<PAGE>
As filed with the Securities and Exchange Commission on September 11, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
CORINTHIAN COLLEGES, INC.
(Exact Name of Registrant as Specified in Its Charter)
-----------
Delaware 33-0717312
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
6 Hutton Centre Drive, Suite 400
Santa Ana, California 92707-5764
(714) 427-3000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
-----------
David G. Moore
President and Chief Executive Officer
Corinthian Colleges, Inc.
6 Hutton Centre Drive, Suite 400
Santa Ana, California 92707-5764
(714) 427-3000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
-----------
Copies to:
David A. Krinsky Jonathan K. Layne
O'Melveny & Myers LLP Gibson, Dunn & Crutcher LLP
610 Newport Center Drive, Suite 1700 333 South Grand Avenue, 49th Floor
Newport Beach, California 92660 Los Angeles, California 90071
(949) 760-9600 (213) 229-7000
Fax (949) 823-6994 Fax (213) 229-6141
-----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this form being offered pursuant
to a dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ____________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ______________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ______________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================
Proposed Proposed
Maximum Maximum Amount of
Amount To Be Offering Price Aggregate Registration
Title of Shares To Be Registered Registered(1) Per Share Offering Price Fee(2)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.0001 par value... 3,450,000 $54.50 $188,025,000 $49,639
===========================================================================================
</TABLE>
(1) Includes 450,000 shares that the Underwriters have options to purchase
from the selling stockholders to cover over-allotments, if any. See
"Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933
and based upon the price of our common stock as reported on the Nasdaq
National Market on September 6, 2000.
-----------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that the registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This preliminary prospectus +
+is not an offer to sell these securities and is not soliciting an offer to +
+buy these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED SEPTEMBER , 2000
3,000,000 Shares
[LOGO OF CORINTHIAN COLLEGES, INC. APPEARS HERE]
Common Stock
--------
We are selling 200,000 shares of common stock and the selling stockholders
listed under "Selling Stockholders" are selling a total of 2,800,000 shares of
common stock. We will not receive any of the proceeds from the shares of common
stock being sold by the selling stockholders.
Our common stock trades on the Nasdaq National Market under the symbol
"COCO." On September 6, 2000, the last reported sale price of our common stock
was $54.50.
The underwriters have an option to purchase a maximum of 450,000 additional
shares from the selling stockholders to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.
<TABLE>
<CAPTION>
Underwriting Proceeds to Proceeds to
Price Discounts and Corinthian Selling
to Public Commissions Colleges, Inc. Stockholders
---------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
Total....................... $ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston Chase H&Q
U.S. Bancorp Piper Jaffray SunTrust Equitable Securities
The date of this prospectus is , 2000
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Price Range of Common Stock.............................................. 13
Capitalization........................................................... 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 24
Management................................................................. 33
Selling Stockholders....................................................... 36
Description of Capital Stock............................................... 38
Underwriting............................................................... 42
Notice to Canadian Residents............................................... 45
Legal Matters.............................................................. 46
Experts.................................................................... 46
Index to Financial Statements.............................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document. Information contained on our Web site does not
constitute part of this document.
------------
Note to Readers of This Prospectus
You should keep in mind the following points as you read this prospectus:
. the term "we" or "us" refers collectively to Corinthian Colleges, Inc.
and its subsidiaries, including all of their schools and campuses;
. the terms "school," "college" or "campus" refer to a single location of
any school;
. the term "institution" means a main campus and its additional locations,
as such are defined under the regulations of the U.S. Department of
Education;
. this offering is for 3,000,000 shares; however, the underwriters have a
30-day option to purchase up to 450,000 additional shares from the
selling stockholders to cover over-allotments. Some of the disclosures
in this prospectus would be different if the underwriters exercise the
option. Unless we tell you otherwise, the information in this prospectus
assumes that the underwriters will not exercise the option; and
. our fiscal year ends on June 30. References to fiscal 2000, fiscal 1999
and similar constructions refer to the fiscal year ended on June 30 of
the applicable year.
i
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. The Exchange Act file number for our filings
with the Commission is 0-25283. You may read and copy any document we file at
the public reference facilities of the Commission located at 450 Fifth Street
N.W., Washington D.C. 20549. You may obtain information on the operation of the
Commission's public reference facilities by calling the Commission at 1-800-
SEC-0330. You can also access copies of this material electronically on the
Commission's home page on the World Wide Web at http://www.sec.gov. Information
concerning our company is also available for inspection at the offices of the
Nasdaq National Market, Reports Section, 1735 K Street, N.W., Washington, D.C.
20006.
