Whitman Education Group, Inc.
Whitman Education Group, Inc.
Incorporated: 1979 as Whitman Medical Corporation
Sales: $77.6 million (2000)
Stock Exchanges: American
Ticker Symbol: WIX
NAIC: 611519 Other Technical and Trade Schools
Whitman Education Group, Inc. operates more than 20 for-profit, postsecondary schools in 13 states, offering both nondegree certificate programs as well as undergraduate and graduate degree programs. Originally devoted to training ultrasound technicians, Whitman’s Ultrasound Diagnostic School also now offers short-term programs in a variety of healthcare fields at its 15 locations in nine states. The five campuses that comprise Whitman’s Sanford-Brown College offer professional certificate programs in computer technology and business in addition to programs in the healthcare field. Like other Whitman schools, Colorado Tech University is geared toward working adults, but unlike the others it also offers degree programs. Students can earn bachelor’s degrees in computer science, management, engineering, and education; and master’s degrees in computer science, computer engineering, electrical engineering, management, and business administration. Colorado Tech also offers doctorate degrees in computer science and management. The chairman of Whitman’s board is well-known Miami entrepreneur Dr. Phillip Frost, who owns more than a third of the company’s stock.
Founding Whitman Medical Corp. in 1979
The original name of the company was Whitman Medical Corp. when it was first organized in 1979. Operating out of Clark, New Jersey, Whitman Medical made medical products, albeit with little success. In 1984 the company entered the education field by acquiring Ultrasound Technical Services, Inc. for $1,000 and 50,000 shares of stock, thereby gaining two New York schools that trained ultrasound technicians. Combined enrollment totaled just 50 students. Over the next nine years the company would add eight more schools, boosting enrollment to some 400 students. By 1991 the company posted revenues of $3.4 million, attracting the attention of Frost, who in April 1992 led an investment group that purchased 980,000 new shares of Whitman Medical stock for $1.5 million. A trust associated with Frost bought an additional 19 percent of the company. He was soon named chairman of Whitman; its stock nearly doubled in price, mostly due to the strength of his name.
Frost took an unusual path to becoming an acclaimed entrepreneur and eventually cited by Forbes magazine as one of America’s wealthiest people. His formative years in Philadelphia provided what he described as “a meager background.” He learned about business by working in his father’s shoe store, yet he would attend an Ivy League college, The University of Pennsylvania, where he majored in French literature. Unsure of his future plans during his senior year, he turned to medicine, mostly because a scholarship was available for graduates of his old high school at the Albert Einstein College of Medicine in New York. He then distinguished himself during his residency at the University of Miami and was named to the school’s faculty. In 1970 he joined the Mt. Sinai Medical Center in Miami Beach and established the dermatology department, which he would chair until 1990. Aside from his medical practice and administrative duties, Frost found time to become involved in business. He started a fish farm in the everglades, and when a drought dried up his ponds and killed off his stock, Frost displayed a talent for dealmaking that would later serve him well, as he salvaged the venture by selling off the land at a profit. Frost also invented several medical-related devices, including a disposable instrument for doing biopsies. In 1972 he and his partner Michael Jaharis bought a small drug manufacturer, Key Pharmaceuticals, that was on the verge of collapse. Key was intended to market Frost’s inventions, but with Jaharis running the company’s day-to-day affairs, Frost again showed off his talent for making shrewd deals, building the company through a number of acquisitions. He also demonstrated a keen instinct for adaptability. Key found a niche by developing and marketing new delivery systems for already proven drugs. The culmination for Frost at Key came in 1986 when he was able to sell the business to Schering-Plough for a staggering $835 million, pocketing $150 million for both himself and his partner. Frost then bought Diamedix, a diagnostics kit company, and Pharmedix, a pharmaceutical company, both of which were small and losing money. In December 1987 he combined them with a chemical company named Ivaco to create IVAX Corp. By the mid-1990s, IVAX would be America’s largest generic drug maker.
Compared with his previous ventures, Frost’s involvement with Whitman Medical was from a major transaction. As chairman of the Department of Dermatology at Mt. Sinai Medical Center of Greater Miami from 1972 to 1990, as well as serving as a trustee of the University of Miami, Frost had shown a commitment to education, but he also recognized the business potential of Whitman Medical’s proprietary schools. Although business schools and technical schools had operated in America for more than a century, proprietary schools generally suffered from an unsavory reputation, considered in higher education circles as little more than diploma mills, whose graduates had an unusually high default rate on student loans. Both the federal government and a number of states cracked down on the industry. In 1989 federal regulations on student loans were tightened so that schools were dropped from the program if student default rates exceeded 40 percent in one year or 25 percent in three consecutive years. States also took steps to make sure that programs were providing a legitimate education. As a result, many of the less reputable schools were forced to close their doors. At the same time, the demand for training, especially among adults already in the workforce, was growing. Downsized workers looked to find new areas of employment, while other students simply wanted to move to higher paying jobs. Furthermore, as businesses became computerized, many established workers also required new training in order to perform their work. The initial public offering of stock made by technical school giant De Vry in 1991 reflected the rising prospects for proprietary schools. A highly fragmented industry overall, postsecondary, proprietary education was poised for consolidation by companies with the necessary financial backing.
