% of the principal amountprepaid at any time up to but not including the second anniversary of the Closing Date and (ii) 3% of the principal amount prepaid at any time commencingon the second anniversary of the Closing Date up to but not including the third anniversary of the Closing Date. In the event of any sale or other dispositionof a school or real property by the Company permitted under the Term Loan, the net proceeds of such sale or disposition must be used to prepay the Loan inan amount determined pursuant to the Credit Agreement, subject to the applicable prepayment premium; provided, however, that no prepayment premiumwill be due with respect to up to $15 million of aggregate repayments of the Term Loan made during the first year that the Term Loan is outstanding. Aportion of the net cash proceeds of any disposition of a school in an amount determined pursuant to the terms of the Term Loan, must be deposited and heldas cash collateral in a deposit account controlled by the Agent until the conditions for release set forth in the Term Loan are satisfied. In connection with theassets which are currently classified as held for sale and are expected to be sold within one year, the Company is required to classify $10 million as short termdebt due to the Term Loan prepayment minimum required with respect to any such disposition. 46IndexThe Term Loan contains customary representations, warranties and covenants such as minimum financial responsibility composite score, cohort default rate,and other financial covenants, including minimum liquidity, maximum capital expenditures, maximum 90/10 ratio and minimum EBITDA (as defined in theTerm Loan), as well as affirmative and negative covenants and events of default customary for facilities of this type. Pursuant to the Second Amendment, thefinancial covenants were adjusted and, at the Company’s election, will be adjusted for fiscal year 2017 and for each subsequent fiscal year until the maturityof the Term Loan at either the levels applicable to fiscal year 2016 (and each fiscal quarter thereof) contained in the Credit Agreement as of the Closing Dateor the levels applicable to fiscal year 2016 (and each fiscal quarter thereof) contained in the Second Amendment. The Company elected to re-set the financialcovenants at the 2016 covenant levels contained in the Second Amendment and as required paid $4 million before January 15, 2017, without prepaymentpenalty. The Company was in compliance with all financial covenants as of December 31, 2016. In addition, in February 2017 the Company elected torepay $5 million of restricted cash without prepayment penalty.The Credit Agreement contains events of default, the occurrence and continuation of which provide the Company’s lenders with the right to exerciseremedies against the Company and the collateral securing the Term Loan, including the Company’s cash. These events of default include, among otherthings, the Company’s failure to pay any amounts due under the Term Loan, a breach of covenants under the Credit Agreement, the Company’s insolvencyand the insolvency of its subsidiaries, the occurrence of a material adverse event, the occurrence of any default under certain other indebtedness, and a finaljudgment against the Company in an amount greater than $1 million.Also, in connection with the Term Loan, the Company paid to the Agent a commitment fee of $1 million on the Closing Date and is required to pay to theAgent other customary fees for facilities of this type. Total fees for the Term Loan were $2.8 million during the fiscal year 2015, which are included indeferred finance charges on the Consolidated Balance Sheet. During the first quarter of 2016, in connection with the effectiveness of the SecondAmendment, the Company paid to the Agent a loan modification fee of $0.5 million.Letter of Credit AgreementOn April 12, 2016, the Company entered into a credit agreement (the “L/C Agreement”) with Sterling National Bank (“Sterling”) under which Sterling hasagreed to issue letters of credit from time to time at 100% margin against available funds in a cash collateral account maintained by the Company at Sterling. The maximum availability under the L/C Agreement is $9.5 million. The Company will pay Sterling a letter of credit fee equal to 1.75% on the daily amountavailable to be drawn under each outstanding letter of credit, which fee is payable in quarterly installments in arrears. The L/C Agreement matures on April 1,2017 and replaces a letter of credit facility with a prior lender. The L/C Agreement contains representations, warranties, affirmative and negative covenantsand events of default customary for facilities of this type. As of December 31, 2016, there were letters of credit in the aggregate principal amount of $6.1million outstanding under the L/C Agreement.Long-term debt and lease obligations consist of the following: As of December 31, 2016 2015 Term loan $44,267 $44,653 Finance obligation - 9,672 Capital lease-property (with a rate of 8.0%) - 3,899 Subtotal 44,267 58,224 Less current maturities (11,713) (10,114)Total long-term debt $32,554 $48,110 Climate ChangeClimate change has not had and is not expected to have a significant impact on our operations.Contractual ObligationsCurrent portion of Long-Term Debt, Long-Term Debt and Lease Commitments. As of December 31, 2016, our current portion of long-term debt and long-term debt consisted of borrowings under our Term Loan. We lease offices, educational facilities and various equipment for varying periods through the year2030 at basic annual rentals (excluding taxes, insurance, and other expenses under certain leases). 47IndexThe following table contains supplemental information regarding our total contractual obligations as of December 31, 2016: Payments Due by Period Total Less than1 year 1-3 years 3-5 years More than5 years Credit agreement (including interest) $53,887 $16,048 $37,839 $- $- Operating leases 97,206 21,428 35,653 19,641 20,484 Total contractual cash obligations $151,093 $37,476 $73,492 $19,641 $20,484 OFF-BALANCE SHEET ARRANGEMENTSWe had no off-balance sheet arrangements as of December 31, 2016, except for surety bonds. At December 31, 2016, we posted surety bonds in the totalamount of approximately $14.3 million. Cash collateralized letters of credit of $6.2 million are primarily comprised of letters of credit for DOE matters andsecurity deposits in connection with certain of our real estate leases. We are required to post surety bonds on behalf of our campuses and educationrepresentatives with multiple states to maintain authorization to conduct our business. These off-balance sheet arrangements do not adversely impact ourliquidity or capital resources.SEASONALITY AND OUTLOOKSeasonalityOur revenue 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 studentpopulations in our first and second quarters and we have experienced larger class starts in the third quarter and higher student attrition in the first half of theyear. Our second half growth is largely dependent on a successful high school recruiting season. We recruit our high school students several months ahead oftheir scheduled start dates, and thus, while we have visibility on the number of students who have expressed interest in attending our schools, we cannotpredict with certainty the actual number of new student enrollments and the related impact on revenue. Our expenses, however, typically do not varysignificantly over the course of the year with changes in our student population and revenue. During the first half of the year, we make significantinvestments in marketing, staff, programs and facilities to meet our second half of the year targets and, as a result, such expenses do not fluctuate significantlyon a quarterly basis. To the extent new student enrollments, and related revenue, in the second half of the year fall short of our estimates, our operating resultscould be negatively impacted. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns maychange as a result of new school openings, new program introductions, and increased enrollments of adult students and/or acquisitions.OutlookSimilar to many companies in the proprietary education sector, we have experienced significant deterioration in student enrollments over the last severalyears. This can be attributed to many factors including the economic environment and numerous regulatory changes such as changes to admissions advisorcompensation policies, elimination of the ability-to-benefit, changes to the 90/10 Rule and cohort default rates, gainful employment and modifications toTitle IV amounts and eligibility. While the industry has not returned to growth, declines have slowed indicating greater stability.As the economy continues to improve and the unemployment rate continues to decline our student enrollment is negatively impacted due to a portion of ourpotential student base entering the workforce prematurely without obtaining any post-secondary training. Offsetting this short term decline in availablestudents is the fact that an increasing number of the “baby boom” generation are retiring from the workforce. The retirement of baby boomers coupled with agrowing economy has resulted in additional employers looking to us to help solve their workforce needs. With schools in 15 states, we are a very attractiveemployment solution for large regional and national employers.To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures, principal and interest payments onborrowings and to satisfy the DOE financial responsibility standards, we have entered into a new Credit Agreement described above and continue to have theability to sell our assets that are classified as held for sale. We are also continuing to take actions to improve cash flow by aligning our cost structure to ourstudent population.On November 3, 2015, our Board of Directors approved a plan for us to divest our Healthcare and Other Professions business segment. Completion of theplan results in our operations focused solely on the Transportation and Skilled Trades business segment. As of December 31, 2016, the schools in thissegment are classified as discontinued operations and asset and liabilities classified as held for sale. 48IndexEffect of InflationInflation has not had and is not expected to have a significant impact on our operations.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to certain market risks as part of our on-going business operations. On July 31, 2015, the Company repaid in full and terminated a previouslyexisting revolving line of credit with the proceeds of a new $45 million Term Loan. Our obligations under the Term Loan are secured by a lien onsubstantially all of our assets and our subsidiaries and any assets that we or our subsidiaries may acquire in the future. Outstanding borrowings bear interest atthe rate of 11.0% as of December 31, 2016. As of December 31, 2016, we had $44.3 million outstanding under the Term Loan.Based on our outstanding debt balance as of December 31, 2016, a change of one percent in the interest rate would have caused a change in our interestexpense of approximately $0.4 million, or $0.02 per basic share, on an annual basis. Changes in interest rates could have an impact however on ouroperations, which are greatly dependent on students’ ability to obtain financing. Any increase in interest rates could greatly impact our ability to attractstudents and have an adverse impact on the results of our operations.ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATASee “Index to Consolidated Financial Statements” on page F-1 of this Annual Report on Form 10-K.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A.CONTROLS AND PROCEDURESEvaluation of disclosure controls and proceduresOur Chief Executive Officer and Chief Financial Officer, after evaluating, together with management, the effectiveness of our disclosure controls andprocedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of December 31, 2016 have concluded that our disclosure controls and procedures areeffective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Actof 1934, as amended is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange Commissions’ Rules andForms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.Internal Control Over Financial ReportingDuring the quarter ended December 31, 2016, there has been no change in our internal control over financial reporting that has materially affected, or isreasonably likely to materially affect, our internal control over financial reporting.Management’s Annual Report on Internal Control over Financial ReportingThe management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system was designed to provide reasonable assurance to the Company’smanagement and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles.Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016, based on the framework set forthby the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on itsassessment, management believes that, as of December 31, 2016, the Company’s internal control over financial reporting is effective.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. 49IndexThe Company’s independent auditors, Deloitte & Touche LLP, an independent registered public accounting firm, audited the Company’s internal controlover financial reporting as of December 31, 2016, as stated in their report included in this Form 10-K that follows.ITEM 9B.OTHER INFORMATIONNone.PART III.ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEDirectors and Executive OfficersThe information required by this item is incorporated herein by reference to our definitive Proxy Statement to be filed in connection with our 2017 AnnualMeeting of Shareholders.Code of EthicsWe have adopted a Code of Conduct and Ethics applicable to our directors, officers and employees and certain other persons, including our Chief ExecutiveOfficer and Chief Financial Officer. A copy of our Code of Ethics is available on our website at www.lincolnedu.com. If any amendments to or waivers fromthe Code of Conduct are made, we will disclose such amendments or waivers on our website.ITEM 11.EXECUTIVE COMPENSATIONInformation required by Item 11 of Part III is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2017 AnnualMeeting of Shareholders.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSInformation required by Item 12 of Part III is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2017 AnnualMeeting of Shareholders.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEInformation required by Item 13 of Part III is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2017 AnnualMeeting of Shareholders.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESInformation required by Item 14 of Part III is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2017 AnnualMeeting of Shareholders. 50IndexPART IV.ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULE1.Financial StatementsSee “Index to Consolidated Financial Statements” on page F-1 of this Annual Report on Form 10-K.2.Financial Statement ScheduleSee “Index to Consolidated Financial Statements” on page F-1 of this Annual Report on Form 10-K.3.Exhibits Required by Securities and Exchange Commission Regulation S-KExhibitNumberDescription 3.1Amended and Restated Certificate of Incorporation of the Company (1). 3.2By-laws of the Company (2). 4.1Management Stockholders Agreement, dated as of January 1, 2002, by and among Lincoln Technical Institute, Inc., Back to SchoolAcquisition, L.L.C. and the Stockholders and other holders of options under the Management Stock Option Plan listed therein (3). 4.2Assumption Agreement and First Amendment to Management Stockholders Agreement, dated as of December 20, 2007, by and amongLincoln Educational Services Corporation, Lincoln Technical Institute, Inc., Back to School Acquisition, L.L.C. and the ManagementInvestors parties therein (4). 4.3Registration Rights Agreement, dated as of June 27, 2005, between the Company and Back to School Acquisition, L.L.C. (2). 4.4Specimen Stock Certificate evidencing shares of common stock (5). 10.1Credit Agreement, dated as of July 31, 2015, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, theLenders and Collateral Agents party thereto, and HPF Service, LLC, as Administrative Agent (6). 10.2First Amendment to Credit Agreement, dated as of December 31, 2015, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, the Lenders and Collateral Agents party thereto, and HPF Service, LLC, as Administrative Agent (7). 10.3Second Amendment to Credit Agreement, dated as of February 29, 2016, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, the Lenders party thereto, and HPF Service, LLC, as Administrative Agent and Tranche A Collateral Agent (8). 10.4Credit Agreement, dated as of April 12, 2016, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (9). 10.5Purchase and Sale Agreement, dated as of July 1, 2016, between New England Institute of Technology at Palm Beach, Inc. and SchoolProperty Development Metrocentre, LLC (10). 10.6Separation and Release Agreement, dated as of May 5, 2015, between the Company and Shaun E. McAlmont (11). 10.7Employment Agreement, dated as of January 30, 2015, between the Company and Scott M. Shaw (12). 10.8Employment Agreement, dated as of August 31, 2015, between the Company and Scott M. Shaw (13). 10.9Employment Agreement, dated as of August 23, 2016, between the Company and Scott M. Shaw (14) 51Index10.10 Employment Agreement, dated as of June 2, 2014, between the Company and Kenneth M. Swisstack (15). 10.11 Amendment to Employment Agreement, dated as of March 12, 2015, between the Company and Kenneth M. Swisstack. (16) 10.12 Separation and Release Agreement, dated as of January 15, 2016, between the Company and Kenneth M. Swisstack (17). 10.13 Employment Agreement, dated as of March 12, 2015, between the Company and Brian K. Meyers (16). 10.14 Employment Agreement, dated as of August 23, 2016, between the Company and Brian K. Meyers (14). 10.15* Change in Control Agreement, dated August 31, 2016, between the Company and Deborah Ramentol. 10.16 Lincoln Educational Services Corporation Amended and Restated 2005 Long-Term Incentive Plan (18). 10.17 Lincoln Educational Services Corporation Amended and Restated 2005 Non-Employee Directors Restricted Stock Plan (19). 10.18 Lincoln Educational Services Corporation 2005 Deferred Compensation Plan (3). 10.19 Lincoln Technical Institute Management Stock Option Plan, effective January 1, 2002 (3). 10.20 Form of Stock Option Agreement, dated January 1, 2002, between Lincoln Technical Institute, Inc. and certain participants (3). 10.21 Form of Stock Option Agreement under our 2005 Long-Term Incentive Plan (20). 10.22 Form of Restricted Stock Agreement under our 2005 Long-Term Incentive Plan (21). 10.23 Form of Performance-Based Restricted Stock Award Agreement under our Amended & Restated 2005 Long-Term Incentive Plan (16). 10.24 Management Stock Subscription Agreement, dated January 1, 2002, among Lincoln Technical Institute, Inc. and certain managementinvestors (3). 21.1* Subsidiaries of the Company. 23* Consent of Independent Registered Public Accounting Firm. 24* Power of Attorney (included on the Signatures page of this Form 10-K). 