<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________________
Commission file number 0-25283
CORINTHIAN COLLEGES, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0717312
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
6 Hutton Centre Drive, Suite 400, Santa Ana, California
(Address of principal executive offices)
92707
(Zip Code)
(714) 427-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [_] No [X]
At March 15, 1999, 10,345,623 shares of Common Stock and Nonvoting Common Stock
of the Registrant were outstanding.
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1998 and December 31, 1998.............................. 3
Condensed Consolidated Statements of Operation for the
quarter and six months ended December 31, 1997 and 1998.......... 4
Condensed Consolidated Statements of Cash Flows for the
six months ended December 31, 1997 and 1998...................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk........ 11
PART II - OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities and Use of Proceeds........................ 11
Item 6. Exhibits and Reports on Form 8-K................................. 11
SIGNATURES................................................................ 12
- ----------
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1998
------------ ------------
<S> <C> <C>
(Unaudited)
ASSETS
- --------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 2,402 $ 467
Restricted cash.......................................................... 760 760
Accounts receivable, net of allowance for doubtful accounts of
$3,519 and $2,764 at June 30, 1998 and December 31, 1998,
respectively........................................................... 10,077 11,705
Student notes receivable, net of allowance for doubtful accounts of
$457 and $424 at June 30, 1998 and December 31, 1998, respectively..... 1,776 1,621
Deferred income taxes.................................................... 2,396 2,396
Prepaid expenses and other current assets................................ 3,126 3,450
------- -------
Total current assets................................................ 20,537 20,399
PROPERTY AND EQUIPMENT, net............................................... 10,332 10,481
OTHER ASSETS:
Intangibles, net of accumulated amortization of $2,010 and $2,564 at
June 30, 1998 and December 31, 1998, respectively...................... 22,719 21,764
Student notes receivable, net of allowance for doubtful accounts of
$1,829 and $1,697 at June 30, 1998 and December 31, 1998, respectively. 4,408 4,789
Deposits and other assets................................................ 1,909 2,647
------- -------
TOTAL ASSETS........................................................ $59,905 $60,080
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable......................................................... $ 4,727 $ 5,645
Accrued compensation and related liabilities............................. 3,704 2,766
Accrued expenses......................................................... 880 1,127
Accrued interest......................................................... 1,295 1,512
Income tax payable....................................................... 1,739 1,844
Prepaid tuition.......................................................... 2,952 3,081
Current portion of long-term debt........................................ 4,634 8,139
------- -------
Total current liabilities........................................... 19,931 24,114
------- -------
LONG-TERM DEBT, net of current portion.................................... 31,535 25,464
------- -------
DEFERRED INCOME TAXES..................................................... 121 371
------- -------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK................................................ 2,167 2,233
------- -------
CONVERTIBLE PREFERRED STOCK............................................... 5,174 5,388
------- -------
STOCKHOLDERS' EQUITY:
Common Stock, $0.0001 par value:
Common Stock, 40,000 shares authorized, 4,924 shares
issued and outstanding at June 30, 1998 and December 31, 1998..... 1 1
Nonvoting Common Stock, 2,500 shares authorized, 1,415 shares
issued and outstanding at June 30, 1998 and December 31, 1998..... - -
Additional paid-in capital.......................................... 1,374 1,374
Notes receivable for stock............................................... (187) (187)
Retained earnings (Accumulated deficit).................................. (211) 1,322
------- -------
Total stockholders' equity.......................................... 977 2,510
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................... $59,905 $60,080
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
CORINTHIAN COLLEGES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------- -------------------
1997 1998 1997 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES..................................... $26,440 $32,974 $50,786 $63,270
------- ------- ------- -------
OPERATING EXPENSES:
Educational services........................... 15,881 18,711 31,293 36,689
General and administrative..................... 2,640 3,468 5,201 6,758
Marketing and advertising...................... 5,844 7,221 12,147 14,856
------- ------- ------- -------
Total operating expenses.................... 24,365 29,400 48,641 58,303
------- ------- ------- -------
Income from operations...................... 2,075 3,574 2,145 4,967
INTEREST EXPENSE, net............................ 862 791 1,671 1,694
------- ------- ------- -------
Income before provision for income taxes.... 1,213 2,783 474 3,273
PROVISION FOR INCOME TAXES....................... 501 1,265 190 1,460
------- ------- ------- -------
NET INCOME....................................... $ 712 $ 1,518 $ 284 $ 1,813
======= ======= ======= =======
INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS:
Net income..................................... $ 712 $ 1,518 $ 284 $ 1,813
Less preferred stock dividends................. (31) (147) (61) (280)
------- ------- ------- -------
Income attributable to common stockholders.. $ 681 $ 1,371 $ 223 $ 1,533
======= ======= ======= =======
Net income per common share:.....................