Concentrating on Education in 1993
After Frost became chair of Whitman, Randy S. Proto continued to serve as president. Until Frost bought into the company Proto had been the chief executive officer for seven years, with an ownership stake in a number of Whitman Medical’s proprietary schools. Before that he had worked for Computer Processing Institute, serving in a number of executive capacities before becoming vice-president and school director. In 1993, Whitman Medical discontinued its manufacturing operations in order to devote all of its resources to its education business. In 1994 the company added five new Ultrasound Diagnostic School locations, bringing the total to 15. It also made its first major acquisition, the $9 million combined cash and stock purchase of San-ford-Brown College. The history of Sanford-Brown dated back to 1868 when the school was established in St. Louis to train Civil War veterans. For fiscal 1994 Whitman generated more than $12 million in revenues and posted a profit of $352,819. With the Sanford-Brown acquisition adversely impacting the bottom line in 1995, Whitman Medical would lose almost $150,000, although revenues would increase to approximately $17.5 million.
Whitman Medical undertook a number of changes in 1996. To better reflect the new focus of the business the company changed its name from Whitman Medical Corp. to Whitman Education Group, Inc. It also relocated from New Jersey to Miami, setting up shop in IVAX’s office building. Not only did the move bring the business closer to Frost, the company’s largest shareholder, Whitman also was interested in Florida’s growing population, looking to expand upon the schools it already operated in Pompano Beach, Tampa, and Jacksonville.
In March 1996 Whitman made its second major acquisition, taking over Colorado Technical College and its advertising agency, Concept Communications, in an all-stock transaction. The school was established in 1965 in Manitou Springs, Colorado, with the goal of training ex-military personnel in such fields as television and radio repair. It went through a number of owners before ex-Marine and former mattress salesman David O’Donnell took over in 1986. He inherited one building with a condemned roof, $1.8 million in debt, and just 240 students. He moved the trade school to Colorado Springs and began the process of turning around the business before eventually selling out to Whitman. Because Colorado Tech had been accredited by the North Central Association of Colleges and Schools in 1986, it formed the basis of Whitman’s University Degree Division, As the result of the merger with Whitman, however, the school lost its eligibility for federally funded student financial aid programs. Nevertheless, Colorado Tech continued to grow under O’Donnell and its new parent corporation. The school opened a new campus in Denver in the Denver Tech Center, then acquired Huron University and its two South Dakota campuses. Having lost its accreditation, Huron, which was founded in 1883, was on the verge of collapse when Colorado Tech purchased the school for $2.25 million. The Sioux Falls campus would serve as a new location for Colorado Tech, while the main Huron campus would take Whitman into the residential institution business, serving more traditional college-age students. Also in 1996, Ultrasound Diagnostic Services added to its curriculum. Beginning with seven of its schools, it offered a Cardiovascular Technology program, which trained medical personnel in noninvasive cardiac procedures, including EKG, echocardiography, and stress testing. The new Medical Assisting program provided training in basic healthcare administrative functions such as scheduling, insurance billing, and medical computer systems, as well as training for basic on-site laboratory tests, vital signs, sterile procedures, diet, and medication. Overall in 1996 Whitman saw its revenues more than double, exceeding $36 million, but again the company posted a loss, which amounted to $100,000.
Whitman is a proprietary provider of career-oriented post-secondary education. Our students are predominantly adults seeking graduate, undergraduate and non-degree certificate and diploma programs to facilitate their success in the high-demand job fields of information technology, healthcare and business.
Suffering a Downturn in 1996
Although Frost made the 1996 Forbes 400 list of the nation’s wealthiest people, attributed with a personal fortune of $490 million, his reputation for a Midas touch was coming under question. IVAX went through two failed merger attempts, and poor financial results led to a 64 percent drop in the company’s stock in 1996, forcing a sell-off of nondrug assets. The price of Whitman stock, which had risen from $3 a share in 1995 to almost $10 a share by July 1996, also would begin to suffer, as investors became less enamoured by the so-called “Frost factor” and began looking for more tangible evidence that Whitman was ever going to be profitable. In 1997 the company would again see increased revenues, nearly $47 million, yet it lost more than $4.3 million.
