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CECO – Q2 2006 Career Education Earnings Conference Call 

Event Date/Time: August 3, 2006 / 5:00PM ET

In early 2006, the Securities and Exchange Commission closed its investigation into allegations that CEC had inflated attendance figures. This news was welcomed as shares fell from its peak of $70 to $31 over a two year period. However, the feeling didn’t last when the first quarter earnings showed a decrease in enrollment, and the annual forecast wasn’t positive. The shares dropped another 14% and shareholders were clearly upset over their losses, even after a wall street analysis claimed CEC had cleaned up its act, further showing they were not operating with their customers nor in the students best interest.

NYT provided a chart showing the number of recruiters that were hired compared to Career Services advisors at CEC education institutions. Using sales, increased enrollment, and loans issued to students as their recipe for success, CEC showed it was driven by shareholder interests and corporate tax-funded profits, instead of by students education.

Bostic spent $2 million for his unsuccessful campaign to replace CEC Board Members. In response, CEC spent more than double the amount in shareholders money defending its practices. Expensive infighting was one of many ways CEC used their Title IV funded profits to cover-up their illegal business approaches.

During the August 3, 2006 – CECO – Q2 2006 Career Education Earnings Conference Call, John Larson began by first addressing the stocks decline in value and how CEC planned to address the issue, “by hiring more admission representatives and providing bigger sales bonuses”.

Pat Pesch, the company’s CFO, in this same call, discussed loan approval being down and CEC finding creative ways to get around the new DoED co-signing standards. Their plan was to also reduce capital spending – corresponding with testimony highlighting Brooks’ neglect of campus upkeep, failure to update or provide equipment, and “firing” instructors, support and administrative staff in the years following. During the Q&A, Pesch discussed closing of as many as 20 underperforming campuses to boost gains.

“The approval rate for non-recourse alternative loans during the second quarter was approximately 8% lower than previous levels, primarily due to changes in co-signer requirements that were imposed on non-recourse alternative loans. We have relaxed the changes in our co-signer requirement, and are working diligently to bring alternative loan approval rates back to historical levels. As we indicated last quarter, with respect to culinary students, we are also diligently assessing other changes—other changes in the extension of credit that will responsibly balance student needs, growth opportunities, cash generation, and profitability”. [Pat Pesch – CFO of CEC 1999 – 2007]

“In a statement made to Congress by Maxine Waters, CA U.S. House of Representatives, during a testimony on the 90/10 Title IV funding congressional hearing, includes excerpts from a letter written by a CEC owned American Intercontinental University employee, “We have been raising issue with these questionable practices ever since CEC bought AIU three years ago. We saw the demographics shift to primarily low income, D average (and below) students who were ill prepared to commit to the  structure, rigors and requirements of a design college. They  were taking out huge federal loans to pay for their tuition, and then because they had no funds for supplies, transportation, or even food, would fail. I have a DEEP SEATED moral problem with targeting these students, getting hold of their financial aid monies, and lying to them in a variety of ways (i.e. they will be able to get a B.A. degree in two years, they will be able to get a job with JayLo designing, they will be able to get a job with Spielberg  and the list goes on and on). As stated above, the majority of these students recruited are not ready for a college,  especially one that will land them $60,000 to $80,000 in debt IF they finish, which the majority does not. They have no discipline to come to class, to do the work required for completion of the course and we flunk a large number of these applicants. But that’s ok to the Administration. They allow them to withdraw or take a leave, they collect their financial aid and let them back in after a quarter off. A student who had flunked EIGHT QUARTERS (that is 3 classes each quarter at a minimum of $1800 per class for a total of $43,200.). He was re-admitted last year only to continue his poor academic standards, flunking or withdrawing from his classes!!!!!! This is not unusual.’ The faculty hold these students to standards that are in keeping with college level classes, even though we are repeatedly pressured by the administration to “work with them” meaning, “pass” them through so they do not drop out and we can no longer get their federal money!”