Basic.......................................... $ 0.14 $ 0.26 $ 0.04 $ 0.29
======= ======= ======= =======
Diluted........................................ $ 0.10 $ 0.19 $ 0.03 $ 0.21
======= ======= ======= =======
Weighted average number of common shares
outstanding:
Basic.......................................... 4,961 5,236 4,961 5,236
======= ======= ======= =======
Diluted........................................ 7,040 7,333 6,952 7,333
======= ======= ======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 284 $ 1,813
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization........................... 1,474 1,682
Deferred income taxes................................... -- 250
Changes in assets and liabilities:
Accounts receivable................................... 13 (1,628)
Student notes receivable.............................. (834) (226)
Income tax refund receivable.......................... 190 --
Prepaid expenses and other assets..................... (1,897) (914)
Accounts payable...................................... (1,342) 918
Accrued expenses...................................... (244) (474)
Income tax payable.................................... -- 105
Prepaid tuition....................................... (1,919) 129
------- -------
Net cash provided by (used in) operating activities..... (4,275) 1,655
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Phillips Colleges acquisition purchase price adjustment... -- 402
Capital expenditures...................................... (1,007) (1,168)
------- -------
Net cash used in investing activities................... (1,007) (766)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of convertible preferred stock......... 4,934 --
Increase in deferred financing costs...................... (163) (259)
Borrowings under long-term debt........................... 1,000 3,200
Principal repayments on long-term debt.................... (3,059) (5,765)
------- -------
Net cash provided by (used in) financing activities..... 2,712 (2,824)
------- -------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS................ (2,570) (1,935)
CASH AND CASH EQUIVALENTS, beginning of period............. 2,821 2,402
------- -------
CASH AND CASH EQUIVALENTS, end of period................... $ 251 $ 467
======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - The Company and Basis of Presentation
Corinthian Colleges, Inc. (the "Company") is in the business of operating
degree and non-degree granting private, for-profit post-secondary schools
devoted to career program training primarily in the medical, technical and
business fields.
The accompanying unaudited consolidated financial statements have been
prepared on the same basis as the annual consolidated financial statements and,
in the opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial condition and
results of operation of the Company. These consolidated financial statements
and notes thereto are unaudited and should be read in conjunction with the
Company's audited financial statements included in the Company's final
Prospectus, as filed with the Securities and Exchange Commission on February 5,
1999. The results of operations for the six months ended December 31, 1998 are
not necessarily indicative of results that could be expected for the entire
fiscal year.
The consolidated financial statements as of December 31, 1998 and for the
three and six months then ended are consolidated and include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Note 2 - Weighted Average Number of Common Shares Outstanding
The table below indicates the weighted average number of common share
calculations used in computing basic and diluted net income per common share
utilizing the treasury stock method (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic common shares outstanding................ 4,961 5,236 4,961 5,236
Effects of dilutive securities:
Warrants..................................... 701 968 613 968
Non-vested executive Common Stock............ 551 275 551 275
Non-vested executive Nonvoting Common Stock.. 827 827 827 827
Stock options................................ n/a 27 n/a 27
----- ----- ----- -----
Diluted common shares outstanding:............. 7,040 7,333 6,952 7,333
===== ===== ===== =====
</TABLE>
Note 3 - Subsequent Events
On February 10, 1999 the Company completed an initial public offering of
Common Stock (the "Offering"). Prior to the Offering, on February 3, 1999 the
Company filed with the Delaware Secretary of State its Restated Certificate of
Incorporation, which was thereby amended, to provide for, among other things,
(i) an increase in the authorized capital stock of the Company to 43,000,000
shares, (ii) a 44.094522 for 1 split of all shares of the Common Stock and
Nonvoting Common Stock, and (iii) a change in par value for the Common Stock and
Nonvoting Common Stock to $0.0001 per share. All share and per share amounts
shown in the accompanying consolidated financial statements have been
retroactively adjusted to reflect this increase in authorized shares, stock
split and change in par value.