In March 1997, Frost brought in one of his IVAX executives to run Whitman, installing Richard C. Pfenniger in the newly created position of chief executive officer and vice-chairman. An attorney, Pfenniger had served in a number of positions at I VAX, including chief operating officer and secretary of the corporation. He had also been a member of Whitman’s board since 1992. As the company digested its acquisitions and Pfenniger made efforts to control costs, Whitman returned to modest profitability in 1998. Revenues continued to grow, exceeding $60 million, and Whitman reported a net profit of $143,000. During 1998, the company also decided to unload its Huron acquisition, selling the university to a group of investors led by the school’s chancellor. Despite increased enrollment Huron was losing money, and Whitman recognized that the growth area in the proprietary education industry was working adults who attended part-time, rather than recent high school graduates who attended a residential institution. The proprietary education business continued to look promising, accounting for $3.5 billion in 1995, according to the most recent numbers. Moreover, that figure was just 2 percent of the $211 billion a year spent on higher education, indicating that there was still considerable upside for companies like Whitman.
It appeared that Whitman finally had turned the corner in fiscal 1999. The company earned more than $3 million on revenues that now approached $74 million, yet the company stumbled early in fiscal 2000. A change in advertising strategy, turning to radio and television instead of print, proved ineffective. Enrollment was down, first quarter results revealed a significant loss, and the price of Whitman stock began to slide. In response Pfenniger instituted a $1.5 million cost reduction program for the remainder of the year. Perhaps more troubling was the bad publicity the company received over a lawsuit that originally began in 1997 and achieved class action status in 1998.
The suit, initiated by former students of Ultrasound Diagnostic Schools, alleged that the school did not meet the minimal standards of an ultrasound program because it lacked meaningful admission standards, instructors were not qualified, and students were allowed to graduate without demonstrating proficiency. In essence, the suit alleged that the ultrasound school perpetuated fraud, using students to secure money through the federal government student loan program. Pfenniger vehemently denied the charges, contending that Whitman was the victim of opportunists. Nevertheless, the company settled the suit for $7.3 million in October 2000. Although some of the amount was covered by insurance, Whitman would have to take a one-time, after-tax charge of $932,000. Pfenniger continued to deny the charges and insisted that the company simply settled to avoid further litigation costs.
In part due to the settlement, Whitman lost $500,000 in 2000 on revenues of $77.6 million. The company’s stock also dipped as low as $1. Whitman continued to show promise, however, in that it was well established in a business marked by tremendous opportunity. The number of potential students in coming years was a statistical reality, and the increasing need for postsecondary school training in the modern world was not in dispute. Moreover, the business seemed recession-proof, with bad economic times simply increasing the need for training. The likelihood was high that Whitman would eventually find its feet. Whether it would become another $1 billion business to add to the mystique of Phillip Frost, however, seemed far less certain.
Ultrasound Technical College, Inc.; Sanford-Brown College, Inc.; CTU Corporation; Colorado Technical University, Inc.
Corinthian Colleges, Inc.; De Vry Inc.; ITT Educational Services Inc.
- Whitman Medical Corp. established.
- The company acquires Ultrasound Technical Services.
- Dr. Phillip Frost becomes chairman of the board.
- Manufacturing operations are discontinued.
- Sanford-Brown College is acquired.
- The name is changed to Whitman Education Group; Colorado Technical University is acquired.
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Hick, Virginia Baldwin, “Trade Schools Pick Up Business,” St. Louis Post-Dispatch, April 29, 1996, p. 10.
Hosford, Christopher, “Following Frost’s Footsteps,” South Florida Business Journal, November 23, 1992, Sec. 1, p. 1A.
Jaffe, Thomas, “The Patient Recovered,” Forbes, August 23, 1999,p. 66.
Millar, Susan R., “Making the Grade with Whitman,” South Florida Business Journal, July 8, 1996.
Miracle, Barbara, and Janice G. Sharp, “The Florida CEO: Who Delivers—and Who Doesn’t,” Florida Trend, June 1994, Sec. 1,p. 39.
Narvaes, Emily, “Colorado Tech Earning High Grades,” Denver Post, July 7, 1997, p. El.
Reingold, Jennifer, “Play It Again, Sam,” Financial World, March 11,1996, p. 24.
Strosnider, Kim, “For-Profit Higher Education Sees Booming Enrollments and Revenues,” Chronicle of Higher Education, January 23,1998, pp. A36-A38.