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CAREER EDUCATION CORPORATION.
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(Name of Registrant as Specified in Its Charter)
BOSTIC R STEVEN
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The following is a letter that Steve Bostic issued to stockholders of Career
Education Corporation on May 16, 2006:
STEVE BOSTIC
Wachovia Plaza
P.O. Box 31046
Sea Island, Georgia 31561
May 16, 2006
Dear Fellow Stockholders:
In recent weeks, Jack Larson and his Board have attempted to shift the focus of
the May 18 CEC Board election away from their accountability for CEC's serious
accreditation and regulatory problems and its declining enrollments and
earnings. Their personal attacks on me - regarding AIU's operations under my
management, the value and quality of AIU at the time it was acquired by CEC six
years ago, and my "personal agenda" in this proxy contest - have no substance
and are merely a smokescreen to divert attention away from the very real
problems now faced by CEC - problems created by Jack Larson and his Board.
STOCKHOLDERS HAVE LOST
THE LION'S SHARE OF THEIR VALUE
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The real question that stockholders should be asking now is why have they lost
$4 billion in value over the last two years under Jack Larson's leadership? In
the first four months of this year alone, CEC's stock is down 25% from a high of
$42.59, following CEC's disappointing financial results for the 1st quarter of
2006. Why won't management answer my questions about the impact of operational
problems on earnings, including most recently the 96,388 drops identified in a
CEC internal report? Why haven't Jack Larson and Board member Keith Ogata
commented about the significant management role they played at the failed
Phillips Colleges (Phillips) and National Education Centers (NEC), where scores
of schools were closed, students were unable to complete programs or were forced
to transfer to other colleges, and investors lost tens of millions in market
value? Why did AIU-London, a SACS accredited university, just last month become
the only institution to fail an inspection by the U.K.'s Quality Assurance
Agency with a "no confidence" grade, this coming after Jack Larson has been
telling stockholders for months that CEC is making progress on correcting the
serious concerns that lead the Southern Association of Colleges & Schools (SACS)
to put AIU on probation in December, 2005? Why has management recently suggested
to investors that it has resolved the DOE and OIG investigations, when all that
has transpired with those agencies is that CEC has paid $492,000 in liabilities
to close out program reviews of its Collins College and Pennsylvania Culinary
Institute, while most other issues appear to remain unresolved?
AIU HAS BEEN CEC'S MOST SUCCESSFUL ASSET BUT ITS
VIABILITY IS IN JEOPARDY UNDER CURRENT MANAGEMENT
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While Jack Larson and his Board have been attempting to reinvent history
concerning CEC's acquisition of EduTrek International, Inc. and the AIU schools,
the undeniable truth is that AIU
from the start has been a successful division for CEC and today represents its
most valuable asset. Indeed, even after the $4 billion CEC share price
devaluation under Jack Larson, AIU's market value still comprises the lion's
share of CEC's remaining $3 billion market capitalization. But AIU's value
literally is in peril due to SACS probationary findings of major violations of
trust and integrity and of extensive deficiencies in core educational criteria,
all occurring on the watch of Jack Larson and his Board. If Jack Larson and his
Board fail to convince SACS by this fall that CEC's systemic problems have been
substantially remedied and trust and integrity have been restored, AIU most
likely will lose its accreditation in December of 2006, which will be disastrous
for students, employees and stockholders.
CEC acquired AIU for $81 million on January 1, 2001, a business consisting of
seven fully accredited college campuses and the AIU Online Program, newly
accredited by SACS in 1999. Prior to the acquisition, EduTrek - which was
founded in 1996 - experienced a substantial decline in its stock price during
its startup growth years as it encountered various difficulties including the
Asian monetary crisis which reduced total enrollment of students by 20 percent
and reduced pre-tax contribution by $5 million annually. In addition, AIU was
forced to write off $3.5 million to terminate the acquisition of ITI's six
Canadian schools and licenses of their technology curriculum, due to EduTrek's
investment banker's conflict of interest in arranging the transaction.
But the facts are that from its first full year of operations as a private
company in 1996 through the year 2000, AIU's revenues grew from $21 million to
approximately $70 million. Based on a projected run rate for 2001 of $90 million
in revenue, the incremental contribution would yield an estimated pre-tax income
of $9 million. CEC reviewed this information in great detail and was eager to
proceed with the acquisition. And CEC and its stockholders were rewarded
handsomely, with CEC shares trading at $17.20 just a year later - a 70% increase
from the $10.05 at which they were trading before the acquisition. AIU's
enrollments have continued to grow since the acquisition, while in 2005 the CEC
schools that Jack Larson often refers to as "Gold Standard Brands," such as
Gibbs, Brooks Institute and his massage therapy programs, suffered a year to
year decline of over 10% in enrollments. Not surprisingly, some students at
Gibbs and other CEC brand schools like Brooks and Sanford Brown have recently
complained that they were told "a bunch of lies" and given "a song and dance"
during the admissions process and that the education they received "was not
worth the investment." In fact many students surveyed indicated that they have
indebtedness of $75,000 to $110,000 and still have not gained employment in
their "field of study." (1)
Unlike the probation that today threatens AIU's future, when AIU was acquired in
early 2001 by CEC it was not facing any negative action from SACS, as confirmed
in the SACS letter I filed with the SEC on April 27. Following the new campus
opening in Dubai prior to my ownership of AIU, the former president of that
campus indicated they had several routine administrative matters addressed by
SACS concerning the new campus opening. Those issues were dealt with in a timely
way and, contrary to Jack Larson's misleading assertions, caused no
interruptions to AIU's accreditation.