In connection with the Offering, the Company also caused the conversion of
all existing Series 2 Convertible Preferred Stock into 388,334 shares of
Nonvoting Common Stock and all existing Series 3
6
<PAGE>
Convertible Preferred Stock into 388,334 shares of Common Stock. The holders of
826,773 shares of Nonvoting Common Stock exercised their contractual rights to
exchange all such shares of Nonvoting Common Stock for an equal number of shares
of Common Stock. The holders of all outstanding exercisable warrants to purchase
Common Stock and Nonvoting Common Stock exercised such warrants for an aggregate
of 330,362 shares of Common Stock and 200,005 shares of Nonvoting Common Stock.
Concurrent with the Offering, the Company granted an option to purchase 6,000
shares of Common Stock at $18.00 to each of its four directors who are not
employees of the Company. The options will vest at the rate of 50% on each of
the first and second anniversaries of the grant date.
In the Offering, the Company issued and sold 2,700,000 shares of Common
Stock at a price of $18.00 per share. The Company received total net proceeds,
after deduction of underwriting discounts, of approximately $45.2 million.
Subsequent to the Offering, the Company applied $1.8 million of the proceeds to
the expenses of the Offering, repaid $22.6 million of senior indebtedness,
including a prepayment penalty of $2.6 million, repaid $5.0 million of
subordinated indebtedness, repaid $3.0 million of outstanding credit facility
borrowings, redeemed $2.2 million in redeemable preferred stock including
accumulated dividends thereon, and paid accumulated dividends of $0.5 million on
convertible preferred stock. The remaining $10.1 million of proceeds are
available for general corporate purposes.
In February, 1999 the Company recorded a $2.0 million extraordinary loss,
net of tax benefit, resulting from the prepayment penalty and the write-off of
deferred loan fees associated with the early extinguishment of the indebtedness
mentioned above. Also in February 1999, the Company received $187,312 from five
executive officers of the Company as full payment for notes receivable from such
executive officers, plus the accumulated interest thereon.
On February 22, 1999 the underwriters of the Offering exercised their over-
allotment option to purchase an additional 405,000 shares of Common Stock from
certain selling shareholders. The Company received no proceeds from sale of the
over-allotment shares.
Concurrent with the consummation of the Offering, the Company entered into
a $10.0 million credit facility with Union Bank of California (the "Credit
Facility"). The Credit Facility is a one-year, secured revolving credit
facility, bears interest at LIBOR plus 200 basis points and includes a non-
usage fee of 1/8 % per year on the unused portion. At maturity, any Acquisition
Advances (as defined in the Credit Facility) will convert to a three year fully
amortizing term loan. Under the Credit Facility, the Company will be required
to maintain certain financial and other covenants. Borrowings under the Credit
Facility will be secured by substantially all personal property of the Company.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
This Quarterly Report on Form 10-Q contains statements that may constitute
"forward-looking statements" as defined by the U.S. Private Securities
Litigation Reform Act of 1995. Such forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"estimates," "anticipates," "continues," "contemplates," "expects," "may,"
"will," "could," "should" or "would," or the negatives thereof. Those
statements are based on the intent, belief or expectation of the Company as of
the date of this Quarterly Report. Any such forward-looking statements are not
guarantees of future performance and may involve risks and uncertainties that
are outside the control of the Company. Results may differ materially from the
forward-looking statements contained herein as a result of changes in
governmental regulations, including those governing student financial aid, and
other factors, including those discussed under the heading entitled "Risk
Factors" in the Company's Registration Statement on Form S-1, as amended (File
No. 333-59505), filed with the Securities and Exchange Commission. The Company
expressly disclaims any obligation to release publicly any updates or revisions
to any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based. The following discussion
of the Company's results of operations and financial condition should be read in
conjunction with the interim unaudited condensed financial statements of the
Company and the notes thereto included herein and in conjunction with the
information contained in the aforementioned Registration Statement on Form S-1.
7
<PAGE>
Results of Operations
Three Months Ended December 31, 1998 Compared to Three Months Ended December 31,
1997
Net revenues increased $6.5 million, or 24.7%, from $26.4 million in the
second quarter of fiscal 1998 to $33.0 million in the second quarter of fiscal
1999, due primarily to an 11.3% increase in the average student population
during the quarter and a 10.1% increase in the average tuition rate per student.
At December 31, 1998, the total student population was 15,073, compared with
13,591 at December 31, 1997.
