Career Education Corporation

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Career Education Corporation

2895 Greenspoint Parkway, Suite 600
Hoffman Estates, Illinois 60195
U.S.A.
Telephone: (847) 781-3600
Fax: (847) 781-3610
Web site: http://www.careered.com

Public Company
Incorporated: 1994
Employees: 4,900
Sales: $325.29 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: CECO
NAIC: 611310 Colleges, Universities, and Professional Schools

Career Education Corporation (CEC) operates a string of for-profit professional schools and colleges on about 40 campuses that grant associate’s, bachelor’s, and master’s degrees in the fields of visual communication and design technologies, information technology, business studies, and culinary arts. In the latter category, CEC institutions offer training certified by prestigious French cooking school Le Cordon Bleu. The company’s schools are located around the United States and in Canada, England, and the United Arab Emirates. The publicly traded firm is one of the largest for-profit educational concerns in the United States, having grown rapidly since its 1994 founding through an aggressive acquisition strategy.

Beginnings

Career Education Corporation was founded in January 1994 by John M. Larson to take advantage of the consolidation opportunities afforded by the fragmented post-secondary education industry. Larson, a graduate of Stanford and the University of California at Berkeley, had nearly 20 years’ experience in the field of education, having worked for Phillips Colleges, Inc. and National Education Centers, Inc., among others. The new company’s strategy was to grow by acquiring established schools which it would then make more profitable. Its initial focus was institutions offering business studies, visual design, and information technology programs. The first purchase made by CEC was the Al Collins Graphic Design School in Tempe, Arizona, which had been founded in 1978. In mid-1994 a second institution, Brooks College of Long Beach, California, was also acquired. Revenues for the company’s first year were $7.5 million.

CECŉs business strategy was to purchase promising schools and then upgrade them. This typically involved improving their facilities and adding new course offerings. The company limited its acquisitions to schools that offered training in fields in which there was a strong continuing demand for workers, and which attracted motivated students. A major goal of CEC was improvement of student retention and graduation rates, and high job placement percentages. The company also sought to emphasize programs that would serve people throughout a lifetime of learning, with degree offerings that ranged from the associate’s up to the master’s level.

In July 1995 CEC added Brown Institute of Mendota Heights, Minnesota, and Allentown Business School of Allen-town, Pennsylvania. Brown had been founded in 1946, while Allentown’s history went back to 1869. Both offered training in computer technology and visual design.

In October 1996 CEC entered the field of culinary arts when it acquired the Western Culinary Institute of Portland, Oregon. The restaurant and food service field was expected to have a shortage of workers for some time to come, giving education providers in that area a solid opportunity for growth. The following spring the School of Computer Technology of Pittsburgh, Pennsylvania, and Fairmont, West Virginia, was acquired for approximately $5 million. Some $1.8 million more was paid to the institution’s former owners as part of a noncompetition agreement. Another multi-campus operation, the Katharine Gibbs Schools, was bought in the summer from K-III Communications Corp. The 85-year-old Gibbs Schools, with a half-dozen locations in the middle Atlantic and New England states, offered business training. K-III received $19 million, as well as $7 million in non-compete payments. At about the same time an agreement was reached for the acquisition of the International Academy of Merchandising and Design, which had locations in Chicago and Florida. The price tag was $6.5 million plus $2 million in non-compete money.

Initial Public Offering

In the fall of 1997 CEC announced plans to issue 2.85 million shares of stock on the NASDAQ exchange for the purpose of repaying debt. The IPO was launched in early 1998, and raised more than $45 million for the company. In March CEC purchased the Southern California School of Culinary Arts, located in Pasadena, California, for $1 million. Another cooking school was acquired in July when the Scottsdale Culinary Institute of Scottsdale, Arizona, was bought for $10 million.