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(1) Independent survey of CEC students commissioned by private investors and
conducted during April 2006.
Nor was AIU under investigation by the DOE or any other regulator. AIU had no
significant shareholder, student or employee lawsuits pending, in stark contrast
to CEC's many shareholder, student and employee lawsuits. AIU in 2000 had no bad
debt or private student loan program, while CEC since then has written off
several hundred million dollars in bad debts and stockholder equity and is being
investigated and sued over its high interest rate private loan programs. AIU's
Title IV student loan "cohort default rate" for the 1999 cohort was 5.4%,
compared to CEC's most recent rate of 9.2% for their 2003 cohort.
BOSTIC MADE INVESTMENTS IN EDUTREK WHILE
JACK LARSON AND HIS BOARD HAVE SOLD MOST OF THEIR CEC STOCK
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Contrary to management's false accusations, I never sold EduTrek stock at any
time during my tenure. In fact, with EduTrek Board approval, I made cash
investments in excess of $1.6 million in EduTrek, in return for stock options
granted at then current market value, which were exercised in accordance with
terms approved by EduTrek's independent Board members. In contrast, Jack Larson,
his Board and fellow executives cashed in approximately 90% of their stock in
the 2nd quarter of 2004. CEC stockholders should be asking Jack Larson and his
Board members about this $66 million cash-in, which occurred just a few weeks
prior to the CEC stock crash. Also, CEC's records show that CEC's management and
Board have cashed in $300 million in stock options. Currently, CEC's Board and
executives own less than 1/2 of 1% of CECO shares.
MY "PERSONAL AGENDA" IS TO CORRECT THE REGULATORY
AND OPERATIONAL PROBLEMS CREATED BY JACK LARSON AND HIS BOARD
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Following the stock devaluation of over 50% in 2004, I began the fight for Board
governance changes in 2005. I have continued the fight for substantive changes
this year, and I am now offering a slate of directors who I believe will
maximize our opportunity for a "market value recovery" over the next 12 to 18
months. I believe the major changes that must be made at CEC are to improve
integrity, trust and credibility with stockholders, regulators and, most of all,
with our valued student population. As the 2000 AIU mission statement read,
"...we are committed to our students' success because their success insures
ours." My nominees and I also intend to improve academic integrity and
excellence through comprehensive curriculum overhaul and development and the
creation of a state-of-the-art in-service faculty training program. And, we
intend to work constructively with the other independent members of the Board to
design and implement a successful market recovery program.
My "personal agenda" in pursuing Board positions at CEC for my fellow nominees,
William Ide and James Copeland, and me is very straightforward:
To restore CEC to the highest level of educational institutions and create value
for its students and stockholders. I do not believe that current management can
do that without a new, intense standard of oversight by the Board.
It is clear to me that I am not alone in my "personal agenda," as government
regulatory agencies (including the DOE, DOJ and OIG), accreditation bodies
(including the Southern Association of Colleges and Schools), numerous litigants
and the media all have questioned CEC's policies and practices for operating a
business in the highly regulated higher education industry. Key members of CEC's
Board have demonstrated a lack of integrity, trust, and credibility with
students, regulators and stockholders. In the past week, the two major
independent shareholder sponsored proxy advisory firms, ISS and Glass Lewis,
also have spoken out with their analysis of the CEC Board situation, by
supporting me and my fellow highly qualified Board nominees against CEC's Board
members.
It is time to restore integrity, trust, excellence and value to CEC. If we are
elected to the Board, you will have our complete dedication and commitment to
resolving CEC's many "Black Clouds," and to recovering our market valuation. I
respectfully request that you vote for significant change to the Board by voting
on the BLUE proxy card for our new director candidates.
Thank you for your support for our company.
Sincerely,
/s/ Steve Bostic
Steve Bostic
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IMPORTANT
If your shares are held in your own name, please sign, date and return the
enclosed BLUE proxy card today. If your shares are held in "Street-Name," only
your broker or bank can vote your shares and only upon your specific
instructions. Please return the enclosed BLUE proxy card to your broker or bank
and contact the person responsible for your account to ensure that a BLUE proxy
is voted on your behalf.
Do not sign any White proxy card you may receive from CEC.
If you have any questions, or need assistance in voting your shares, please
contact the firm assisting us in the solicitation of proxies:
INNISFREE M&A INCORPORATED
TOLL-FREE: (877) 750-9499
Banks and Brokers call collect: (212) 750-5833
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