Educational services expense increased $2.8 million, or 17.8%, from $15.9
million in the second quarter of fiscal 1998 to $18.7 million in the second
quarter of fiscal 1999, due primarily to the increase in student population,
wage increases for employees, and higher bad debt expense related to the
colleges which lost access to Title IV loan funds in the second quarter of
fiscal 1997. As a percentage of net revenue, educational services expense
decreased from 60.1% to 56.7%.
General and administrative expense increased $0.8 million, or 31.4%, from
$2.6 million in the second quarter of fiscal 1998 to $3.5 million in the second
quarter of fiscal 1999, primarily as a result of (i) additional headquarters
staff to support operations, (ii) wage increases for employees, (iii) increased
performance bonus accrual, (iv) increased travel and training, and (v) Year 2000
remediation expenses. As a percentage of net revenue, general and
administrative expense increased from 10.0% to 10.5%.
Marketing and advertising expense increased $1.4 million, or 23.6%, from
$5.8 million in the second quarter of fiscal 1998 to $7.2 million in the second
quarter of fiscal 1999, primarily due to increased advertising expenditures
(both quantity and cost inflation) and increased staff costs resulting from wage
increases and additional high school admissions representatives. As a
percentage of net revenue, marketing and advertising expense decreased from
22.1% to 21.9%.
Net interest expense decreased $0.1 million, or 8.2%, from $0.9 million in
the second quarter of fiscal 1998 to $0.8 million in the second quarter of
fiscal 1999, due primarily to a $2.5 million principal payment made in October
1998. The Company expects interest expense to decrease in the third and fourth
fiscal quarters as a result of certain debt retirement in connection with the
Offering.
The Company's effective income tax rate increased from 41.3% in fiscal 1998
to 45.5% in fiscal 1999 due to increases in permanent differences and one-time
separate state tax filing issues.
Net income increased $0.8 million, or 113.2%, from $0.7 million in the
second quarter of fiscal 1998 to $1.5 million in the second quarter of fiscal
1999, due primarily to the factors discussed above.
Six Months Ended December 31, 1998 Compared to Six Months Ended December 31,
1997
Net revenues increased $12.5 million, or 24.6%, from $50.8 million in the
first six months of fiscal 1998 to $63.3 million in the first six months of
fiscal 1999, due primarily to an 11.4% increase in the average student
population during the six month period and a 9.6% increase in the average
tuition rate per student.
Educational services expense increased $5.4 million, or 17.2%, from $31.3
million in the first six months of fiscal 1998 to $36.7 million in the first
six months of fiscal 1999, due primarily to the increase in student population,
wage increases for employees, and higher bad debt expense related to the
colleges which lost access to Title IV loan funds in the first six months of
fiscal 1997. As a percentage of net revenue, educational services expense
decreased from 61.6% to 58.0%.
General and administrative expense increased $1.6 million, or 29.9%, from
$5.2 million in the first six months of fiscal 1998 to $6.8 million in the first
six months of fiscal 1999, primarily as a result of (i) additional headquarters
staff to support operations, (ii) wage increases for employees, (iii) increased
8
<PAGE>
performance bonus accrual, (iv) increased travel and training, and (v) Year 2000
remediation expenses. As a percentage of net revenue, general and
administrative expense increased from 10.2% to 10.7%.
Marketing and advertising expense increased $2.7 million, or 22.3%, from
$12.1 million in the first six months of fiscal 1998 to $14.9 million in the
first six months of fiscal 1999, primarily due to increased advertising
expenditures (both quantity and cost inflation) and increased staff costs
resulting from wage increases and additional high school admissions
representatives. As a percentage of net revenue, marketing and advertising
expense decreased from 23.9% to 23.5%.
Net interest expense remained relatively constant at $1.7 million.
Interest expense increased slightly due to a restructuring of the Company's
senior debt in November 1997 and increased usage of the Company's revolving
credit facility partially offset by the $2.5 million principal payment made in
October 1998. This increase in interest expense was almost totally offset by an
increase in interest income from the student notes receivable.
The Company's effective income tax rate increased from 40.1% in fiscal 1998
to 44.6% for fiscal 1999 due to increases in permanent differences and one-time
separate state tax filing issues.
Net income increased $1.5 million, or 538.4%, from $0.3 million in the
first six months of fiscal 1998 to $1.8 million in the first six months of
fiscal 1999, due primarily to the factors discussed above.