At the end of the year plans were made to acquire the Harrington Institute of Interior Design, a 400-student school located in Chicago. The $3.5 million deal was finalized in January 1999, and boosted CECŉs totals to nearly 16,000 students at 21 campuses in 13 states and two Canadian provinces. Revenues stood at $144.2 million, with net income of $4.3 million, almost 20 times the amount of four years earlier.

In December 1998 the company formed the CEC Educational Foundation to fund scholarships for students enrolled in CEC schools. With many pursuing an education while working part or full-time, and with educational costs constantly rising, the foundation was intended to make it easier for CEC students to finish school. Much of its funding came from alumni and from firms that routinely recruited CEC graduates. The company also formed a Professional Education Loan program in partnership with the Student Loan Marketing Association (Sallie Mae).

Scoring a Coup with Le Cordon Bleu: 1998

A major agreement was reached in late 1998 with the French culinary arts school Le Cordon Bleu to offer its first sanctioned programs in the United States through CEC schools. Le Cordon Bleu had been founded in Paris in 1895 and was renowned as one of the finest institutions of its type in the world. The Cordon Bleu training program emphasized classic French cooking techniques which could be applied to any type of cuisine. Le Cordon Bleu had schools in Paris, London, Tokyo, Australia, and Ottawa, Canada. The first U.S. programs would be offered at CECŉs Brown Institute campus in Minnesota, where the new Midwest Culinary Academy was set to open in January 1999, and later at other locations.

The company’s acquisitions continued in the spring of 1999 when McIntosh College of New Hampshire was bought for $5 million and Briarcliffe College of New York was purchased for $20.6 million. The latter had 1,300 students at two campuses in Bethpage and Patchogue, New York. In June Brooks Institute of Photography of Santa Barbara, California, was bought. Brooks, acquired for $6.6 million, had some 300 students enrolled in photography and filmmaking courses.

In August an agreement to purchase another cooking school was reached. The California Culinary Academy, a publicly traded company, would be acquired for approximately $22 million when the deal was finalized the following spring. The school, like most acquired by CEC, had a relatively long history, having been founded some 20 years earlier. California Culinary, CECŉs sixth culinary arts acquisition, was headquartered in San Francisco and operated satellite campuses in Salinas and San Diego.

In December Washington Business School was purchased. The 49-year-old school operated out of Tysons Center, Virginia, near Washington, D.C. CEC would update its programs to offer associate’s degrees and add new classes that would complement the school’s business-oriented curriculum. The deal cost the firm $3 million.

Early 2000 saw the purchase of the Culinary and Hospitality Institute of Chicago for approximately $5.5 million. Known as CHIC, the school had approximately 700 students. CEC committed $10 million to doubling its size to 40,000 square feet. During CHICŉs first year in operation as a CEC unit the school’s income more than doubled, increasing from $5 million to $11 million.

CECŉs Le Cordon Bleu agreement was expanded during 2000 to include restaurant management training, which would be taught at the Western Culinary Institute in Portland, Oregon, beginning in January 2001. By this time six of CECŉs eight culinary arts schools were offering Le Cordon Bleu-authorized training. To prepare for the management program, CEC spent $2 million on new facilities at Western, which included computer labs, a charcuterie, and a restaurant dubbed the International Bistro, which students would operate as part of their training. The program included special attention to point-of-service technology that would record seating arrangements, process orders, track cash flow, and provide reports on labor costs and expenditures.

In July 2000 CEC purchased SoftTrain Institute of Toronto, Canada, which offered information technology training, for $500,000. The school had been founded in 1988, and plans were soon afoot to offer some of its programs at other CEC schools. Another small Canadian acquisition followed in the fall when Retter Business College of Ottawa was purchased for $400,000. Retter offered training in multimedia web development, software engineering, and computer network engineering. Its name was subsequently changed to the International Academy of Design and Technology at Ottawa.

Company Perspectives:

We are a dynamic educational services company committed to quality, career-focused learning led by passionate professionals who inspire individual worth and lifelong achievement.