31.1 * Certification of 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 Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 101** The following financial statements from Lincoln Educational Services Corporation’s Annual Report on Form 10-K for the year endedDecember 31, 2016, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) ConsolidatedStatements of Cash Flows, (iv) Consolidated Statements of Comprehensive (Loss) Income, (v) Consolidated Statement of Changes inStockholders’ Equity and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. (1)Incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005.(2)Incorporated by reference to the Company’s Form 8-K filed June 28, 2005. 52Index(3)Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-123644) filed March 29, 2005.(4)Incorporated by reference to the Company’s Registration Statement on Form S-3 (Registration No. 333-148406) filed December 28, 2007.(5)Incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 21, 2005.(6)Incorporated by reference to the Company’s Form 8-K filed August 5, 2015.(7)Incorporated by reference to the Company’s Form 8-K filed January 7, 2016.(8)Incorporated by reference to the Company’s Form 8-K filed March 4, 2016.(9)Incorporated by reference to the Company’s Form 8-K filed April 18, 2016.(10)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 9, 2016.(11)Incorporated by reference to the Company’s Form 8-K filed May 6, 2015.(12)Incorporated by reference to the Company’s Form 8-K filed February 5, 2015.(13)Incorporated by reference to the Company’s Form 8-K filed September 3, 2015.(14)Incorporated by reference to the Company’s Form 8-K filed August 25, 2016.(15)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 8, 2014.(16)Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2014.(17)Incorporated by reference to the Company’s Form 8-K filed January 22, 2016.(18)Incorporated by reference to the Company’s Form 8-K filed May 6, 2013.(19)Incorporated by reference to the Company’s Registration Statement on Form S-8 (Registration No. 333-211213) filed May 6, 2016.(20)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.(21)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.(22)Incorporated by reference to the Company’s Form 8-K filed May 5, 2011.*Filed herewith.**As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of1933 and Section 18 of the Securities Exchange Act of 1934 53IndexSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.Date: March 10, 2016 LINCOLN EDUCATIONAL SERVICES CORPORATION By:/s/ Brian Meyers Brian Meyers Executive Vice President, Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes and appoints Scott M. Shaw and Brian K. Meyers, and eachof them, as attorneys-in-fact and agents, with full power of substitution and re-substitution, for and in the name, place and stead of the undersigned, in anyand all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all other documentsin connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do andperform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersignedmight or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact or substitute or substitutes, may lawfully do or cause to bedone by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date /s/ Scott M. Shaw Chief Executive Officer and Director March 10, 2017Scott M. Shaw /s/ Brian K. Meyers Executive Vice President, Chief Financial Officer andTreasurer March 10, 2017Brian K. Meyers (Principal Accounting and Financial Officer) /s/ Alvin O. Austin Director March 10, 2017Alvin O. Austin /s/ Peter S. Burgess Director March 10, 2017Peter S. Burgess /s/ James J. Burke, Jr. Director March 10, 2017James J. Burke, Jr. /s/ Celia H. Currin Director March 10, 2017Celia H. Currin /s/ Ronald E. Harbour Director March 10, 2017Ronald E. Harbour /s/ J. Barry Morrow Director March 10, 2017J. Barry Morrow 54IndexINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page NumberReports of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 31, 2016 and 2015F-4Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014F-6Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2016, 2015 and 2014F-7Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2016, 2015 and 2014F-8Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014F-9Notes to Consolidated Financial StatementsF-11 Schedule II-Valuation and Qualifying AccountsF-34 F-1IndexREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofLincoln Educational Services CorporationWest Orange, New JerseyWe have audited the accompanying consolidated balance sheets of Lincoln Educational Services Corporation and subsidiaries (the "Company") as ofDecember 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders' equity, and cashflows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express anopinion on the financial statements and financial statement schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Lincoln Educational ServicesCorporation and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in theperiod ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, suchfinancial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal controlover financial reporting as of December 31, 2016, based on the criteria established in Internal Control— Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2017 expressed an unqualified opinion on theCompany's internal control over financial reporting./s/ DELOITTE & TOUCHE LLPParsippany, New JerseyMarch 10, 2017 F-2IndexREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofLincoln Educational Services CorporationWest Orange, New JerseyWe have audited the internal control over financial reporting of Lincoln Educational Services Corporation and subsidiaries (the "Company") as of December31, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessmentof the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over FinancialReporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principalfinancial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe company's assets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on thecriteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s consolidatedbalance sheet as of December 31, 2016 and the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders’ equity,cash flows and financial statement schedule for the year ended December 31, 2016, and our report dated March 10, 2017 expressed an unqualified opinion onthose consolidated financial statements and financial statement schedule./s/ DELOITTE & TOUCHE LLPParsippany, New JerseyMarch 10, 2017 F-3IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share amounts) December 31, 2016 2015 ASSETS CURRENT ASSETS: Cash and cash equivalents $21,064 $38,420 Restricted cash 6,399 7,362 Accounts receivable, less allowance of $9,887 and $9,787 at December 31, 2016 and 2015, respectively 10,294 10,410 Inventories 1,058 1,242 Prepaid income taxes and income taxes receivable 262 349 Assets held for sale 24,786 44,369 Prepaid expenses and other current assets 2,434 2,710 Total current assets 66,297 104,862 PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $124,192and $123,324 at December 31, 2016 and 2015, respectively 55,445 66,625 OTHER ASSETS: Noncurrent restricted cash 20,252 15,259 Noncurrent receivables, less allowance of $765 and $837 at December 31, 2016 and 2015, respectively 5,633 5,278 Goodwill 14,536 14,536 Other assets, net 1,044 1,190 Total other assets 41,465 36,263 TOTAL $163,207 $207,750 See notes to consolidated financial statements. F-4IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share amounts)(Continued) December 31, 2016 2015 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of term loan and credit agreement $11,713 $10,000 Current portion of capital lease obligations - 114 Unearned tuition 17,523 23,703 Accounts payable 13,748 12,863 Accrued expenses 12,815 11,209 Liabilities held for sale 11,578 12,332 Other short-term liabilities 653 686 Total current liabilities 68,030 70,907 NONCURRENT LIABILITIES: Long-term term loan 30,244 32,124 Long-term capital lease obligations - 3,785 Long-term finance obligation - 9,672 Pension plan liabilities 5,368 5,549 Accrued rent 3,896 4,716 Other long-term liabilities 743 - Total liabilities 108,281 126,753 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, no par value - 10,000,000 shares authorized, no shares issued and outstanding at December 31, 2016and 2015 - - Common stock, no par value - authorized 100,000,000 shares at December 31, 2016 and 2015, issued andoutstanding 30,685,017 shares at December 31, 2016 and 29,727,555 shares at December 31, 2015 141,377 141,377 Additional paid-in capital 28,554 27,292 Treasury stock at cost - 5,910,541 shares at December 31, 2016 and 2015 (82,860) (82,860)(Accumulated deficit) retained earnings (26,044) 2,260 Accumulated other comprehensive loss (6,101) (7,072)Total stockholders' equity 54,926 80,997 TOTAL $163,207 $207,750 See notes to consolidated financial statements. F-5IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts) Year Ended December 31, 2016 2015 2014 REVENUE $196,910 $208,256 $218,040 COSTS AND EXPENSES: Educational services and facilities 94,922 94,970 103,299 Selling, general and administrative 103,129 105,380 116,573 Loss (gain) on sale of assets 120 1,741 (58)Impairment of goodwill and long-lived assets 3,902 216 21,885 Total costs and expenses 202,073 202,307 241,699 OPERATING (LOSS) INCOME (5,163) 5,949 (23,659)OTHER: Interest income 155 52 62 Interest expense (6,001) (5,727) (3,431)Other income 6,711 109 - (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (4,298) 383 (27,028)PROVISION (BENEFIT) FOR INCOME TAXES 200 242 (1,479)(LOSS) INCOME FROM CONTINUING OPERATIONS (4,498) 141 (25,549)LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES (23,806) (3,491) (30,584)NET LOSS $(28,304) $(3,350) $(56,133)Basic (Loss) income per share from continuing operations $(0.19) $0.01 $(1.12)Loss per share from discontinued operations (1.02) (0.15) (1.34)Net loss per share $(1.21) $(0.14) $(2.46)Diluted (Loss) income per share from continuing operations $(0.19) $0.01 $(1.12)Loss per share from discontinued operations (1.02) (0.15) (1.34)Net loss per share $(1.21) $(0.14) $(2.46)Weighted average number of common shares outstanding: Basic 23,453 23,167 22,814 Diluted 23,453 23,227 22,814 See notes to consolidated financial statements F-6IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME(In thousands) December 31, 2016 2015 2014 Net loss $(28,304) $(3,350) $(56,133)Other comprehensive income (loss) Employee pension plan adjustments 971 395 (3,905)Comprehensive loss $(27,333) $(2,955) $(60,038)See notes to consolidated financial statements F-7IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(In thousands, except share amounts) Retained Accumulated Additional Earnings Other Common Stock Paid-in Treasury (Accumulated Comprehensive Shares Amount Capital Stock Deficit) Loss Total BALANCE - January 1, 2014 29,919,761 $141,377 $24,177 $(82,860) $66,064 $(3,562) $145,196 Net loss - - - - (56,133) - (56,133)Employee pension planadjustments - - - - - (3,905) (3,905)Stock-based compensationexpense Restricted stock 158,308 - 2,517 - - - 2,517 Stock options - - 104 - - - 104 Net share settlement for equity-based compensation (144,983) - (448) - - - (448)Cash dividend of $0.18 percommon share - - - - (4,321) - (4,321)BALANCE - December 31, 2014 29,933,086 141,377 26,350 (82,860) 5,610 (7,467) 83,010 Net loss - - - - (3,350) - (3,350)Employee pension planadjustments - - - - - 395 395 Stock-based compensationexpense Restricted stock (119,791) - 1,095 - - - 1,095 Stock options - - 33 - - - 33 Net share settlement for equity-based compensation (85,740) - (186) - - - (186)BALANCE - December 31, 2015 29,727,555 141,377 27,292 (82,860) 2,260 (7,072) 80,997 Net loss - - - - (28,304) - (28,304)Employee pension planadjustments - - - - - 971 971 Stock-based compensationexpense Restricted stock 1,029,267 - 1,440 - - - 1,440 Net share settlement for equity-based compensation (71,805) - (178) - - - (178)BALANCE - December 31, 2016 30,685,017 $141,377 $28,554 $(82,860) $(26,044) $(6,101) $54,926 See notes to consolidated financial statements. F-8IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2016 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(28,304) $(3,350) $(56,133)Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 11,066 14,506 19,338 Amortization of deferred finance costs 949 554 818 Deferred income taxes - - (4,528)Loss on disposition of assets 223 1,738 41 Gain on capital lease termination, net (6,710) (3,062) - Impairment of goodwill and long-lived assets 21,367 216 42,958 Fixed asset donation (123) (20) (92)Provision for doubtful accounts 14,592 13,583 15,500 Stock-based compensation expense 1,440 1,128 2,621 Deferred rent (489) (638) (740)(Increase) decrease in assets: Accounts receivable (15,700) (13,216) (14,470)Inventories 201 9 372 Prepaid income taxes and income taxes receivable 87 530 7,638 Prepaid expenses and current assets 412 444 (986)Other assets (1,701) (1,460) 231 Increase (decrease) in liabilities: Accounts payable 742 1,004 (2,732)Accrued expenses 1,195 (450) 3,806 Pension plan liabilities - - (271)Unearned tuition (6,854) 2,627 (1,190)Other liabilities 1,500 194 (159)Total adjustments 22,197 17,687 68,155 Net cash (used in) provided by operating activities (6,107) 14,337 12,022 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,596) (2,218) (7,472)Restricted cash 963 - - Proceeds from sale of property and equipment 451 451 67 Net cash used in investing activities (2,182) (1,767) (7,405)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings - 53,500 47,500 Payments on borrowings (387) (38,847) (72,000)Reclassifications of payments from borrowings to restricted cash - 30,000 24,500 Reclassifications of proceeds from borrowings to restricted cash (4,993) (22,621) - Payment of deferred finance fees (645) (2,823) - Net share settlement for equity-based compensation (178) (186) (448)Dividends paid - - (4,321)Payments under capital lease obligations (2,864) (5,472) (435)Net cash (used in) provided by financing activities (9,067) 13,551 (5,204)NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (17,356) 26,121 (587)CASH AND CASH EQUIVALENTS—Beginning of year 38,420 12,299 12,886 CASH AND CASH EQUIVALENTS—End of year $21,064 $38,420 $12,299 See notes to consolidated financial statements. F-9IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Continued)Year Ended December 31, 2016 2015 2014 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $5,265 $7,159 $4,597 Income taxes $150 $89 $145 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Liabilities accrued for or noncash purchases of fixed assets $2,048 $979 $1,613 See notes to consolidated financial statements. F-10IndexLINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016(In thousands, except share and per share amounts, schools, training sites, campuses and unless otherwise stated)1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBusiness Activities— Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable)provide diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company, which currently operates 28schools in 15 states, offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control andelectronic systems technology, among other programs), healthcare services (which include nursing, dental assistant, medical administrative assistant andpharmacy technician, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and businessand information technology (which includes information technology and criminal justice programs). The schools operate under Lincoln Technical Institute,Lincoln College of Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences andassociated brand names. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of thecampuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campusesprimarily attract students from their local communities and surrounding areas. All of the campuses are nationally or regionally accredited and are eligible toparticipate in federal financial aid programs by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accreditingcommissions which allow students to apply for and access federal student loans as well as other forms of financial aid.In the first quarter of 2015, we reorganized our operations into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare andOther Professions (“HOPS”), and (c) Transitional which refers to businesses that have been or are currently being taught out. In November 2015 the Board ofDirectors approved a plan for the Company to divest the schools included in the HOPS business segment. Divestiture of the Company’s HOPS businesssegment marks a strategic shift in business strategy that will enable us to focus energy and resources predominantly on the Transportation and Skilled Tradesbusiness segment. The Company continues to actively market the schools comprising the HOPS business segment and has offers which are underconsideration. The results of operations of the campuses included in the HOPS business segment are reflected as discontinued operations in the consolidatedfinancial statements.The following table lists the schools that are included in the HOPS and Transitional Segments and their status as of December 31, 2016 and 2015: Segment Status School 2015 2016 2015 2016 Allentown, PA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Edison, NJ HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Moorestown, NJ HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Paramus, NJ HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Lincoln, RI HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Brockton, MA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Somerville, MA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Lowell, MA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1New Britain, CT HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Shelton, CT HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Las Vegas (Summerlin), NV HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Southington, CT HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Marietta, GA HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Held for sale1Hartford, CT Transitional (Continuing Operations) HOPS (Discontinued Operations) Teach-out Closed2Henderson (Green Valley), NV HOPS (Discontinued Operations) HOPS (Discontinued Operations) Held for sale Closed3Center City Philadelphia, PA HOPS (Discontinued Operations) Transitional (Continuing Operations) Held for sale Teach-out4Northeast Philadelphia, PA HOPS (Discontinued Operations) Transitional (Continuing Operations) Held for sale Teach-out4West Palm Beach, FL HOPS (Discontinued Operations) Transitional (Continuing Operations) Held for sale Teach-out5Fern Park, FL Transitional (Continuing Operations) Transitional (Continuing Operations) Teach-out Closed61In November 2015, the Board of Directors approved a plan to divest these schools and thus they are included in discontinued operations as ofDecember 31, 2016 and 2015.2In November 2015, the Board of Directors approved a plan to divest this school. In December 2015, the Board of Directors approved a plan to ceaseoperations at this school. The school was included in the Transitional Segment and included in continuing operations until it closed in the fourthquarter