Cash-strapped culinary school pins hopes on IPO

Nation's Restaurant News, July 19, 1993 by Alan Liddle

The California Culinary Academy in San Francisco nabbed a sizable chunk of change, but not all that it wanted, through an initial public offering early this month.

About a half million shares of CCA stock -- listed on NASDAQ -- traded for $6.50 on the first day and was recently trading at $6.13.

Academy officials and their IPO organizer, Paulson Investment Co. Inc. of Portland, Ore., indicated in a prospectus that they assumed the stock might go for as much as $7.50 a share. The sale of the million shares available would net the school $6.1 million after expenses, the prospectus said.

If the "expenses" were fixed, the academy brought in just a third of what it wanted in the first days after the IPO.

Innovative but strapped for cash, the 16-year-old chefs' school overseen by Thomas Bloom is hungry for funds to expand and pay down debt. Money is also needed to protect the school's accreditation and ability to funnel federal financial aid to students.

New monies are needed, academy officials explained, so that the CCA can continue to grow and remain competitive with long-established rivals, including Johnson & Wales and the Culinary Institue of America. The Hyde Park, N.Y.-based CIA recently purchased property in the Napa Valley near San Francisco and is developing professional programs.

According to a CCA prospectus, for the six months ended Feb. 28 the academy reported revenues of $5.4 million, up 15 percent from the figure for the similar period a year earlier, and net income of $430,000, an increase of nearly 51 percent over 1992 levels. For the year ended Aug. 31, 1992, revenues rose by 22 percent, to $9.7 million, while net income grew nearly 18 times, to $752,000.

Despite such recent financial feats, the school's balance sheet showed a "working capital deficiency" of $3.8 million as of Feb. 28. Debt incurred by the current owners shortly after they purchased the school from the Wesson Corp. in 1987 and lease obligations are two contributing factors behind the deficit.

The U.S. Department of Education has informed the academy that it is out of compliance with financial ratio and net worth requirements associated with federal aid programs and therefore must secure a $1.3 million letter of credit or create an escrow account if it wants to continue offering such assistance. Also, the accreditation commission for the Career College Association has expressed concern about the school's financial condition, "as evidenced by its negative net working capital," the prospectus said.

CCA officials said in the prospectus that successful completion of the IPO would alleviate the concerns of the Department of Education and Career College Association. They acknowledged, however, that loss of federal financial aid, which represents approximately 55 percent of the academy's total tuition revenues, and loss of Career College Association accreditation would have "a material adverse effect on the company's revenues and profitability."

The CCA has garnered national recognition in recent years through its critically acclaimed "Cooking at the Academy" television series, which aired on public television stations.

Speaking of chef's schools: The heightening competition for students cited by CCA officials has not been lost on the Western Culinary Institute in Portland, Ore. The school stepped up public relations noticeably in recent months, but one has to wonder if remarks attributed to one of its instructors in a recent series of new articles on food safety are going to endear it to those regional operators the placement office probably calls on when scouting job leads for grads.

WCI is expanding and is now spread over three buildings on Portland's outskirts, featuring a fine-dining restaurant and four training kitchens in one and deli and diner, bakery and soups-stocks-and-sauces kitchen in another. The third building has classrooms.

Student levels have doubled to about 400 since 1988, and a spokesman said there can be enrollment waits for some of the eight program start times scattered throughout the year. WCI is accredited by the American Culinary Federation Educational Institute.

Greg Taylor, a WCI instructor, was recently cited in several parts of a series on food safety in restaurants that appeared in Portland's daily, The Oregonian.

"The kitchen isn't a safe place," Taylor was quoted as saying. "Eating out is playing sanitation roulette."

In that same series Taylor is quoted as saying: "Corners get cut from the very beginning, when managers hire employees and don't train them on food safety. At 70 percent of the restaurants you just show up and go for it."

Roland Henin, a noted American Culinary Federation member and executive chef for Portland-based Old O.S.F. International, owner of the Old Spaghetti Factory chain, is also quoted.

In one instance he refers to a county safe food-handling test as "a farce." In another he said of food-handling mistakes, "A lot of times it's ignorance, lack of training, but sometimes it's due to the time constraints because of a rush or because someone is sick."