Purchase of EduTrek: 2000

In October 2000 CEC announced its largest purchase to date with the acquisition of EduTrek International, Inc. Georgia-based EduTrek owned and operated American Intercontinental University (AIU), which had some 4,700 students at campuses in Atlanta, Los Angeles, Ft. Lauderdale, Washington, D.C, London, and Dubai, United Arab Emirates. AIU, founded in 1970, granted bachelor’s and master’s degrees in visual communication and design, business studies, and information technology. The deal involved the exchange of 1.2 million shares of CEC stock as well as assumption of debt, for a total price of approximately $70 million. The company’s plan for AIU was to cut costs by restructuring operations and to increase advertising to attract more students. For fiscal 2000 CECŉs income hit a record $325.3 million, with profits of $21.4 million.

The company was now employing a number of methods for recruiting students, including web sites, direct mail, television and print media, and high school visits. CEC targeted a mix of people that included recent high school graduates, older students, and international students. The company’s marketing efforts were boosted by partnerships with college guide publisher Peterson’s and online college application service Embark. In addition to classroom training, CEC also offered distance learning over the Internet in some disciplines. The firm’s focus on raising student retention rates was showing strong results, with an average of 76 percent remaining enrolled year-to-year in 2000. A new program, “Save Our Students” (S.O.S.), was launched in 2001 to further increase this figure. The company’s job placement record was one factor that brought its students back, with 94 percent of CEC graduates gainfully employed within six months of graduation. The rate was an even better 98 percent for the culinary arts programs.

The year 2001 also saw CEC open a new branch of the Katharine Gibbs Schools in Philadelphia. The new campus was the ninth unit for Gibbs, which had more than 8,000 students enrolled at this time. Two programs in information technology and two in business studies would be offered. Others in visual communication and design technologies were to be added later. The main campus offered a wireless multimedia learning resource center, classrooms, a bookstore, and a student lounge. Students could buy a wireless laptop computer that would connect them with faculty, educational resources, and the Internet. During the year CEC also opened a new campus of the International Academy of Design and Technology in Orlando, Florida. In August, Texas Culinary Academy was bought for $ 1.1 million, followed in December by the acquisition of the Pennsylvania Culinary Academy of Pittsburgh for $44 million, further solidifying the company’s offerings in this category.

After only eight years in business, Career Education Corporation was proving phenomenally successful, its revenues having grown more than 40-fold. The company was also scoring with its customers, boasting high student retention and job placement rates. With a large number of independent post-secondary schools still potentially available for purchase, CEC looked to be on track for continuing growth and profitability.

Principal Subsidiaries

Al Collins Graphic Design School, Ltd.; Allentown Business School, Ltd.; Brooks College, Ltd.; Brown Institute, Ltd.; CEC Educated Staffing, Inc.; CEC e-Learning, Inc.; CEC Holdings I, Inc.; CEC Management, Inc.; The Cooking and Hospitality Institute of Chicago, Inc.; EduTrek International, Inc.; Harrington Institute of Interior Design, Inc.; IAMD, Limited; International Academy of Merchandising and Design (Canada) Ltd.; Market Direct, Inc.; Retter Business College Corp. (Canada); School of Computer Technology, Inc.; Scottsdale Culinary Institute, Ltd.; SoftTrain Institute, Inc. (Canada); Southern California School of Culinary Arts, Ltd.; Western Culinary Institute, Ltd.

Principal Competitors

DeVry, Inc.; Apollo Group, Inc.; ITT Educational Services, Inc.; Education Management Corp.

Key Dates:

1994:: John M. Larson founds Career Education Corporation, begins acquisitions.
1996:: CEC enters field of culinary arts with purchase of Western Culinary Institute.
1998:: Company completes its IPO on the NASDAQ.
1999:: Company begins to offer Le Cordon Bleu-certified culinary arts programs.
2000:: Purchase of EduTrek International, Inc. brings 4,700 students, six U.S. and foreign campuses.