of 2016; it is included in discontinued operations as of December 31, 2016. F-11Index3In November 2015, the Board of Directors approved a plan to divest this school. In the fourth quarter of 2016, the Board of Directors approved a planto cease operations at this school, which closed in the fourth quarter of 2016 and is included in discontinued operations as of December 31, 2016.4In November 2015, the Board of Directors approved a plan to divest these schools. In the fourth quarter of 2016, the Board of Directors approved aplan to cease operations at these schools which are being taught-out and expected to be closed in 2017. These schools are included in theTransitional segment and continuing operations as of December 31, 2016.5In November 2015, the Board of Directors approved a plan to divest this school. In the third quarter of 2016, the Board of Directors approved a planto teach–out certain programs at this school. Then, in the fourth quarter of 2016, the Board of Directors approved a plan to teach-out the remainderof the programs at this school. The school is expected to be closed in 2017. This school’s operations are included in the Transitional segment andcontinuing operations as of December 31, 2016. However, as part of this plan, the Board of Directors approved the divestiture of the properties forthis school and therefore the properties are included in held for sale as of December 31, 2016.6On February 27, 2015, our Board of Directors approved a plan to cease operations at this school, which was fully taught out and officially closed asof March 31, 2016 and is included in the Transitional segment and continuing operations as of December 31, 2016. The plan to teach out this schoolwas approved prior to the plan to exit the HOPS segment and as such does not meet the discontinued operations criteria.Liquidity—For the last several years, the Company and the proprietary school sector have faced deteriorating earnings. Government regulations havenegatively impacted earnings by making it more difficult for potential students to obtain loans, which, when coupled with the overall economicenvironment, have discouraged potential students from enrolling in post-secondary schools. In light of these factors, the Company has incurred significantoperating losses as a result of lower student population. Despite these events, the Company believes that its likely sources of cash should be sufficient to fundoperations for the next twelve months. At December 31, 2016, the Company’s sources of cash primarily included cash and cash equivalents of $47.7 million(of which $26.7 million is restricted). The Company is also continuing to take actions to improve cash flow by aligning its cost structure to its studentpopulation.In addition to the current sources of capital discussed above that provides short term liquidity, the Company plans to sell approximately $13.2 million inassets net of liabilities, which are currently classified as held for sale and are expected to be sold within one year from the date of classification in which up to$10 million will be required to pay down debt. The Company continues to actively market these schools and has offers which are under consideration.Principles of Consolidation—The accompanying consolidated financial statements include the accounts of Lincoln Educational Services Corporation andits wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.Revenue Recognition— Revenues are derived primarily from programs taught at the Company’s 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 as thestudent proceeds through the program, which is the period of time from a student’s start date through his or her graduation date, including internships orexternships that take place prior to graduation, and the Company completes the performance of teaching the student which entitles the Company to therevenue. Other revenues, such as tool sales and contract training revenues are recognized as services are performed or goods are delivered. On an individualstudent basis, tuition earned in excess of cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded asunearned tuition. Refunds are calculated and paid in accordance with federal, state and accrediting agency standards.The Company evaluates whether collectability of revenue is reasonably assured prior to the student attending class and reassesses collectability of tuitionand fees when a student withdraws from a course. The Company calculates the amount to be returned under Title IV and its stated refund policy to determineeligible charges and, if there is a balance due from the student after this calculation, the Company expect payment from the student and the Company has aprocess to pursue uncollected accounts whereby, based upon the student’s financial means and ability to pay, a payment plan is established with the studentto ensure that collectability is reasonable. The Company continuously monitors its historical collections to identify potential trends that may impact ourdetermination that collectability of receivables for withdrawn students is realizable. If a student withdraws from a program prior to a specified date, any paidbut unearned tuition is refunded. Refunds are calculated and paid in accordance with federal, state and accrediting agency standards. Generally, the amountto be refunded to a student is calculated based upon the period of time the student has attended classes and the amount of tuition and fees paid by the studentas of his or her withdrawal date. These refunds typically reduce deferred tuition revenue and cash on our consolidated balance sheets as the Companygenerally does not recognize tuition revenue in its consolidated statements of income (loss) until the related refund provisions have lapsed. Based on theapplication of its refund policies, the Company may be entitled to incremental revenue on the day the student withdraws from one of its schools. Prior to theyear-ended December 31, 2015, the Company recorded this incremental revenue, any related student receivable and any estimate of the amount it did notexpect to collect as bad debt expense during the quarter a student withdrew based on its analysis of the collectability of such amounts on an aggregatestudent portfolio basis, for which the Company had significant historical experience. Beginning in October 2015, the Company recorded revenue for studentswho withdraw from one of its schools when payment is received because collectability on an individual student basis is not reasonably assured. TheCompany determined incremental revenue recognized for students who withdrew during the nine-months ended September 30, 2015 to be an immaterial errorwhich was corrected during the fourth quarter of 2015. This resulted in a reduction of net revenues by $0.3 million and bad debt expense by $0.2 million,which resulted in an increase to the loss from continuing operations of $0.1 million for the year ended December 31, 2015. Additionally, this correctionreduced net student receivables from continuing operations by $0.1 million. Prior year amounts, including quarterly financial results were not restatedbecause the effects were not material. F-12IndexCash and Cash Equivalents—Cash and cash equivalents include all cash balances and highly liquid short-term investments, which contain originalmaturities within three months of purchase. Pursuant to the Department of Education’s cash management requirements, the Company retains funds fromfinancial aid programs under Title IV of the Higher Education Act in segregated cash management accounts. The segregated accounts do not require arestriction on use of the cash and, as such, these amounts are classified as cash and cash equivalents on the consolidated balance sheet.Restricted Cash—Restricted cash consists of deposits maintained at financial institutions under a cash collateralized agreement under the Company’s creditagreement and cash collateralized for letters of credit. $20.3 million of restricted cash is included in long-term assets on the consolidated balance sheet as therestriction is greater than one year. Refer to Note 8 for more information on the Company’s term loan.Accounts Receivable—The Company reports accounts receivable at net realizable value, which is equal to the gross receivable less an estimated allowancefor uncollectible accounts. Noncurrent accounts receivable represent amounts due from graduates in excess of 12 months from the balance sheet date.Allowance for uncollectible accounts—Based upon experience and judgment, an allowance is established for uncollectible accounts with respect to tuitionreceivables. In establishing the allowance for uncollectible accounts, the Company considers, among other things, current and expected economicconditions, a student's status (in-school or out-of-school), whether or not a student is currently making payments, and overall collection history. Changes intrends in any of these areas may impact the allowance for uncollectible accounts. The receivables balances of withdrawn students with delinquent obligationsare reserved for based on our collection history.Inventories—Inventories consist mainly of textbooks, computers, tools and supplies. Inventories are valued at the lower of cost or market on a first-in, first-out basis.Property, Equipment and Facilities—Depreciation and Amortization—Property, equipment and facilities are stated at cost. Major renewals andimprovements are capitalized, while repairs and maintenance are expensed when incurred. Upon the retirement, sale or other disposition of assets, costs andrelated accumulated depreciation are eliminated from the accounts and any gain or loss is reflected in operating (loss) income. For financial statementpurposes, depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, and amortizationof leasehold improvements is computed over the lesser of the term of the lease or its estimated useful life.Rent Expense—Rent expense related to operating leases where scheduled rent increases exist, is determined by expensing the total amount of rent due overthe life of the operating lease on a straight-line basis. The difference between the rent paid under the terms of the lease and the rent expensed on a straight-line basis is included in accrued rent and other long-term liabilities on the accompanying consolidated balance sheets.Advertising Costs—Costs related to advertising are expensed as incurred and approximated $18.2 million, $17.9 million and $18.0 million from continuingoperations for the years ended December 31, 2016, 2015 and 2014, respectively. These amounts are included in selling, general and administrative expensesin the consolidated statements of operations.Goodwill and Other Intangible Assets— The Company tests its goodwill for impairment annually, or whenever events or changes in circumstances indicatean impairment may have occurred, by comparing its reporting unit’s carrying value to its implied fair 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, reductions in marketvalue of the Company, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If the Company determinesthat an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the periodthe determination is made. In evaluating the recoverability of the carrying value of goodwill and other indefinite-lived intangible assets, the Company mustmake assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or marketconditions could significantly impact these judgments in the future and require an adjustment to the recorded balances.At December 31, 2016, the Company conducted its annual test for goodwill impairment and determined it did not have an impairment for continuingoperations. The fair value of the Company’s reporting units were determined using Level 3 inputs included in its multiple of earnings and discounted cashflow approach. Our disposal group assets held for sale are required to be measured at the lower of carrying value or fair value less cost to sell. As a result of theconsideration of offers received on our disposal group assets held for sale, we concluded that an pre-tax non-cash impairment charge of $9.9 million wasrequired for our goodwill and intangible assets relating to this group ($9.9 million was included in discontinued operations).At December 31, 2016, the Company conducted its annual test for goodwill impairment and determined it did not have an impairment. The fair value of theCompany’s reporting units were determined using Level 3 inputs included in its multiple of earnings and discounted cash flow approach.At December 31, 2015, the Company conducted its annual test for goodwill impairment and determined it did not have an impairment. The fair value of theCompany’s reporting units were determined using Level 3 inputs included in its multiple of earnings and discounted cash flow approach. The Companyconcluded that as of September 30, 2015 there was an indicator of potential impairment as a result of a decrease in market capitalization and, accordingly, theCompany tested goodwill for impairment. The test indicated that one of the Company’s reporting units was impaired, which resulted in a pre-tax non-cashcharge of $0.2 million ($0.2 million of which is included in the transportation and skilled trades segment) for the three months ended September 30, 2015. F-13IndexAt December 31, 2014, the Company conducted its annual test for goodwill impairment and determined it did not have an impairment. The fair value of theCompany’s reporting units were determined using Level 3 inputs included in its multiple of earnings and discounted cash flow approach. The Companyconcluded that as of September 30, 2014 there was an indicator of potential impairment as a result of a decrease in market capitalization and, accordingly, theCompany tested goodwill for impairment. The test indicated that ten of the Company’s reporting units were impaired, which resulted in a pre-tax non-cashcharge of $39.0 million for the three months ended September 30, 2014 ($0.2 million and $38.8 million of which is included in the transportation and skilledtrades segment and discontinued operations, respectively).Impairment of Long-Lived Assets—The Company reviews the carrying value of its long-lived assets and identifiable intangibles for possible impairmentwhenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company evaluates long-lived assets forimpairment by examining estimated future cash flows using Level 3 inputs. These cash flows are evaluated by using weighted probability techniques as wellas comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If the Company determinesthat an asset’s carrying value is impaired, it will record a write-down of the carrying value of the asset and charge the impairment as an operating expense inthe period in which the determination is made.The Company concluded that, for the three months ended December 31, 2016, there was sufficient evidence to conclude that there was an impairment ofcertain long-lived assets at two of the Company’s campuses for continuing operations. The long-lived assets impairment resulted in a pre-tax charge of $3.9million for land and buildings. Our disposal group assets held for sale are required to be measured at the lower of carrying value or fair value less cost to sell.As a result of the consideration of offers received on our disposal group assets held for sale, we concluded that an impairment charge of $7.6 million wasrequired for our long-lived assets relating to this group ($7.6 million was included in discontinued operations).The Company concluded that for the three months ended December 31, 2015, there was no long-lived asset impairment. Long-lived assets were tested at thecampuses as a result of classifying assets held for sale and certain financial indicators such as the Company’s history of losses, current respective periodlosses, as well as future projected losses at these campuses.The Company concluded that for the three months ended December 31, 2014 and September 30, 2014, there was sufficient evidence to conclude that therewas an impairment of certain long-lived assets at one and six of the Company’s campuses, respectively. Long-lived assets had been tested at these campusesas a result of certain financial indicators such as the Company’s history of losses, current respective period losses, as well as future projected losses at thesecampuses. The long-lived assets impairment resulted in a pre-tax charge of $1.5 million for leasehold improvements ($1.5 million included in theTransportation and Skilled Trades segment) as of December 31, 2014 and $1.9 million for leasehold improvements ($1.5 million and $0.4 million included inthe transitional segment and discontinued operations, respectively) and $0.5 million ($0.5 million included in discontinued operations) for intangible assetsas of September 30, 2014.Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporarycash investments. The Company places its cash and cash equivalents with high credit quality financial institutions. The Company's cash balances withfinancial institutions typically exceed the Federal Deposit Insurance limit of $0.25 million. The Company's cash balances on deposit at December 31, 2016,exceeded the balance insured by the FDIC Corporation (“FDIC”) by approximately $46.3 million. The Company has not experienced any losses to date on itsinvested cash.The Company extends credit for tuition and fees to many of its students. The credit risk with respect to these accounts receivable is mitigated through thestudents' participation in federally funded financial aid programs unless students withdraw prior to the receipt of federal funds for those students. In addition,the remaining tuition receivables are primarily comprised of smaller individual amounts due from students.With respect to student receivables, the Company had no significant concentrations of credit risk as of December 31, 2016 and 2015.Use of Estimates in the Preparation of Financial Statements—The preparation of financial statements in conformity with generally accepted accountingprinciples in the United States (“GAAP’) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expensesduring the period. On an ongoing basis, the Company evaluates the estimates and assumptions, including those related to revenue recognition, bad debts,impairments, fixed assets, income taxes, benefit plans and certain accruals. Actual results could differ from those estimates.Stock-Based Compensation Plans—The Company measures the value of stock options on the grant date at fair value, using the Black-Scholes optionvaluation model. The Company amortizes the fair value of stock options, net of estimated forfeitures, utilizing straight-line amortization of compensationexpense over the requisite service period of the grant.The Company measures the value of service and performance-based restricted stock on the fair value of a share of common stock on the date of the grant. TheCompany amortizes the fair value of service based restricted stock utilizing straight-line amortization of compensation expense over the requisite serviceperiod of the grant. F-14IndexThe Company amortizes the fair value of the performance-based restricted stock based on determination of the probable outcome of the performancecondition. If the performance condition is expected to be met, then the Company amortizes the fair value of the number of shares expected to vest utilizingstraight-line basis over the requisite performance period of the grant. However, if the associated performance condition is not expected to be met, then theCompany does not recognize the stock-based compensation expense.Income Taxes—The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 740, “IncomeTaxes” (“ASC 740”). This statement requires an asset and a liability approach for measuring deferred taxes based on temporary differences between thefinancial statement and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected tobe paid or recovered.In accordance with ASC 740, the Company assesses our deferred tax asset to determine whether all or any portion of the asset is more likely than notunrealizable. A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not thatall or a portion of a deferred tax asset will not be realized. In accordance with ASC 740, our assessment considers whether there has been sufficient income inrecent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferredincome tax assets, the Company considered, among other things, historical levels of income, expected future income, the expected timing of the reversals ofexisting temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of futureincome tax benefits. Significant judgment is required in determining the future tax consequences of events that have been recognized in our consolidatedfinancial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impacton the Company’s consolidated financial position or results of operations. Changes in, among other things, income tax legislation, statutory income tax rates,or future income levels could materially impact the Company’s valuation of income tax assets and liabilities and could cause our income tax provision tovary significantly among financial reporting periods.The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31,2016 and 2015, the interest and penalties expense associated with uncertain tax positions are not significant to the Company’s results of operations orfinancial position.Start-up Costs—Costs related to the start of new campuses are expensed as incurred.Reclassification—During the year ended December 31, 2016, the Board of Directors approved a plan for the Company to teach-out the West Palm Beach,Florida, Center City Philadelphia, Pennsylvania, and Northeast Philadelphia, Pennsylvania, campuses which are included in the Transitional segment. Inaddition, during the year ended December 31, 2016, the Henderson (Green Valley), Nevada and Hartford, Connecticut campuses closed and are included indiscontinued operations. In 2016, the Company reclassified related held for sale amounts reflected in the 2015 Consolidated Balance Sheet and discontinuedoperations in Consolidated Statements of Operations.New Accounting Pronouncements In January 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, "Simplifying the Testfor Goodwill Impairment" ("ASU 2017-04"). ASU 2017-04 provides amendments to ASC No. 350, "Intangibles - Goodwill and Other" ("ASC 350"), whicheliminate Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unitwith its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. Theamendments in this update are effective prospectively during interim and annual periods beginning after December 15, 2019, with early adoption permitted.The Company is currently assessing the impact of this update on the Company’s Consolidated Financial Statements. The FASB has recently issued several amendments to the new standard on revenue recognition, ASU No. 2014-09, Revenue from Contracts with Customers.The amendments include ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606)—Principal versus Agent Considerations, which was issuedin March 2016, and clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09, and ASU No. 2016-10, Revenue fromContracts with Customers (Topic 606)—Identifying Performance Obligations and Licensing, which was issued in April 2016, and amends the guidance inASU No. 2014-09 related to identifying performance obligations.The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modifiedretrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certainadditional disclosures. The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted forannual reporting periods beginning after December 15, 2016. We do not plan to early adopt, and accordingly, we will adopt the new standard effectiveJanuary 1, 2018.We currently plan to adopt using the modified retrospective approach. However, a final decision regarding the adoption method has not been finalized at thistime. Our final determination will depend on a number of factors, such as the significance of the impact of the new standard on our financial results, systemreadiness, including that of software procured from third-party providers, and our ability to accumulate and analyze the information necessary to assess theimpact on prior period financial statements, as necessary.We are in the initial stages of our evaluation of the impact of the new standard on our accounting policies, processes, and system requirements. We haveassigned internal resources to assist in the evaluation. Furthermore, we have made and will continue to make investments in systems to enable timely andaccurate reporting under the new standard. While we continue to assess all potential impacts under the new standard, there is the potential for significantimpacts to the timing of recognition of revenue.While we continue to assess the potential impacts of the new standard and this standard could have a material impact on our consolidated financialstatements, we do not know or cannot reasonably estimate quantitative information related to the impact of the new standard on our financial statements atthis time. F-15IndexIn November 2016, the FASB issued ASU No. 2016-18: “Statement of Cash Flows (Topic 230): Restricted Cash.” This guidance was issued to address thediversity that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments will require that thestatement of cash flows explain the change during the period in total cash, cash equivalents and restricted cash. The amendments are effective for financialstatements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments will be applied using aretrospective transition method to each period presented. The Company anticipates that the adoption will not have a significant impact on the Company’sConsolidated Financial Statements.In August 2016, FASB issued ASU No. 2016-15: “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” toaddress eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments are effective for financial statementsissued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company anticipates that the adoption will nothave a significant impact on the Company’s Consolidated Financial Statements.In February 2016, the FASB issued guidance requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for substantially allleases, with the exception of short-term leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expenserecognition in the statement of income. The guidance is effective for annual periods, including interim periods within those periods, beginning afterDecember 15, 2018, with early adoption permitted. We are currently evaluating the impact that the update will have on our results of operations, financialcondition and financial statement disclosures.In November 2015, the FASB issued guidance which simplifies the balance sheet classification of deferred taxes requiring that all deferred tax assets andliabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This guidance is effective for public business entitiesfor annual periods, and for interim periods within those periods, beginning after December 15, 2016 with early adoption permitted. The Company earlyadopted as of December 31, 2015. While the guidance does have an impact on our balance sheet classification, it does not have a material impact on ourresults of operations, financial condition or the financial statement disclosures.In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern that requiresmanagement to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnotedisclosures in certain circumstances. According to the standard, substantial doubt about an entity’s ability to continue as a going concern exists if it isprobable that the entity will be unable to meet its obligations as they become due within one year after the date the entity’s financial statements are issued. Inorder to determine the specific disclosures, if any, that would be required, management will need to assess if substantial doubt exists, and, if so, whether itsplans will alleviate such substantial doubt. The standard requires assessment each annual and interim period and became effective for the Company onDecember 31, 2016.2.FINANCIAL AID AND REGULATORY COMPLIANCEFinancial AidThe Company’s schools and students participate in a variety of government-sponsored financial aid programs that assist students in paying the cost of theireducation. The largest source of such support is the federal programs of student financial assistance under Title IV of the Higher Education Act of 1965, asamended, commonly referred to as the Title IV Programs, which are administered by the U.S. Department of Education (the "DOE"). During the years endedDecember 31, 2016, 2015 and 2014, approximately 79%, 80% and 80% respectively, of net revenues on a cash basis were indirectly derived from fundsdistributed under Title IV Programs.For the years ended December 31, 2016, 2015 and 2014, the Company calculated that no individual DOE reporting entity received more than 90% of itsrevenue, determined on a cash basis under DOE regulations, from the Title IV Program funds. The Company’s calculations may be subject to review by theDOE. Under DOE regulations, a proprietary institution that derives more than 90% of its total revenue from the Title IV Programs for two consecutive fiscalyears becomes immediately ineligible to participate in the Title IV Programs and may not reapply for eligibility until the end of two fiscal years. Aninstitution with revenues exceeding 90% for a single fiscal year, will be placed on provisional certification and may be subject to other enforcementmeasures. If one of the Company’s institutions violated the 90/10 Rule and became ineligible to participate in Title IV Programs but continued to disburseTitle IV Program funds, the DOE would require the institution to repay all Title IV Program funds received by the institution after the effective date of the lossof eligibility.Regulatory ComplianceTo participate in Title IV Programs, a school must be authorized to offer its programs of instruction by relevant state education agencies, be accredited by anaccrediting commission recognized by the DOE and be certified as an eligible institution by the DOE. For this reason, the schools are subject to extensiveregulatory requirements imposed by all of these entities. After the schools receive the required certifications by the appropriate entities, the schools mustdemonstrate their compliance with the DOE regulations of the Title IV Programs on an ongoing basis. Included in these regulations is the requirement thatthe Company must satisfy specific standards of financial responsibility. The DOE evaluates institutions for compliance with these standards each year, basedupon the institution’s annual audited financial statements, as well as following a change in ownership resulting in a change of control of the institution. TheDOE calculates the institution's composite score for financial responsibility based on its (i) equity ratio, which measures the institution's capital resources,ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution's ability to support current operations from expendableresources; and (iii) net income ratio, which measures the institution's ability to operate at a profit. This composite score can range from -1 to +3. F-16IndexThe composite score must be at least 1.5 for the institution to be deemed financially responsible without the need for further oversight. If an institution’scomposite score is below 1.5, but is at least 1.0, it is in a category denominated by the DOE as “the zone.” Under the DOE regulations, institutions that are inthe zone typically may be permitted by the DOE to continue to participate in the title IV programs by choosing one of two alternatives: 1) the “ZoneAlternative” under which we are required to make disbursements to students under the Heightened Cash Monitoring 1 (HCM1) payment method and tonotify the DOE within 10 days after the occurrence of certain oversight and financial events or 2) submit a letter of credit to the DOE in an amountdetermined by the DOE and equal to at least 50 percent of the Title IV funds received by our institutions during the most recent fiscal year. Under the HCM1payment method, the institution is required to make Title IV disbursements to eligible students and parents before it requests or receives funds for the amountof those disbursements from the DOE. As long as the student accounts are credited before the funding requests are initiated, we are permitted to draw downfunds through the DOE’s electronic system for grants management and payments for the amount of disbursements made to eligible students. Unlike theHeightened Cash Monitoring 2 (HCM2) and reimbursement payment methods, the HCM1 payment method typically does not require schools to submitdocumentation to the DOE and wait for DOE approval before drawing down Title IV funds. If a Company’s composite score is below 1.5 for three consecutiveyears a Company may be able to continue to operate under the Zone Alternative; however, this determination is made solely by the DOE. If a Company’scomposite score drops below 1.0 in a given year or if its composite score remains between 1.0 and 1.4 for three or more consecutive years, it may be requiredto meet alternative requirements for continuing to participate in Title IV programs by submitting a letter of credit, complying with monitoring requirements,disbursing Title IV funds under the HCM1, HCM2, or reimbursement payment methods, and complying with other requirements and conditions. EffectiveJuly 1, 2016, a school under HCM1, HCM2 or reimbursement payment methods must also pay any credit balances due to a student before drawing downfunds for the amount of those disbursements from the DOE, even if the student or parent provide written authorization for the school to hold the creditbalance. The DOE permits an institution to participate under the “Zone Alternative” for a period of up to three consecutive fiscal years; however, thisdetermination is made solely by the DOE. If an institution’s composite score is between 1.0 and 1.4 after three or more consecutive years with a compositescore below 1.5, it may be required to meet alternative requirements for continuing to participate in Title IV programs by submitting a letter of credit,complying with monitoring requirements, disbursing Title IV funds under the HCM1, HCM2, or reimbursement payment methods, and complying with otherrequirements and conditions.If an institution's composite score is below 1.0, the institution is considered by the DOE to lack financial responsibility. If the DOE determines that aninstitution does not satisfy the DOE's financial responsibility standards, depending on its composite score and other factors, that institution may establish itsfinancial responsibility on an alternative basis by, among other things:·Posting a letter of credit in an amount determined by the DOE equal to at least 50% of the total Title IV Program funds received by the institutionduring the institution's most recently completed fiscal year;·Posting a letter of credit in an amount determined by the DOE equal to at least 10% of such prior year's Title IV Program funds, acceptingprovisional certification, complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under anarrangement other than the DOE's standard advance funding arrangement.For the 2016 fiscal year, the Company calculated its composite score to be 1.5. The score is subject to determination by the DOE once it receives and reviewsthe Company’s audited financial statements for the 2016 fiscal year. The DOE has evaluated the financial responsibility of our institutions on a consolidatedbasis. The Company has submitted to the DOE our audited financial statements for the 2015 and 2014 fiscal year reflecting a composite score of 1.9 and 1.3,respectively, based upon its calculations.3.WEIGHTED AVERAGE COMMON SHARESThe weighted average number of common shares used to compute basic and diluted income per share for the years ended December 31, 2016, 2015 and 2014,respectively were as follows: Year Ended December 31, 2016 2015 2014 Basic shares outstanding 23,453,427 23,166,977 22,814,105 Dilutive effect of stock options - 60,161 - Diluted shares outstanding 23,453,427 23,227,138 22,814,105 For the year ended December 31, 2016 and 2014, options to acquire 773,078; and 119,722 shares were excluded from the above table because the Companyreported a net loss for the year and therefore their impact on reported loss per share would have been antidilutive. For the years ended December 31, 2016,2015 and 2014, options to acquire 218,167; 391,935; and 795,985 shares; respectively, were excluded from the above table because they have an exerciseprice that is greater than the average market price of the Company’s common stock and therefore their impact on reported (loss) earnings per share wouldhave been antidilutive.In 2014 and 2013, the Company issued certain members of management performance shares that vest when certain performance conditions are met. As ofDecember 31, 2016, 2015 and 2014 none of these performance conditions were met. Accordingly, 73,827; 152,837; and 360,402 shares of outstandingperformance shares have been excluded from the computation of diluted earnings per share for the year ended December 31, 2016, 2015 and 2014,respectively. Refer to Note 9 for more information on performance shares. F-17Index4.DISCONTINUED OPERATIONS2016/2015In November 2015, the Board of Directors approved a plan for the Company to divest the schools included in the Healthcare and Other Professions businesssegment. In December 2015, the Board of Directors approved a plan to cease operations of the school in this segment located in Hartford, Connecticut whichclosed in the fourth quarter of 2016 and is included in discontinued operations. In addition, in the fourth quarter of 2016, the Board of Directors approved aplan to cease operations at our schools in Henderson (Green Valley), Nevada, Center City Philadelphia, Pennsylvania, Northeast Philadelphia, Pennsylvaniaand West Palm Beach, Florida. The Henderson, Nevada campus also closed in the fourth quarter of 2016 and is included in discontinued operations.Divestiture of the Company’s Healthcare and Other Professions business segment marks a strategic shift in business strategy that will enable us to focusenergy and resources predominantly on Transportation and Skilled Trades segment. The results of operations of the 15 campuses included in Healthcare andOther Professions business segment are reflected as