The 10.1% and 9.6% increases in the average tuition rate per student for
the quarter and six months ended December 31, 1999, respectively, resulted from
a combination of (i) tuition price increases averaging approximately 7.5% and
(ii) the effect of graduation and attrition of students in the degree granting
colleges that had fixed tuition contracts significantly below the prevailing
rate being charged new students. Under prior ownership, students in these
colleges were guaranteed a fixed tuition price for the duration of their
programs. Thus, any subsequent tuition price increases applied only to new
students. Subsequent to the Company's acquisition of these colleges, the
pricing mechanism has been changed so that tuition increases now affect both new
students and continuing students. However, the Company honored the fixed price
commitment to those students already in school when the Company acquired the
colleges. The result is a greater increase in the average tuition rate per
student than the actual period to period tuition price increase because of the
period to period mix impact of new to "grandfathered" students. The Company
expects that the majority of the remaining "grandfathered" students will
graduate or discontinue over the next 12 to 18 months. After that time, the
Company expects period to period increases in the average tuition rate per
student to more closely track the actual tuition price increases implemented
period to period. Additionally, the approximately 7.5% tuition price increase
implemented in the period is higher than the historical increase of
approximately 5.0% annually due to some increases in certain markets and for
certain programs where the Company was underpriced relative to its competition.
Accordingly, the average tuition rate increases discussed herein are not
necessarily indicative of future increases.
Seasonality and Other Factors Affecting Quarterly Results
The Company's revenues normally fluctuate as a result of seasonal
variations in its business, principally in its total student population.
Student population varies as a result of new student enrollments and student
attrition. Historically, the Company's colleges have had lower student
populations in the first fiscal quarter than in the remainder of the year. The
Company's expenses, however, do not vary as significantly as student population
and revenue. The Company expects quarterly fluctuations in operating results to
continue as a result of seasonal enrollment patterns. Such patterns may change,
however, as a result of acquisitions, new school openings, new program
introductions and increased high school enrollments. The operating results for
any quarter are not necessarily indicative of the results that could be expected
for the full fiscal year or for any future period.
Liquidity and Capital Resources
Cash flow provided by operations totaled $1.7 million in the first six
months of fiscal 1999 compared to $4.3 million used in operations in the same
period of fiscal 1998. The Company had a $3.7
9
<PAGE>
million working capital deficit as of December 31, 1998 compared to $0.6 million
of working capital as of June 30, 1998. The decrease in working capital was due
primarily to additional long term debt becoming current during the period,
partially offset by favorable operating results. Included in working capital as
of June 30, 1998 and December 31, 1998 is $760,000 of restricted cash, of which
$750,000 secures a letter of credit to the U.S. Department of Education.
Capital expenditures increased from $1.0 million in the six months ended
December 31, 1997 to $1.2 million in the same period in 1998. The increase was
due to continued upgrading of school equipment and facilities and purchases of
additional equipment to accommodate the increasing student population. Capital
expenditures are expected to continue to increase as the student population
increases and the Company continues to upgrade and expand current facilities and
equipment and add new campuses. The Company does not have any material
commitments for capital expenditures for the remainder of fiscal 1999.
The Company believes that the cash flow from operations, supplemented from
time to time by borrowings from the revolving credit facility with Union Bank of
California, will provide adequate funds for ongoing operations, planned routine
capital expenditures, planned expansion to new locations and debt service during
the term of the revolving credit agreement.
As a result of repayment of indebtedness subsequent to the Offering, the
Company expects interest expense to be lower and have a lesser impact on net
income in comparison to periods prior to the Offering.
The Company leases all of its facilities except five. The Company expects
that future commitments on existing leases will be paid from cash flow from
operations.
Year 2000 Compliance
A complete discussion of the Company's status regarding the Year 2000
compliance is contained in the Company's final Prospectus, as filed with the
Securities and Exchange Commission on February 5, 1999. Except as set forth
below, there has been no significant change in the Company's status regarding
the Year 2000 compliance issues since the filing of the final Prospectus.
State of Readiness. The Company has evaluated the readiness of its
internal and third party information technology and non-information technology
systems which, if not Year 2000 compliant, could have a direct material impact
on the Company. This evaluation identified the following areas of concern which
have not been previously remediated: (i) the Company's proprietary student
database system (School's Automation System or "SAS"), and (ii) the Department
of Education's (the "DOE's") systems for processing and disbursing student
financial aid.
The Company's SAS system is not compliant and the updates to this system
are not yet complete. To date, a detailed assessment of the system has been
completed wherein each date occurrence has been identified and documented, and a
detailed plan has been developed to complete the necessary remedial work. The
remediation project is approximately 75% complete and the Company expects that
all the necessary corrections to this system will be completed and tested by
July 1, 1999.