discontinued operations in the consolidated financial statements. The Center City Philadelphia,Pennsylvania, Northeast Philadelphia, Pennsylvania and West Palm Beach, Florida campuses, which were previously included in the Healthcare and OtherProfessions segment are now included in the Transitional segment and included in continuing operations. Completion of the plan would result in theCompany’s operations focused solely on the Transportation and Skilled Trades segment.The results of operations at these campuses for the three year periods ended December 31, 2016 were as follows (in thousands): Year Ended December 31, 2016 2015 2014 Revenue $88,649 $97,846 $106,982 Loss before income tax (6,341) (3,491) (26,684)Income tax benefit - - (2,746)Net loss from discontinued operations $(6,341) $(3,491) $(23,938)Amounts include impairments of goodwill and long-lived assets for these campuses of $17.5 million and $19.0 million for the year ended December 31, 2016and 2014, respectively.2014In December 2014, the Company’s Board of Directors approved a plan to cease operations at five training sites in Florida. The Company performed a costbenefit analysis on several schools and concluded that the training sites contained a high fixed cost component and have had difficulty attracting enoughstudents due to high competition to maintain a stable profit margin. Accordingly, the Company ceased operations at these campuses as of December 31,2014. This was a strategic shift to close all of the Company’s training sites and all locations that do not accept Title IV payments. The results of operations ofthese campuses are reflected as discontinued operations in the consolidated financial statements.The results of operations at these five training sites for the two year periods ended December 31, 2014 were as follows (in thousands): Year Ended December 31, 2014 Revenue $2,140 Loss before income tax (6,731)Income tax benefit (85)Net loss from discontinued operations $(6,646)Amounts include impairments of goodwill and long-lived assets for these campuses of $2.1 million for the year ended December 31, 2014. F-18Index5.GOODWILL AND OTHER INTANGIBLESChanges in the carrying amount of goodwill during the years ended December 31, 2016 and 2015 are as follows: GrossGoodwillBalance AccumulatedImpairmentLosses NetGoodwillBalance Balance as of January 1, 2015 $115,872 $(93,665) $22,207 Asset held for sale (1) (7,455) - (7,455)Goodwill impairment - (216) (216)Balance as of December 31, 2015 108,417 (93,881) 14,536 Adjustment - - - Balance as of December 31, 2016 $108,417 $(93,881) $14,536 (1)Amount consists of $1.3 million of goodwill held for sale as of December 31, 2014 offset by $8.8 million of goodwill as of December 31, 2015. Referto Note 6 for more information on assets held for sale. As of December 31, 2016 and 2015 the goodwill balance of $14.5 million is related to the Transportation and Skilled Trades Segment. The goodwill relatedto the Healthcare and Other Professions Segment of $8.8 million was included in assets held for sale as of December 31, 2015 and was fully impaired as ofDecember 31, 2016. Intangible assets, which are included in other assets in the accompanying consolidated balance sheets, consisted of the following: TradeName Accreditation Curriculum Total Gross carrying amount at December 31, 2015 $310 $- $160 $470 Additions - - - - Gross carrying amount at December 31, 2016 310 - 160 470 Accumulated amortization at December 31,2015 308 - 112 420 Amortization 2 - 16 18 Accumulated amortization at December 31,2016 310 - 128 438 Net carrying amount at December 31, 2016 $- $- $32 $32 Weighted average amortization period (years) 7 Indefinite 10 TradeName Accreditation Curriculum Total Gross carrying amount at December 31, 2014 $310 $1,064 $550 $1,924 Asset held for sale (1) - (1,064) (390) (1,454)Gross carrying amount at December 31, 2015 310 - 160 470 Accumulated amortization at December 31, 2014 264 - 469 733 Amortization 44 - 21 65 Asset held for sale (1) - - (378) (378)Accumulated amortization at December 31, 2015 308 - 112 420 Net carrying amount at December 31, 2015 $2 $- $48 $50 Weighted average amortization period (years) 7 Indefinite 10 (1)Refer to Note 6 for more information on assets held for sale. F-19IndexAmortization of intangible assets for the years ended December 31, 2016, 2015 and 2014 was approximately $0.1 million, $0.1 million and $0.2 million,respectively.The following table summarizes the estimated future amortization expense:Year Ending December 31, 2017 $16 2018 16 $32 6.PROPERTY, EQUIPMENT AND FACILITIESProperty, equipment and facilities consist of the following: Useful life(years) At December 31, 2016 2015 Land (a) - $6,969 $10,054 Buildings and improvements (a) 1-25 105,433 112,281 Equipment, furniture and fixtures 1-7 65,776 66,838 Vehicles 3 534 617 Construction in progress - 925 159 179,637 189,949 Less accumulated depreciation and amortization (124,192) (123,324) $55,445 $66,625 (a) Amounts are reduced by a $1.4 million impairment charge in 2016 related to a property in Suffield, Connecticut.Depreciation and amortization expense of property, equipment and facilities was $10.9 million, $10.2 million and $14.5 million for the years endedDecember 31, 2016, 2015 and 2014, respectively.As discussed in Note 4, the Board of Directors approved a plan for the Company to divest schools included in its Healthcare and Other Professions businesssegment. In addition in 2016, the Board of Directors approved a plan to close the West Palm Beach, Florida schools and for the Company to sell owned thereal estate in West Palm Beach, Florida. The Company anticipates that these properties will be sold during 2017. Accordingly, the assets have been reflectedas held for sale in the accompanying consolidated balance sheet. F-20IndexThe assets and liabilities held for sale consist of the following: At December 31,2016 At December 31,2015 Assets held for sale Inventories $629 $646 Accounts receivable, less allowance of $3,930 and $3,261 at December 31, 2016 and 2015,respectively 5,089 4,526 Prepaid expense and other current assets 460 724 Noncurrent receivables, less allowance of $212 and $189 at December 31, 2016 and 2015,respectively 1,690 1,384 Property, equipment and facilities - at cost, net of accumluated depreciation and amortization of$41,703 and $34,751 at December 31, 2016 and 2015, respectively (b) (c) 16,847 27,133 Goodwill (d) - 8,759 Other assets, net (e) 71 1,197 Assets held for sale 24,786 44,369 Liabilities held for sale Unearned tuition (7,255) (7,929)Accrued expenses (2,553) (2,668)Accrued rent (1,770) (1,735)Liabilities held for sale (11,578) (12,332) Assets held for sale, net $13,208 $32,037 (b) Amount is reduced by a $2.5 million impairment charge in 2016 related to a property in West Palm Beach, Florida.(c) Amount is reduced by a $7.6 million impairment charge in 2016 related to long-lived assets.(d) Amount is reduced by an $8.8 million impairment charge in 2016 related to goodwill.(e) Amount is reduced by a $1.1 million impairment charge in 2016 related to indefinite-lived assets.7.ACCRUED EXPENSESAccrued expenses consist of the following: At December 31, 2016 2015 Accrued compensation and benefits $6,664 $6,151 Accrued rent and real estate taxes $2,917 $2,012 Other accrued expenses 3,234 3,046 $12,815 $11,209 8.LONG-TERM DEBT AND LEASE OBLIGATIONSLong-term debt and lease obligations consist of the following: At December 31, 2016 2015 Term loan (a) $44,267 $44,653 Finance obligation (b) - 9,672 Capital lease-property (with a rate of 8.0%) (c) - 3,899 44,267 58,224 Less current maturities (11,713) (10,114) $32,554 $48,110 F-21Index(a) On July 31, 2015, the Company entered into a credit agreement with three lenders, Alostar Bank of Commerce (“Alostar”), HPF Holdco, LLC and RushingCreek 4, LLC, led by HPF Service, LLC, as administrative agent and collateral agent (the “Agent”), for an aggregate principal amount of $45 million (the“Term Loan”). The July 31, 2015 credit agreement, along with subsequent amendments to the Credit Agreement dated December 31, 2015 and February 29,2016, are collectively referred to as the “Credit Agreement.” As of December 31, 2015 and prior to the effectiveness of a second amendment to the CreditAgreement on February 29, 2016 (the “Second Amendment”), the Term Loan consisted of a $30 million term loan (the “Term Loan A”) from HPF Holdco,LLC, Rushing Creek 4, LLC and Tiger Capital Group, LLC, secured by a first priority lien in favor of the Agent on substantially all of the real and personalproperty owned by the Company, and a $15 million term loan (the “Term Loan B”) from Alostar secured by a $15.3 million cash collateral account. Pursuantto the Second Amendment, the Company received an additional $5 million term loan from Alostar with which the Company repaid $5 million of theprincipal amount of the Term Loan A. Accordingly, upon the effectiveness of the Second Amendment, the aggregate term loans outstanding under the CreditAgreement remains at approximately $45 million, consisting of an approximate $25 million Term Loan A and a $20 million Term Loan B. In addition,pursuant to the Second Amendment, the amount of cash collateral securing the Term Loan B was increased to $20.3 million. At the Company’s request, apercentage of the cash collateral may be released to the Company at the Agent’s sole discretion and with the consent of Alostar upon the satisfaction ofcertain criteria as outlined in the Credit Agreement. The Term Loan, which matures on July 31, 2019, replaces a previously existing $20 million revolvingcredit facility with Bank of America, N.A. and other lenders, which was due to expire on April 5, 2016. The previously existing revolving credit facility wasterminated concurrently with the effective date of the Credit Agreement on July 31, 2015 (the “Closing Date”).A portion of the proceeds of the Term Loan were used by the Company to (i) repay approximately $6.3 million in outstanding principal, accrued interest andfees due under the previously existing revolving credit facility, (ii) fund the $20.3 million cash collateral account securing the portion of the Term Loanprovided by Alostar, (iii) fund approximately $7.4 million in a cash collateral account securing the letters of credit issued under the previously existingrevolving credit facility that remain outstanding after the termination of that facility and (iv) pay transaction expenses in connection with the Term Loan andthe termination of the previously existing revolving credit facility. The remaining proceeds of the Term Loan of approximately $11 million may be used bythe Company to finance capital expenditures and for general corporate purposes consistent with the terms of the Credit Agreement.Interest will accrue on the Term Loan at a per annum rate equal to the greater of (i) 11% or (ii) 90-day LIBOR plus 9% determined monthly by the Agent andwill be payable monthly in arrears. The principal balance of the Term Loan will be repaid in equal monthly installments, commencing on August 1, 2017,determined as the quotient of (i) 10% of the outstanding principal balance of the Term Loan as of July 2, 2017 divided by (ii) 12. A final installment ofprincipal and all accrued and unpaid interest will be due on the maturity date of the Term Loan.The Term Loan may be prepaid in whole or in part at any time, subject to the payment of a prepayment premium equal to (i) 5% of the principal amountprepaid at any time up to but not including the second anniversary of the Closing Date and (ii) 3% of the principal amount prepaid at any time commencingon the second anniversary of the Closing Date up to but not including the third anniversary of the Closing Date. In the event of any sale or other dispositionof a school or real property by the Company permitted under the Term Loan, the net proceeds of such sale or disposition must be used to prepay the Loan inan amount determined pursuant to the Credit Agreement, subject to the applicable prepayment premium; provided, however, that no prepayment premiumwill be due with respect to up to $15 million of aggregate repayments of the Term Loan made during the first year that the Term Loan is outstanding. Aportion of the net cash proceeds of any disposition of a school in an amount determined pursuant to the terms of the Term Loan, must be deposited and heldas cash collateral in a deposit account controlled by the Agent until the conditions for release set forth in the Term Loan are satisfied. In connection with theassets which are currently classified as held for sale and are expected to be sold within one year, the Company is required to classify $10 million as short termdebt due to the Term Loan prepayment minimum required with respect to any such disposition.The Term Loan contains customary representations, warranties and covenants such as minimum financial responsibility composite score, cohort default rate,and other financial covenants, including minimum liquidity, maximum capital expenditures, maximum 90/10 ratio and minimum EBITDA (as defined in theTerm Loan), as well as affirmative and negative covenants and events of default customary for facilities of this type. The Company was in compliance with allcovenants as of December 31, 2016. Subsequent to the 2015 fiscal year end, pursuant to the Second Amendment, the financial covenants were adjusted and,at the Company’s election, will be adjusted for fiscal year 2017 and for each subsequent fiscal year until the maturity of the Term Loan at either the levelsapplicable to fiscal year 2016 (and each fiscal quarter thereof) contained in the Credit Agreement as of the Closing Date or the levels applicable to fiscal year2016 (and each fiscal quarter thereof) contained in the Second Amendment. The Company elected to re-set the financial covenants at the 2016 covenantlevels contained in the Second Amendment and as required paid $4 million before January 15, 2017, without prepayment penalty. In addition, in February2017 the Company elected to repay $5 million of restricted cash without prepayment penalty.The Credit Agreement contains events of default, the occurrence and continuation of which provide the Company’s lenders with the right to exerciseremedies against the Company and the collateral securing the Term Loan, including the Company’s cash. These events of default include, among otherthings, the Company’s failure to pay any amounts due under the Term Loan, a breach of covenants under the Credit Agreement, the Company’s insolvencyand the insolvency of its subsidiaries, the occurrence of a material adverse effect, the occurrence of any default under certain other indebtedness, and a finaljudgment against the Company in an amount greater than $1 million.Also, in connection with the Term Loan, the Company paid to the Agent a commitment fee of $1 million on the Closing Date and is required to pay to theAgent other customary fees for facilities of this type. Total fees for the Term Loan were $2.8 million during fiscal year 2015. During the first quarter of 2016,in connection with the effectiveness of the Second Amendment, the Company paid loan modification fees of $0.5 million. These deferred finance fees arenetted against the Term Loan on the Consolidated Balance Sheets and amortized to interest expense on the Consolidated Statement of Operations.As of December 31, 2016 and December 31, 2015, the Company had $44.3 million and $44.7 million outstanding under the Term Loan; offset by $2.3million and $2.5 million of deferred finance fees, respectively. F-22Index(b) The Company completed a sale and a leaseback of four facilities on December 28, 2001. The Company retained a continuing involvement in the leaseand, as a result, the Company was prohibited from utilizing sale-leaseback accounting. Accordingly, the Company had treated this transaction as a financelease. In January 2016, the lease was amended to cure certain provisions related to continuing involvement and, as a consequence, achieved sales treatment.In the first quarter of 2016, the lease was converted to an operating lease and rent payments are included in educational, services and facilities expense in theConsolidated Statement of Operations. In addition, the finance obligation, net of land and buildings, was amortized on the straight-line basis throughDecember 31, 2016.(c) In 2009, the Company assumed a real estate capital lease for a property located in Fern Park, Florida having a term continuing through October 31, 2032.In February 2015, the Company’s Board of Directors approved a plan to cease operations of its school located at the Fern Park, Florida property, which schoolclosed in the first quarter of 2016. In connection with the closure of the school the Company paid a $2.8 million lease termination fee to the landlord inconnection with the amendment and early termination of the 2009 lease agreement. The amended lease agreement subsequently expired on April 10, 2016.In December 2015, the Company’s Board of Directors approved a plan to cease operations at the Hartford, Connecticut school which closed in the fourthquarter of 2016. In connection therewith, the Company paid a $5 million lease termination fee to its landlord in connection with the early termination of alease agreement under which the Company leased property in Hartford, Connecticut for a term continuing through July 31, 2031.(d) On April 12, 2016, the Company entered into a credit agreement (the “L/C Agreement”) with Sterling National Bank (“Sterling”) under which Sterling hasagreed to issue letters of credit from time to time at 100% margin against available funds in a cash collateral account maintained by the Company at Sterling.The maximum availability under the L/C Agreement is $9.5 million. The Company will pay Sterling a letter of credit fee equal to 1.75% on the daily amountavailable to be drawn under each outstanding letter of credit, which fee is payable in quarterly installments in arrears. The L/C Agreement matures on April 1,2017 and replaces a letter of credit facility with a prior lender. The L/C Agreement contains representations, warranties, affirmative and negative covenantsand events of default customary for facilities of this type. As of December 31, 2016 there were letters of credit in the aggregate principal amount of $6.1million outstanding under the L/C Agreement.Scheduled maturities of long-term debt and lease obligations at December 31, 2016 are as follows:Year ending December 31, 2017 $11,713 2018 3,427 2019 29,127 2020 - 2021 - Thereafter - $44,267 9.STOCKHOLDERS' EQUITYRestricted StockThe 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 awards of restricted shares of common stock based on service and performance. The number of shares granted toeach employee is based on the fair market value of a share of common stock on the date of grant.On May 13, 2016, performance-based shares were granted which vest over two years on March 15, 2017 and March 15, 2018 based upon the attainment of afinancial responsibility ratio during each fiscal year ending December 31, 2016 and 2017. There is no restriction on the right to vote or the right to receivedividends with respect to any of the restricted shares.On June 2, 2014 and December 18, 2014, performance-based shares were granted which vest over three years based upon the attainment of (i) a specifiedoperating income margin during any one or more of the fiscal years in the period beginning January 1, 2015 and ending December 31, 2017 and (ii) theattainment of earnings before interest, taxes, depreciation and amortization targets during each of the fiscal years ended December 31, 2015 through 2017.There is no restriction on the right to vote or the right to receive dividends with respect to any of the restricted shares.On April 29, 2013, performance-based shares were granted which vest over four years based upon the attainment of (i) a specified operating income marginduring any one or more of the fiscal years in the period beginning January 1, 2013 and ending December 31, 2016 and (ii) the attainment of earnings beforeinterest, taxes, depreciation and amortization targets during each of the fiscal years ended December 31, 2013 through 2016. There is no restriction on theright to vote or the right to receive dividends with respect to any of the restricted shares.Pursuant to the Non-Employee Directors Plan, each non-employee director of the Company receives an annual award of restricted shares of common stock onthe 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 ashare of common stock on that date. There is no restriction on the right to vote or the right to receive dividends with respect to any of the restricted shares. F-23IndexIn 2016, 2015 and 2014, the Company completed a net share settlement for 71,805, 85,740 and 144,983 restricted shares and stock options exercised,respectively, on behalf of certain employees that participate in the LTIP upon the vesting of the restricted shares pursuant to the terms of the LTIP or exerciseof the stock options. The net share settlement was in connection with income taxes incurred on restricted shares or stock option exercises that vested and weretransferred to the employee during 2016, 2015 and/or 2014, creating taxable income for the employee. At the employees’ request, the Company will paythese taxes on behalf of the employees in exchange for the employees returning an equivalent value of restricted shares or stock options to the Company.These transactions resulted in a decrease of approximately $0.2 million, $0.2 million and $0.4 million in 2016, 2015 and 2014, respectively, to equity as thecash payment of the taxes effectively was a repurchase of the restricted shares or stock options granted in previous years.The following is a summary of transactions pertaining to restricted stock: Shares WeightedAverage GrantDate Fair ValuePer Share Nonvested restricted stock outstanding at December 31, 2014 925,819 $5.04 Granted 234,651 2.28 Cancelled (354,462) 4.97 Vested (355,514) 5.00 Nonvested restricted stock outstanding at December 31, 2015 450,494 3.69 Granted 1,105,487 1.67 Cancelled (76,200) 2.98 Vested (336,182) 3.33 Nonvested restricted stock outstanding at December 31, 2016 1,143,599 1.89 The restricted stock expense for each of the years ended December 31, 2016, 2015 and 2014 was $1.4 million, $1.1 million and $2.5 million, respectively.The unrecognized restricted stock expense as of December 31, 2016 and 2015 was $1.5 million and $1.3 million, respectively. As of December 31, 2016,unrecognized restricted stock expense will be expensed over the weighted-average period of approximately 1.9 years. As of December 31, 2016, outstandingrestricted shares under the LTIP had an aggregate intrinsic value of $2.2 million. For the year ended December 31, 2016, 26,200 shares were cancelled as theperformance criteria was not met.Stock OptionsDuring 2016, 2015 and 2014 there were no new stock option grants. The following is a summary of transactions pertaining to the option plans: Shares WeightedAverageExercise PricePer Share WeightedAverageRemainingContractualTerm AggregateIntrinsic Value Outstanding December 31, 2013 547,125 $14.73 4.56 years $- Cancelled (122,958) 18.49 - Outstanding December 31, 2014 424,167 13.65 4.18 years - Cancelled (178,000) 15.20 - Outstanding December 31, 2015 246,167 12.52 3.98 years - Cancelled (28,000) 15.76 Outstanding December 31, 2016 218,167 12.11 3.33 years - Vested or expected to vest as of December 31, 2016 218,167 12.11 3.33 years - Exercisable as of December 31, 2016 218,167 12.11 3.33 years - As of December 31, 2016, there are no unrecognized pre-tax compensation expense for unvested stock option awards. F-24IndexThe following table presents a summary of options outstanding at December 31, 2016: At December 31, 2016 Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Shares ContractualWeightedAverage life(years) WeightedAverage ExercisePrice Shares WeightedAverage ExercisePrice $4.00-$13.99 165,167 3.35 $9.46 165,167 $9.46 $14.00-$19.99 22,000 2.84 19.98 22,000 19.98 $20.00-$25.00 31,000 3.59 20.62 31,000 20.62 218,167 3.33 12.11 218,167 12.11 10.PENSION PLANThe Company sponsors a noncontributory defined benefit pension plan covering substantially all of the Company's union employees. Benefits are providedbased on employees' years of service and earnings. This plan was frozen on December 31, 1994 for non-union employees.The following table sets forth the plan's funded status and amounts recognized in the consolidated financial statements: Year Ended December 31, 2016 2015 2014 CHANGES IN BENEFIT OBLIGATIONS: Benefit obligation-beginning of year $23,341 $24,299 $20,314 Service cost 28 28 23 Interest cost 888 884 892 Actuarial (gain) loss (255) (782) 4,149 Benefits paid (1,086) (1,088) (1,079)Benefit obligation at end of year 22,916 23,341 24,299 CHANGE IN PLAN ASSETS: Fair value of plan assets-beginning of year 17,792 19,000 18,792 Actual return on plan assets 842 (120) 1,017 Employer contributions - - 270 Benefits paid (1,086) (1,088) (1,079)Fair value of plan assets-end of year 17,548 17,792 19,000 BENEFIT OBLIGATION IN EXCESS OF FAIR VALUE FUNDED STATUS: $(5,368) $(5,549) $(5,299)For the year ended December 31, 2016, the actuarial gain of $0.3 million was due to the decrease in the discount rate from 3.94% to 3.81%.Amounts recognized in the consolidated balance sheets consist of: At December 31, 2016 2015 2014 Noncurrent liabilities $(5,368) $(5,549) $(5,299) F-25IndexAmounts recognized in accumulated other comprehensive loss consist of: Year Ended December 31, 2016 2015 2014 Accumulated loss $(8,467) $(9,438) $(9,833)Deferred income taxes 2,366 2,366 2,366 Accumulated other comprehensive loss $(6,101) $(7,072) $(7,467)The accumulated benefit obligation was $22.9 million and $23.3 million at December 31, 2016 and 2015, respectively.The following table provides the components of net periodic cost for the plan: Year Ended December 31, 2016 2015 2014 COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $28 $28 $23 Interest cost 888 884 892 Expected return on plan assets (1,118) (1,243) (1,287)Recognized net actuarial loss 991 976 513 Net periodic benefit cost $789 $645 $141 The estimated net loss, transition obligation and prior service cost for the plan that will be amortized from accumulated other comprehensive loss into netperiodic benefit cost over the next year is $0.9 million.The following tables present plan assets using the fair value hierarchy as of December 31, 2016 and 2015. The fair value hierarchy has three levels based onthe reliability of inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets.Level 2 refers to fair values estimated using observable prices that are based on inputs not quoted in active markets but observable by market data, whileLevel 3 includes the fair values estimated using significant non-observable inputs. The level in the fair value hierarchy within which the fair valuemeasurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs(Level 3) Total Equity securities $8,509 $- $- $8,509 Fixed income 6,548 - - 6,548 International equities 2,484 - - 2,484 Cash and equivalents 7 - - 7 Balance at December 31, 2016 $17,548 $- $- $17,548 Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs(Level 3) Total Equity securities $8,473 $- $- $8,473 Fixed income 5,943 - - 5,943 International equities 3,288 - - 3,288 Cash and equivalents 88 - - 88 Balance at December 31, 2015 $17,792 $- $- $17,792 F-26IndexFair value of total plan assets by major asset category as of December 31: 2016 2015 2014 Equity securities 49% 48% 50%Fixed income 37% 33% 32%International equities 14% 19% 18%Cash and equivalents 0% 0% 0%Total 100% 100% 100%Weighted-average assumptions used to determine benefit obligations as of December 31: 2016 2015 2014 Discount rate 3.81% 3.94% 3.66%Rate of compensation increase 2.50% 2.50% 1.13%Weighted-average assumptions used to determine net periodic pension cost for years ended December 31: 2016 2015 2014 Discount rate 3.81% 3.94% 4.46%Rate of compensation increase 2.50% 2.50% 1.13%Long-term rate of return 6.25% 6.50% 7.00%As this plan was frozen to non-union employees on December 31, 1994, the difference between the projected benefit obligation and accumulated benefitobligation is not significant in any year.The Company invests plan assets based on a total return on investment approach, pursuant to which the plan assets include a diversified blend of equity andfixed income investments toward a goal of maximizing the long-term rate of return without assuming an unreasonable level of investment risk. The Companydetermines the level of risk based on an analysis of plan liabilities, the extent to which the value of the plan assets satisfies the plan liabilities and the plan'sfinancial condition. The investment policy includes target allocations ranging from 30% to 70% for equity investments, 20% to 60% for fixed incomeinvestments and 0% to 10% for cash equivalents. The equity portion of the plan assets represents growth and value stocks of small, medium and largecompanies. The Company measures and monitors the investment risk of the plan assets both on a quarterly basis and annually when the Company assessesplan liabilities.The Company uses a building block approach to estimate the long-term rate of return on plan assets. This approach is based on the capital marketsassumption that the greater the volatility, the greater the return over the long term. An analysis of the historical performance of equity and fixed incomeinvestments, together with current market factors such as the inflation and interest rates, are used to help make the assumptions necessary to estimate a long-term rate of return on plan assets. Once this estimate is made, the Company reviews the portfolio of plan assets and makes adjustments thereto that theCompany believes are necessary to reflect a diversified blend of equity and fixed income investments that is capable of achieving the estimated long-termrate of return without assuming an unreasonable level of investment risk. The Company also compares the portfolio of plan assets to those of other pensionplans to help assess the suitability and appropriateness of the plan's investments.The Company does not expect to make contributions to the plan in 2017. However after considering the funded status of the plan, movements in the discountrate, investment performance and related tax consequences, the Company may choose to make additional contributions to the plan in any given year.The total amount of the Company’s contributions paid under its pension plan was zero for the each of the years ended December 31, 2016 and 2015,respectively.Information about the expected benefit payments for the plan is as follows:Year Ending December 31, 2017 $1,257 2018 1,323 2019 1,357 2020 1,369 2021 1,376 Years 2022-2026 7,039 The Company has a 401(k) defined contribution plan for all eligible employees. Employees may contribute up to 25% of their compensation into the plan.The Company may contribute an up to an additional 30% of the employee's contributed amount up to 6% of compensation. For the years ended December31, 2016, 2015 and 2014, the Company's expense for the 401(k) plan amounted to $0.7 million, $0.7 million and $1.6 million, respectively. F-27Index11.INCOME TAXESComponents of the provision for income taxes from continuing operations were as follows: Year Ended December 31, 2016 2015 2014 Current: Federal $- $- $- State 200 242 200 Total 200 242 200 Deferred: Federal - - (1,420)State - - (259)Total - - (1,679) Total provision (benefit) $200 $242 $(1,479)The components of the deferred tax assets are as follows: At December 31, 2016 2015 Noncurrent deferred tax assets (liabilities) Allowance for bad debts $5,904 $5,617 Accrued rent 3,191 2,952 Accrued bonus 1,429 - Accrued benefits 198 - Stock-based compensation 557 498 Depreciation 20,372 14,941 Goodwill 1,959 (380)Other intangibles 562 274 Pension plan liabilities 2,142 2,215 Net operating loss carryforwards 17,846 14,765 Sale leaseback-deferred gain - 2,629 AMT credit 424 424 Total noncurrent deferred tax assets 54,584 43,935 Less valuation allowance (54,584) (43,935)Noncurrent deferred tax assets, net of valuation allowance $- $- Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existingdeferred tax assets. A significant piece of objective negative evidence was the cumulative losses incurred by the Company in recent years.On the basis of this evaluation the Company believes it is not more likely than not that it will realize its net deferred tax assets. As a result, as of December 31,2016 and 2015, the Company has recorded a valuation allowance of $54.6 million and $43.9 million, respectively, against its net deferred tax assets.The difference between the actual tax provision and the tax provision that would result from the use of the Federal statutory rate is as follows: Year Ended December 31, 2016 2015 2014 (Loss) gain from continuing operationsbefore taxes $(4,298) $383 $(27,028) Expected tax benefit $(1,504) 35.0% $134 35.0% $(9,460) 35.0%State tax benefit (net of federal) 200 (4.7) 242 63.2 (43) 0.2 Valuation allowance 1,394 (32.4) (274) (71.5) 7,876 (29.1)Other 110 (2.6) 140 36.5 148 (0.6)Total $200 -4.7% $242 63.2% $(1,479) 5.5% F-28IndexAs of December 31, 2016 and 2015, the Company has NOL carryforwards of $39.7 million and $32.6 million, respectively, which, if unused, will expirebeginning in 2027 and ending in 2036. Utilization of the NOL carryforwards may be subject to a substantial limitation due to ownership change limitationsthat may occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreignprovisions. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable incomeand tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or publicgroups.The following table summarizes the activity related to the Company’s uncertain tax positions: Year Ended December 31, 2016 2015 2014 Balance at January 1, $- $- $- Decrease for tax positions of prior years - - - Increase for tax positions of current year - - - Balance at December 31, $- $- $- As of December 31, 2016, 2015 and 2014, the Company no longer has any liability for uncertain tax positions. The Company recognizes accrued interest and penalties related to uncertain tax positions in income tax expense. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states. The Company is no longer subject to U.S.federal income tax examinations for years before 2014 and, generally, is no longer subject to state and local income tax examinations by tax authorities foryears before 2011.12.FAIR VALUEThe carrying amount and estimated fair value of the Company’s financial instrument assets and liabilities, which are not measured at fair value on theConsolidated Balance Sheets, are listed in the table below: December 31, 2016 CarryingAmount Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs(Level 3) Total Financial Assets: Cash and cash equivalents $21,064 $21,064 $- $- $21,064 Restricted cash 6,399 6,399 - - 6,399 Prepaid expenses and other current assets 2,434 - 2,434 - 2,434 Noncurrent restricted cash 20,252 20,252 - - 20,252 Financial Liabilities: Accrued expenses $12,815 $- $12,815 $- $12,815 Other short term liabilities 653 - 653 - 653 Term loan 44,267 - 40,687 - 40,687 F-29Index December 31, 2015 CarryingAmount Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservableInputs(Level 3) Total Financial Assets: Cash and cash equivalents $38,420 $38,420 $- $- $38,420 Restricted cash 7,362 7,362 - - 7,362 Prepaid expenses and other current assets 2,710 - 2,710 - 2,710 Noncurrent restricted cash 15,259 15,259 - - 15,259 Financial Liabilities: Accrued expenses $11,209 $- $11,209 $- $11,209 Other short term liabilities 686 - 686 - 686 Term loan 44,653 - 36,795 - 36,795 The fair value of the Term loan is estimated based on a present value analysis utilizing aggregate market yields obtained from independent pricing sourcesfor similar financial instruments.The carrying amounts reported on the Consolidated Balance Sheets for Cash and cash equivalents, Restricted cash and Noncurrent restricted cashapproximate fair value because they are highly liquid.The carrying amounts reported on the Consolidated Balance Sheets for Prepaid expenses and other current assets, Accrued expenses and Other short termliabilities approximate fair value due to the short-term nature of these items.13.SEGMENT REPORTINGThe for-profit education industry has been impacted by numerous regulatory changes, the changing economy and an onslaught of negative media attention.As a result of these actions, student populations have declined and operating costs have increased. Over the past few years, the Company has closed over tenlocations and exited its online business. On November 3, 2015, the Board of Directors approved a plan for the divestiture of the Company’s schools includedin the Healthcare and Other Professions business segment. In December 2015, the Board of Directors approved a plan to cease operations of the schoollocated in Hartford, Connecticut which closed in the fourth quarter of 2016. Then, in the fourth quarter of 2016, the Board of Directors approved plans tocease operations at our schools in Henderson (Green Valley), Nevada, Center City Philadelphia, Pennsylvania, Northeast Philadelphia, Pennsylvania andWest Palm Beach, Florida. The Henderson, Nevada campus closed in the fourth quarter of 2016. Divestiture of the Company’s Healthcare and OtherProfessions business segment marks a strategic shift in business strategy. The results of operations of the 15 campuses included in Healthcare and OtherProfessions business segment are reflected as discontinued operations in the consolidated financial statements. The Center City Philadelphia, Pennsylvania,Northeast Philadelphia, Pennsylvania and West Palm Beach, Florida campuses, which were previously included in the Healthcare and Other Professionssegment are now included in the Transitional segment except the West Palm Beach, Florida properties which remain held-for-sale. Implementation of theplan would result in the Company’s operations focused solely on the Transportation and Skilled Trades segment. In the past, we offered any combination of programs at any campus. We have changed our focus to program offerings that create greater differentiation andattain excellence to attract more students and gain market share. Also strategically, we began offering continuing education training to employers who hireour students and this is best achieved at campuses focused on their profession.As a result of the regulatory environment, market forces and strategic decisions, we now operate in two reportable