The Company has also assessed the state of readiness of its major servers
and shared hardware devices. It has determined that its hardware systems are
either already Year 2000 compliant or can be made so through upgrades of
operating system software. Where necessary, these upgrades are expected to be
finalized by July 1, 1999.
The Company is highly dependent on student funding provided through Title
IV programs. Processing of student applications for this funding and actual
disbursement of a significant portion of these funds are accomplished through
the DOE's computer systems. According to the DOE, their systems should be
brought into certifiable compliance by March 1999. However, the Company is not
able to reliably assess the DOE's progress to date, and any problems in the
DOE's systems could result in interruption of
10
<PAGE>
funding for the Company's students and have a material adverse impact on the
Company, its business and results of operations.
Year 2000 Costs. The Company now estimates that it will expense
approximately $600,000 in fiscal 1999 to complete its remediation efforts, of
which approximately $340,000 was expensed in the first two fiscal quarters.
These efforts have been, and are expected to continue to be, funded through cash
from operations. The Year 2000 compliance project has not resulted in the
deferral of any significant information systems initiatives by the Company.
Risks from Year 2000 Issues. The Company believes the greatest Year 2000
compliance risk, in terms of magnitude of risk, is that the DOE may fail to
complete its remediation efforts in a timely manner and Title IV funding for its
students could be interrupted for a period of time. Other than public comments
provided by the DOE, the Company is unable to predict the likelihood of this
risk occurring. Any significant interruption of this funding could have a
material adverse effect on the Company's results of operations, liquidity or
financial condition. As mentioned earlier, the Company is dependent upon DOE
assertions as to their progress to date and timetable for completion of their
remediation efforts. As of the date of this Quarterly Report, the latest public
pronouncement by the DOE indicated its remediation work was scheduled to be
completed by March 1999.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company does not utilize interest rate swaps, forward or option
contracts on foreign currencies or commodities, or other types of derivative
financial instruments. Subsequent to the Offering on February 10, 1999, and the
application of the proceeds therefrom (including repayment of certain debt), the
only assets or liabilities of the Company which are subject to risks from
interest rate changes are (i) the mortgage debt of the Company in the aggregate
amount of $3.6 million, and (ii) notes receivable from students for the
aggregate amount of $6.4 million, both at December 31, 1998. The mortgage debt
of the Company and the student notes receivable are at fixed interest rates.
Additionally, the Company does not currently borrow to finance student notes
receivable. Accordingly, the Company does not believe it is subject to material
risks from reasonably possible near-term changes in market interest rates.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The use of proceeds from the Offering is described in Note 3 in the
Notes to Financial Statements in Part I above and is hereby
incorporated by this reference.
Item 6. Exhibits and Reports on Form 8-K.
The exhibits filed with the Company's Registration Statement on Form
S-1, as amended (File No. 333-59505), are hereby incorporated herein
by this reference and made a part hereof.
(a) Exhibits:
27 Financial Data Schedule.
(b) Reports on Form 8-K: There were no reports filed on Form 8K for
the quarter ended December 31, 1999.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORINTHIAN COLLEGES, INC.
(Registrant)
March 19, 1999 /s/ David G. Moore
--------------------------------------
David G. Moore
President and Chief Executive Officer
(Principle Executive Officer)
March 19, 1999 /s/ Frank J. McCord
-------------------------------------
Frank J. McCord
Executive Vice President and
Chief Financial Officer
(Principle Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, INCOME STATEMENTS AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,227
<SECURITIES> 0
<RECEIVABLES> 23,000
<ALLOWANCES> 4,885
<INVENTORY> 0
<CURRENT-ASSETS> 20,399
<PP&E> 14,993
<DEPRECIATION> 4,512
<TOTAL-ASSETS> 60,080
<CURRENT-LIABILITIES> 24,114
<BONDS> 33,603
2,233
5,388
<COMMON> 1
<OTHER-SE> 2,509
<TOTAL-LIABILITY-AND-EQUITY> 60,080
<SALES> 0
<TOTAL-REVENUES> 63,270
<CGS> 0
<TOTAL-COSTS> 58,303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,519
<INTEREST-EXPENSE> 1,694
<INCOME-PRETAX> 3,273
<INCOME-TAX> 1,460
<INCOME-CONTINUING> 1,813
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,813
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.21
</TABLE>