segments: a) Transportation and SkilledTrades and b) Transitional.Our reportable segment represents a group of post-secondary education providers that offer a variety of degree and non-degree academic programs. Thesesegments are organized by key market segments to enhance operational alignment within each segment to more effectively execute our strategic plan. Eachof the Company’s schools is a reporting unit and an operating segment which have been determined based on a method by which we evaluate performanceand allocate resources. Our operating segments have been aggregated into two reportable segments because, in our judgment, the operating segments havesimilar services, types of customers, regulatory environment and economic characteristics. Our reportable segments are described below.Transportation and Skilled Trades – Transportation and Skilled Trades offers academic programs mainly in the career-oriented disciplines of transportationand skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).Transitional – Transitional refers to operations that are being phased out and consists of our campuses that are currently being taught out. These schools areemploying a gradual teach-out process that enables the schools to continue to operate while current students complete their course of study. These schoolsare no longer enrolling new students. During the year ended December 31, 2016 the Company had announced the closing of our Northeast Philadelphia,Pennsylvania; Center City, Pennsylvania; and West Palm Beach, Florida facilities. These schools are expected to be fully taught out on August 31, 2017,August 31, 2017, and September 30, 2017 respectively. In the first quarter of 2016, we had completed the teach-out of our Fern Park, Florida campus. F-30IndexWe evaluate segment performance based on operating results. Adjustments to reconcile segment results to consolidated results are included under the caption“Corporate,” which primarily includes unallocated corporate activity.Summary financial information by reporting segment is as follows: For the Year Ended December 31, Revenue Operating (Loss) Income 2016 % ofTotal 2015 % ofTotal 2014 % ofTotal 2016 2015 2014 Transportationand SkilledTrades $177,882 90.3% $183,821 88.3% $188,669 86.5% $21,278 $26,778 $19,519 Transitional 19,028 9.7% 24,435 11.7% 29,371 13.5% (6,334) (1,689) (19,814)Corporate - 0.0% - 0.0% - 0.0% (20,107) (19,140) (23,364)Total $196,910 100% $208,256 100% $218,040 100% $(5,163) $5,949 $(23,659) Total Assets December 31, 2016 December 31, 2015 Transportation and Skilled Trades $83,320 $90,045 Transitional 1,594 4,492 Corporate 53,507 68,844 Discontinued Operations 24,786 44,369 Total $163,207 $207,750 14.COMMITMENTS AND CONTINGENCIESLease Commitments—The Company leases office premises, educational facilities and various equipment for varying periods through the year 2030 at basicannual rentals (excluding taxes, insurance, and other expenses under certain leases) as follows:Year Ending December 31, CreditAgreement OperatingLeases 2017 $16,048 $21,428 2018 6,881 19,132 2019 30,958 16,521 2020 - 12,439 2021 - 7,202 Thereafter - 20,484 53,887 97,206 Less amount representing interest (9,620) - $44,267 $97,206 Rent expense, included in operating expenses in the accompanying consolidated statements of operations for the three years ended December 31, 2016, 2015and 2014 is $12.0 million, $10.9 million and $11.1 million, respectively.Litigation and Regulatory Matters— In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including, butnot limited to, claims involving students or graduates and routine employment matters. Although we cannot predict with certainty the ultimate resolution oflawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have amaterial effect on our business, financial condition, results of operations or cash flows.On November 21, 2012, the Company received a Civil Investigative Demand from the Attorney General of the Commonwealth of Massachusetts relating toits investigation of whether the Company and certain of its academic institutions have complied with certain Massachusetts state consumer protection laws.On July 29, 2013, and January 17, 2014, the Company received additional Civil Investigative Demands pursuant to which the Attorney General requestedfrom the Company and certain of its academic institutions in Massachusetts documents and detailed information for the time period from January 1, 2008 tothe present.On July 13, 2015, the Commonwealth of Massachusetts filed a complaint against the Company in the Suffolk County Superior Court alleging certainviolations of the Massachusetts Consumer Protection Act since at least 2010 and continuing through 2013. At the same time, the Company agreed to theentry of a Final Judgment by Consent in order to avoid the time, burden, and expense of contesting such liability. As part of the Final Judgment by Consent,the Company denied all allegations of wrongdoing and any liability for the claims asserted in the complaint. The Company, however, paid the sum of$850,000 to the Attorney General and has agreed to forgive $165,000 of debt consisting of unpaid balances owed to the Company by certain graduates in thesole discretion of the Massachusetts Attorney General. The Final Judgment by Consent also provided certain requirements for calculation of job placementrates in Massachusetts and imposed certain disclosure obligations that are consistent with the regulations that have been previously enacted by theMassachusetts Attorney General’s Office. F-31IndexOn December 15, 2015, the Company received an administrative subpoena from the Attorney General of the State of Maryland. Pursuant to the subpoena,Maryland’s Attorney General has requested from the Company documents and detailed information relating to its Columbia, Maryland campus. TheCompany has responded to this request and intends to continue cooperating with the Maryland Attorney General’s Office.Student Loans—At December 31, 2016, the Company had outstanding net loan commitments to its students to assist them in financing their education ofapproximately $30.0 million.Vendor Relationship—The Company is party to an agreement with Matco Tools (“Matco”), which expires on July 31, 2019. The Company has agreed togrant Matco exclusive access to 12 campuses and its students and instructors. This exclusivity includes but is not limited to, all other tool manufacturersand/or tool distributors, by whatever means, during the term of the agreement. Under the agreement, the Company will be provided, on an advancecommission basis, credits which are redeemable in branded tools, tools storage, equipment, and diagnostics products over the term of the contract.The Company is party to an agreement with Snap-on Industrial (“Snap-on”), which expires on December 31, 2018. The Company has agreed to grant Snap-onexclusive rights to one automotive campus to display advertising and supply certain tools. The Company earns credits that are redeemable for certain toolsand equipment based on the sales to students and to the Company.Executive Employment Agreements—The Company entered into employment contracts with key executives that provide for continued salary payments ifthe executives are terminated for reasons other than cause, as defined in the agreements. The future employment contract commitments for such employeeswere approximately $3.1 million at December 31, 2016.Change in Control Agreements—In the event of a change of control several key executives will receive continued salary payments based on theiremployment agreements.Surety Bonds—Each of the Company’s campuses must be authorized by the applicable state education agency in which the campus is located to operate andto grant degrees, diplomas or certificates to its students. The campuses are subject to extensive, ongoing regulation by each of these states. In addition, theCompany’s campuses are required to be authorized by the applicable state education agencies of certain other states in which the campuses recruit students.The Company is required to post surety bonds on behalf of its campuses and education representatives with multiple states to maintain authorization toconduct its business. At December 31, 2016, the Company has posted surety bonds in the total amount of approximately $14.3 million.15.RELATED PARTYThe Company has an agreement with MATCO Tools, whereby MATCO will provide to the Company, on an advance commission basis, credits in MATCO-branded tools, tool storage, equipment, and diagnostics products. The CEO of the parent company of MATCO is considered an immediate family member ofone of the Company’s board members. The Company’s purchases from this third party were $1.0 million for the year ended December 31, 2016. Managementbelieves that such transactions are at arm’s length and on similar terms as would have been obtained from unaffiliated third parties. F-32Index16.UNAUDITED QUARTERLY FINANCIAL INFORMATIONThe following tables have been updated to reflect changes in discontinued operations. Quarterly financial information for 2016 and 2015 is as follows: Quarter 2016 First Second Third Fourth Revenue $47,423 $46,263 $52,877 $50,348 (Loss) income from continuing operations (4,638) (1,642) 1,697 84 (Loss) income from discontinued operations (1,430) (1,496) (2,168) (18,711)Loss income (6,068) (3,138) (471) (18,627)Basic (Loss) earnings per share from continuing operations $(0.20) $(0.07) $0.07 $0.00 (Loss) earnings per share from discontinued operations (0.06) (0.06) (0.09) (0.79)Net (loss) earnings per share $(0.26) $(0.13) $(0.02) $(0.79)Diluted (Loss) earnings per share from continuing operations $(0.20) $(0.07) $0.07 $0.00 (Loss) earnings per share from discontinued operations (0.06) (0.06) (0.09) (0.76)Net (loss) earnings per share $(0.26) $(0.13) $(0.02) $(0.76) Weighted average number of common shares outstanding: Basic 23,351 23,448 23,499 23,514 Diluted 23,351 23,448 24,680 24,602 Quarter 2015 First Second Third Fourth Revenue $51,345 $48,607 $55,752 $52,552 (Loss) income from continuing operations (4,786) (4,169) 5,217 3,878 (Loss) income from discontinued operations (2,097) (3,436) (2,636) 4,679 Net (loss) income (6,883) (7,605) 2,581 8,557 Basic (Loss) earnings per share from continuing operations $(0.21) $(0.18) $0.22 $0.17 (Loss) earnings per share from discontinued operations (0.09) (0.15) (0.11) 0.20 Net (loss) earnings per share $(0.30) $(0.33) $0.11 $0.37 Diluted (Loss) earnings per share from continuing operations $(0.21) $(0.18) $0.22 $0.17 (Loss) earnings per share from discontinued operations (0.09) (0.15) (0.11) 0.20 Net (loss) earnings per share $(0.30) $(0.33) $0.11 $0.37 Weighted average number of common shares outstanding: Basic 23,056 23,132 23,230 23,247 Diluted 23,056 23,132 23,270 23,347 17.DIVIDENDSDuring 2014, the Board of Directors declared cash dividends of $0.18 per share of common stock outstanding. On February 27, 2015, the Board of Directorsdiscontinued the quarterly cash dividend. F-33IndexLINCOLN EDUCATIONAL SERVICES CORPORATIONSchedule II—Valuation and Qualifying Accounts(in thousands, continuing and discontinued operations) Description Balance atBeginningof Period Charged toExpense AccountsWritten-off Balance atEnd ofPeriod Allowance accounts for the year ended: December 31, 2016 Student receivable allowance $14,074 $14,592 $(13,872) $14,794 December 31, 2015 Student receivable allowance $14,849 $13,583 $(14,358) $14,074 December 31, 2014 Student receivable allowance $14,769 $15,500 $(15,420) $14,849 IndexExhibit IndexExhibitNumber Description 3.1Amended and Restated Certificate of Incorporation of the Company (1). 3.2By-laws of the Company (2). 4.1Management Stockholders Agreement, dated as of January 1, 2002, by and among Lincoln Technical Institute, Inc., Back to SchoolAcquisition, L.L.C. and the Stockholders and other holders of options under the Management Stock Option Plan listed therein (3). 4.2Assumption Agreement and First Amendment to Management Stockholders Agreement, dated as of December 20, 2007, by and amongLincoln Educational Services Corporation, Lincoln Technical Institute, Inc., Back to School Acquisition, L.L.C. and the ManagementInvestors parties therein (4). 4.3Registration Rights Agreement, dated as of June 27, 2005, between the Company and Back to School Acquisition, L.L.C. (2). 4.4Specimen Stock Certificate evidencing shares of common stock (5). 10.1Credit Agreement, dated as of July 31, 2015, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, theLenders and Collateral Agents party thereto, and HPF Service, LLC, as Administrative Agent (6). 10.2First Amendment to Credit Agreement, dated as of December 31, 2015, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, the Lenders and Collateral Agents party thereto, and HPF Service, LLC, as Administrative Agent (7). 10.3Second Amendment to Credit Agreement, dated as of February 29, 2016, among Lincoln Educational Services Corporation and its wholly-owned subsidiaries, the Lenders party thereto, and HPF Service, LLC, as Administrative Agent and Tranche A Collateral Agent (8). 10.4Credit Agreement, dated as of April 12, 2016, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and SterlingNational Bank (9). 10.5Purchase and Sale Agreement, dated as of July 1, 2016, between New England Institute of Technology at Palm Beach, Inc. and SchoolProperty Development Metrocentre, LLC (10). 10.6Separation and Release Agreement, dated as of May 5, 2015, between the Company and Shaun E. McAlmont (11). 10.7Employment Agreement, dated as of January 30, 2015, between the Company and Scott M. Shaw (12). 10.8Employment Agreement, dated as of August 31, 2015, between the Company and Scott M. Shaw (13). 10.9Employment Agreement, dated as of August 23, 2016, between the Company and Scott M. Shaw (14) 10.10Employment Agreement, dated as of June 2, 2014, between the Company and Kenneth M. Swisstack (15). 10.11Amendment to Employment Agreement, dated as of March 12, 2015, between the Company and Kenneth M. Swisstack. (16) 10.12Separation and Release Agreement, dated as of January 15, 2016, between the Company and Kenneth M. Swisstack (17). 10.13Employment Agreement, dated as of March 12, 2015, between the Company and Brian K. Meyers (16). 10.14Employment Agreement, dated as of August 23, 2016, between the Company and Brian K. Meyers (14). 10.15*Change in Control Agreement, dated August 31, 2016, between the Company and Deborah Ramentol. 10.16Lincoln Educational Services Corporation Amended and Restated 2005 Long-Term Incentive Plan (18). 10.17Lincoln Educational Services Corporation Amended and Restated 2005 Non-Employee Directors Restricted Stock Plan (19). Index10.18Lincoln Educational Services Corporation 2005 Deferred Compensation Plan (3). 10.19Lincoln Technical Institute Management Stock Option Plan, effective January 1, 2002 (3). 10.20Form of Stock Option Agreement, dated January 1, 2002, between Lincoln Technical Institute, Inc. and certain participants (3). 10.21Form of Stock Option Agreement under our 2005 Long-Term Incentive Plan (20). 10.22Form of Restricted Stock Agreement under our 2005 Long-Term Incentive Plan (21). 10.23Form of Performance-Based Restricted Stock Award Agreement under our Amended & Restated 2005 Long-Term Incentive Plan (16). 10.24Management Stock Subscription Agreement, dated January 1, 2002, among Lincoln Technical Institute, Inc. and certain managementinvestors (3). 21.1*Subsidiaries of the Company. 23*Consent of Independent Registered Public Accounting Firm. 24*Power of Attorney (included on the Signatures page of this Form 10-K). 31.1 *Certification of 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 Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 101**The following financial statements from Lincoln Educational Services Corporation’s Annual Report on Form 10-K for the year endedDecember 31, 2016, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) ConsolidatedStatements of Cash Flows, (iv) Consolidated Statements of Comprehensive (Loss) Income, (v) Consolidated Statement of Changes inStockholders’ Equity and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. (1)Incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005.(2)Incorporated by reference to the Company’s Form 8-K filed June 28, 2005.(3)Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-123644) filed March 29, 2005.(4)Incorporated by reference to the Company’s Registration Statement on Form S-3 (Registration No. 333-148406) filed December 28, 2007.(5)Incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 21, 2005.(6)Incorporated by reference to the Company’s Form 8-K filed August 5, 2015.(7)Incorporated by reference to the Company’s Form 8-K filed January 7, 2016.(8)Incorporated by reference to the Company’s Form 8-K filed March 4, 2016.(9)Incorporated by reference to the Company’s Form 8-K filed April 18, 2016.(10)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 9, 2016.(11)Incorporated by reference to the Company’s Form 8-K filed May 6, 2015. Index(12)Incorporated by reference to the Company’s Form 8-K filed February 5, 2015.(13)Incorporated by reference to the Company’s Form 8-K filed September 3, 2015.(14)Incorporated by reference to the Company’s Form 8-K filed August 25, 2016.(15)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed August 8, 2014.(16)Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2014.(17)Incorporated by reference to the Company’s Form 8-K filed January 22, 2016.(18)Incorporated by reference to the Company’s Form 8-K filed May 6, 2013.(19)Incorporated by reference to the Company’s Registration Statement on Form S-8 (Registration No. 333-211213) filed May 6, 2016.(20)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.(21)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.(22)Incorporated by reference to the Company’s Form 8-K filed May 5, 2011.*Filed herewith.** As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933and Section 18 of the Securities Exchange Act of 1934 EXHIBIT 10.15CHANGE IN CONTROL AGREEMENT (this “Agreement”), dated as of August 31, 2016, between LINCOLN EDUCATIONAL SERVICESCORPORATION, a New Jersey corporation (the “Company”), and DEBORAH RAMENTOL (the “Employee”).WHEREAS, the Employee is currently employed by the Company;WHEREAS, the parties desire to enter into an agreement setting forth the payments and benefits the Employee will receive upon a Changein Control of the Company;NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows:1. EFFECTIVENESS AND TERM OF AGREEMENTThis Agreement is effective as of the date hereof and shall remain effective until December 31, 2017.2. CHANGE IN CONTROL2.1 In the event a Change in Control occurs before December 31, 2017 and the Employee’s employment is terminated within twelve(12) months after a Change in Control on either by the Company without Cause, or by the Employee for Good Reason, the Company shall pay the Employee:(i) an amount equal to one year’s base salary, in effect on the date of Employee’s termination (the “Severance Payment”);(ii) the average of the Annual Bonuses paid to the Employee for the two years immediately prior to the year in which theInvoluntary Termination occurs; and(iii) an additional cash amount equal to the Company’s estimate of the employer portion of the premiums that would benecessary to continue the Employee’s health care coverage until the first anniversary of the date of such termination; provided, however,that if prior to payment of such cash amount the Employee becomes covered under another group health plan (which coverage, onceobtained, must be promptly disclosed by the Employee to the Company), such cash amount shall be prorated to cover only the period fromthe date of the Employee’s termination until the date on which such alternate coverage starts.2.2 Notwithstanding anything to the contrary in any of the Equity Award Documents, as defined in Appendix A, upon a Change inControl, all outstanding stock options and restricted stock granted by the Company or any of its affiliates to the Executive shall become fully vested, andstock options shall become immediately exercisable, on the date of the Change in Control. 3. REDUCTION OF PAYMENTSIf any amounts due to the Employee under this Agreement and any other agreement, plan or arrangement of or with the Company or any ofits affiliates constitute a “parachute payment,” as such term is defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”),and the amount of the parachute payment, reduced by all federal, state and local taxes applicable thereto, including the excise tax imposed pursuant toSection 4999 of the Code, is less than the amount the Employee would receive if he was paid three times his “base amount”, as defined in Section 280G(b)(3)of the Code, less $1.00, reduced by all federal, state and local taxes applicable thereto, then the aggregate of the amounts constituting the parachute paymentwill be reduced (or returned by the Employee if it has already been paid to her) to an amount that will equal three times the Employee’s base amount less$1.00. Any determination to be made with respect to this Section 3 shall be made by an accounting firm jointly selected by the Company and the Employeeand paid for by the Company, and which may be the Company’s independent auditors.4. NO ADDITIONAL RIGHTSThe Employee shall have no right to receive any additional compensation or benefits upon a Change in Control, except (i) as expressly setforth in Section 2 above, where applicable, or (ii) as determined in accordance with the provisions of the employee benefit plans or programs of the Company.The Company and Employee acknowledge that Employee’s employment is and will continue to be “at will”. If Employee’s employmentterminates for any reason, including (without limitation) any termination of employment not set forth in Section 2, Employee will not be entitled to anypayments, benefits, damages, awards or compensation other than the payment of accrued but unpaid wages, as required by law, and any unreimbursedexpenses.5. ARBITRATION5.1 General. Any dispute or controversy arising under or in connection with this Agreement that cannot be mutually resolved by theEmployee and the Company shall be settled exclusively by arbitration in West Orange, New Jersey before three arbitrators of exemplary qualifications andstature. The Employee and the Company shall each select one arbitrator. The arbitrators selected by the Employee and the Company shall jointly select thethird arbitrator. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. The Employee and the Company hereby agree that thearbitrators shall be empowered to enter an equitable decree mandating specific enforcement of the provisions of this Agreement.5.2 Associated Costs. The cost of the arbitration shall be borne by the parties in the manner determined by the arbitrators. If, however,the dispute concerns contractual rights that arise in the event of or subsequent to a Change in Control, the costs of arbitration (and any reasonable attorney’sfees incurred by the Employee) shall be borne by the Company, unless the arbitrators determine that the Employee commenced such arbitration onunfounded or unreasonable grounds. 26. SECTION 409A OF THE CODE.6.1 General. This Agreement is intended to be exempt from or meet the requirements of Section 409A of the Code, and shall beinterpreted and construed consistent with that intent.6.2 Deferred Compensation. Notwithstanding any other provision of this Agreement, to the extent that the right to any payment(including the provision of benefits) hereunder provides for the “deferral of compensation” within the meaning of Section 409A(d)(1) of the Code, thepayment shall be paid (or provided) in accordance with the following:(i) If the Employee is a “Specified Employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code on the date of theEmployee’s termination of employment, then no such payment shall be made or commence during the period beginning on the date of theEmployee’s termination of employment and ending on the date that is six months and one day following the Employee’s termination ofemployment or, if earlier, on the date of the Employee’s death.(ii) Payments with respect to reimbursements of expenses shall be made in accordance with Company policy and in no eventlater than the last day of the calendar year following the calendar year in which the relevant expense is incurred. No reimbursement duringany calendar year shall affect the amounts eligible for reimbursement in any other calendar year, except, in each case, to the extent that theright to reimbursement does not provide for a “deferral of compensation” within the meaning of Section 409A of the Code.(iii) The Company shall not accelerate any payment or the provision of any benefits under this Agreement or make or provideany such payment or benefits if such payment or provision of such benefits would, as a result, be subject to tax under Section 409A of theCode. If, in the good faith judgment of the Company, any provision of this Agreement could cause the Employee to be subject to adverseor unintended tax consequences under Section 409A of the Code, such provision shall be modified by the Company in its sole discretion tomaintain, to the maximum extent practicable, the original intent of the applicable provision without violating the requirements of Section409A of the Code. It is understood that each installment is a separate payment, and that the timing of payment is within the control of theCompany.(iv) The provisions of this Section 6 shall apply notwithstanding any provisions of this Agreement related to the timing ofpayments following the Employee’s termination of employment. 37. MISCELLANEOUS7.1 Communications. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed tohave been duly given or made as of the date delivered, or on the fifth business day after mailed if delivered personally or mailed by registered or certifiedmail (postage prepaid, return receipt requested), to the relevant party at the following address (or at such other address for a party as shall be specified by likenotice, except that notices of change of address shall be effective upon receipt):if to the Company: 200 Executive Drive, Suite 340 West Orange, New Jersey 07052 Attention: General Counselif to the Employee: 200 Executive Drive, Suite 340 West Orange, New Jersey 070527.2 Waiver of Breach; Severability. (a) The waiver by the Employee or the Company of a breach of any provision of this Agreement bythe other party hereto shall not operate or be construed as a waiver of any subsequent breach by either party.(b) The parties hereto recognize that the laws and public policies of various jurisdictions may differ as to the validity and enforceability ofcovenants similar to those set forth herein. It is the intention of the parties that the provisions of this Agreement be enforced to the fullest extent permissibleunder the laws and policies of each jurisdiction in which enforcement may be sought, and that the unenforceability (or the modification to conform to suchlaws or policies) of any provisions hereof shall not render unenforceable, or impair, the remainder of the provisions hereof. Accordingly, if at the time ofenforcement of any provision hereof, a court of competent jurisdiction holds that the restrictions stated herein are unreasonable under circumstances thenexisting, the parties hereto agree that the maximum period, scope, or geographic area reasonable under such circumstances shall be substituted for the statedperiod, scope or geographical area and that such court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope andgeographical area permitted by law.7.3 Assignment; Successors. No right, benefit or interest hereunder shall be assigned, encumbered, charged, pledged, hypothecated orbe subject to any setoff or recoupment by the Employee. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of theCompany.7.4 Entire Agreement. This Agreement and the Equity Award Documents represent the entire agreement of the parties and shallsupersede any and all previous contracts, arrangements or understandings between the Company and the Employee relating to the subject matter hereof. ThisAgreement may be amended at any time by mutual written agreement of the parties hereto.7.5 Withholding. The payment of any amount pursuant to this Agreement shall be subject to applicable withholding and payroll taxes.7.6 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey. 47.7 Headings. The headings in this Agreement are for convenience only and shall not be used to interpret or construe any of itsprovisions.7.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all ofwhich together shall constitute one and the same instrument.7.9 Confidentiality.(i)The Employee shall not at any time, except in performance of her obligations to the Company Group under the provisions of this Agreement andas an employee of the Company, directly or indirectly, disclose or use any secret or protected information that she may learn or has learned by reason of herassociation with any member of the Company Group. The term “protected information” includes trade secrets and any and all confidential and/or proprietarybusiness information of the Company Group, including, but not limited to, customers (including potential customers), sources of supply, processes, methods,plans, apparatus, specifications, materials, pricing information, intellectual property (including applications and rights in discoveries, inventions or patents),internal memoranda, marketing plans, contracts, finances, personnel, research, internal policies, as well as potential transactions with third parties which theEmployee is privy to, but shall exclude any information which (i) is or becomes available to the public or is generally known in the industry or industries inwhich the Company Group operates other than as a result of disclosure by the Employee in violation of this Section 7.9 or (ii) the Employee is required todisclose under any applicable laws, regulations or directives of any government agency, tribunal or authority having jurisdiction in the matter or undersubpoena or other process of law.(ii) The Employee shall not directly or indirectly disseminate the terms of this Agreement to any person or entity not a party to this Agreement,except (a) by written agreement of the parties, (b) pursuant to a valid court order or subpoena, (c) as required by law, or (d) as otherwise provided in thissection. Employee may disclose the terms of this Agreement to her attorneys, financial advisors and/or immediate family, provided she first advises them thatthe terms must not be further disclosed.The Employee’s breach of this Confidentiality covenant shall result in the forfeiture of the payments and benefits payable under Section 2. 5IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and the Employee has hereunto set her hand as ofthe day and year first written above.LINCOLN EDUCATIONAL SERVICES CORPORATION By:/s/ Scott Shaw Name: Scott Shaw Title: Chief Executive Officer EMPLOYEE /s/ Deborah Ramentol Deborah Ramentol 6APPENDIX A“Cause” shall mean, with respect to the Employee, (i) the Employee’s willful failure to perform the duties of his employment in any material respect, (ii)malfeasance or gross negligence in the performance of the Employee’s duties of employment, (iii) the Employee’s conviction of a felony under the laws ofthe United States or any state thereof (whether or not in connection with his employment), or (iv) the Employee’s intentional or reckless disclosure ofprotected information respecting any member of the Company Group’s business to any individual or entity which is not in the performance of the duties ofhis employment; provided, however, that in the case of (i) and (ii) above, the Employee shall not be deemed to have been terminated for cause unless he hasreceived written notice of the alleged basis therefor from the Company, and fails to remedy the matter within 30 days after he has received such notice, exceptthat no such “cure opportunity” shall be required in the case of two separate episodes occurring within any 12-month period that give the Company the rightto terminate for cause for such reason.“Change in Control” shall mean:(a)when a “person” (as defined in Section 3(a)(9) of the Exchange Act), including a “group” (as defined in Section 13(d) and 14(d) ofthe Exchange Act), either directly or indirectly becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act)of 25% or more of either (i) the then outstanding Common Stock, or (ii) the combined voting power of the then outstanding votingsecurities of the Company entitled to vote generally in the election of directors; provided, however, that the following acquisitionsshall not constitute a Change in Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company; or(3) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporationcontrolled by the Company;(b)when the stockholders of the Company approve a reorganization, merger or consolidation of the Company without the consent orapproval of a majority of the Company Incumbent Directors;(c)consummation of a merger, amalgamation or consolidation of the Company with any other corporation, the issuance of votingsecurities of the Company in connection with a merger, amalgamation or consolidation of the Company or sale or otherdisposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (each, a“Business Combination”), unless, in each case of a Business Combination, immediately following such Business Combination, allor substantially all of the individuals and entities who were the beneficial owners of the Common Stock outstanding immediatelyprior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares ofcommon stock and 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in theelection of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, anentity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly orthrough one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such BusinessCombination, of the Common Stock; or A-1(d)a complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of theCompany;“Good Reason” shall mean, with respect to the Employee, the occurrence of any of the following (without his written consent): (a) a reduction in theEmployee’s base salary or target annual bonus as in effect on the date or the Change in Control or, if greater the date of termination; (b) an adverse change inthe Employee’s title, authority, duties, responsibilities or reporting lines as in effect on the date of the Change in Control; (c) the relocation of theExecutive’s principal place of employment to a location more than 10 miles from West Orange, New Jersey (d) a failure by the Company to pay materialcompensation when due in connection with the Employee’s employment; or (e) a material breach of this Agreement by the Company; provided, however,that, if any such Good Reason is reasonably susceptible to cure, then the Employee shall not terminate his employment hereunder unless the Employee firstprovides the Company with written notice of his intention to terminate and of the grounds for such termination, and the Company has not, within 10 businessdays following receipt of such written notice, cured such Good Reason.“Equity Award Documents” shall mean (a) any option agreements, restricted stock agreements or other equity award agreements under the Company’s 2005Long-Term Incentive Plan and (b) any stock pledge agreement or promissory note relating to the Executive’s stock options, shares of Company commonstock underlying such options or restricted stock. A-2Exhibit 21.1Subsidiaries of the CompanyThe following is a list of Lincoln Educational Services Corporation’s subsidiaries as of December 31, 2016:NameJurisdiction Lincoln Technical Institute, Inc. (wholly owned)New Jersey New England Acquisition LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware Southwestern Acquisition LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware Nashville Acquisition, LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware Euphoria Acquisition, LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware New England Institute of Technology at Palm Beach, Inc. (wholly owned through Lincoln Technical Institute, Inc.)Florida LTI Holdings, LLC (wholly owned through Lincoln Technical Institute, Inc.)Colorado LCT Acquisition, LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware NN Acquisition, LLC (wholly owned through Lincoln Technical Institute, Inc.)Delaware Exhibit 23 Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in Registration Statement No. 333-148406 and 333-152854 on Form S-3 and 333-126066, 333-132749, 333-138715, 333-158923, 333-173880, 333-188240, 333-138715 “POS,” 333-203806 and 333-211213 on Form S-8 of our reports dated March 10, 2017,relating to the consolidated financial statements and financial statement schedule of Lincoln Educational Services Corporation and subsidiaries (the“Company”), and the effectiveness of Lincoln Educational Services Corporation and subsidiaries’ internal control over financial reporting appearing in thisAnnual Report on Form 10-K of Lincoln Educational Services Corporation for the year ended December 31, 2016./s/ DELOITTE & TOUCHE LLPParsippany, New JerseyMarch 10, 2017 EXHIBIT 31.1CERTIFICATIONI, Scott Shaw, certify that:1.I have reviewed this Annual Report on Form 10-K of Lincoln Educational Services Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(e) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: March 10, 2017 /s/ Scott Shaw Scott Shaw Chief Executive Officer EXHIBIT 31.2CERTIFICATIONI, Brian Meyers, certify that:1.I have reviewed this Annual Report on Form 10-K of Lincoln Educational Services Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 10, 2017 /s/ Brian Meyers Brian Meyers Chief Financial Officer EXHIBIT 32CERTIFICATIONPursuant to 18 U.S.C. 1350 as adopted bySection 906 of the Sarbanes-Oxley Act of 2002Each of the undersigned, Scott Shaw, Chief Executive Officer of Lincoln Educational Services Corporation (the “Company”), and Brian Meyers,Chief Financial Officer of the Company, has executed this certification in connection with the filing with the Securities and Exchange Commission of theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “Report”).Each of the undersigned hereby certifies that, to his respective knowledge:1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Date: March 10, 2017/s/ Scott Shaw Scott Shaw Chief Executive Officer /s/ Brian Meyers Brian Meyers Chief Financial Officer

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