This prospectus is part of a registration statement (Registration No. 333-
) we filed with the Commission. The Commission permits us to
"incorporate by reference" the information we file with them, which means that
we can disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to be part
of this prospectus, and information we file with the Commission after the date
of this prospectus will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, after the date of this prospectus
until the termination of this offering:
1. Our Annual Report on Form 10-K for our year ended June 30, 1999;
2. Our Quarterly Report on Form 10-Q for our quarter ended September 30,
1999;
3. Our Quarterly Report on Form 10-Q for our quarter ended December 31,
1999;
4. Our Quarterly Report on Form 10-Q for our quarter ended March 31, 2000;
5. Definitive Proxy Statement for our 1999 Annual Meeting of Stockholders
which we filed with the Commission on October 15, 1999; and
6. The description of our common stock contained in our Registration
Statement on Form 8-A which we filed with the Commission on January 21,
1999.
Upon request, we will provide a copy of the documents we incorporate by
reference to each person, including any beneficial owner of our common stock,
to whom a copy of this prospectus is delivered. To request a copy of any or all
of these documents, you should write or telephone us at the following address
and telephone number:
Corinthian Colleges, Inc.
Attention: Corporate Secretary
6 Hutton Centre Drive
Suite 400
Santa Ana, California 92707-5764
Telephone: (714) 427-3000
ii
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains statements which, to the extent they do not recite
historical fact, constitute "forward-looking" statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements are
used under the captions "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus. You can identify these statements
by the use of words like "may," "will," "could," "should," "project,"
"believe," "anticipate," "expect," "plan," "estimate," "forecast," "potential,"
"intend," "continue," and variations of these words or comparable words.
Forward-looking statements do not guarantee future performance and involve
risks and uncertainties. Actual results may differ substantially from the
results that the forward-looking statements suggest for various reasons,
including those discussed under "Risk Factors." These forward-looking
statements are made only as of the date of this prospectus. We do not undertake
to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise.
iii
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering in our consolidated financial statements and related notes appearing
elsewhere in this prospectus.
Our company is one of the largest private, for-profit, post-secondary
education companies in the United States, with more than 19,400 students
enrolled as of June 30, 2000. We currently operate 45 colleges in 18 states,
including ten in California, nine in Florida and four in Georgia, and serve the
large and growing segment of the population seeking to acquire career-oriented
education. Our schools generally enjoy long operating histories and strong
franchise value in their local markets.
We offer a variety of master's, bachelor's and associate's degrees and
diploma programs through two operating divisions. Our Corinthian Schools
division operates diploma-granting schools in the healthcare, electronics and
information technology fields and seeks to provide its students a solid base of
training for a variety of entry-level positions. Our Rhodes Colleges division
operates degree-granting schools principally in the business area and provides
its students with professional education to succeed in today's competitive
workplace. Both divisions receive strategic direction and operational support
from senior management and corporate staff.
We have experienced rapid growth both internally and through acquisitions
over the last several years. Since our initial public offering in February
1999, we have purchased five additional colleges, four of which have curricula
primarily in the healthcare fields, and one of which has curricula in the
business and information technology fields. During that same time, we have also
opened a total of five new branch campuses, with curricula in the areas of
business, healthcare, information technology and criminal justice. From fiscal
1998 to fiscal 2000, our net revenues increased from $106.5 million to $170.7
million, our income from operations increased from $5.5 million to $24.4
million and our net income increased from $1.2 million to $15.4 million.
Our company is led by David G. Moore, our President and Chief Executive
Officer, and an experienced executive management team. Our team of eight senior
executives, including Mr. Moore, has an average of approximately 12 years
experience in various fields of education and has an average of approximately
ten years experience in the for-profit, post-secondary education industry. We
have five regions, each headed by a regional operations director and a regional
admissions director. This regional structure is supported by our proprietary
management information system, which links all of our colleges and provides
management with real-time access to marketing reports, lead tracking, academic
records, grades, transcripts and placement information.
The Post Secondary Education Industry
The market for post-secondary education is large and growing, with total
expenditures expected to increase 42.0% (in constant dollars) between 1998 and
2010, from $213 billion to $303 billion, and student enrollment, 19.5%, from
14.6 million to 17.5 million. We believe that the demand for career-oriented,
post-secondary education will increase during the next several years as a
result of certain demographic, economic and social trends, including: (i) an
increased demand for professional and technical jobs, with an expected 6.4
million jobs requiring skilled labor projected to be created between 1998 and
2008; (ii) a projected 13.7% growth in the annual number of high school
graduates from 1998 to 2010 (from 2.7 million to 3.1 million); (iii) an
expanded number of adults (persons aged 25 and older) enrolling in post-
secondary education, with a projected increase to 6.8 million by 2010; (iv) the
significant and measurable income premium attributable to post-secondary
education; and (v) budgetary constraints at traditional colleges and
universities.
1
<PAGE>
Operating Strategy
We have increased enrollment and improved profitability at our schools
through the application of a focused operating strategy developed with our
management's extensive industry experience. Key elements of this strategy
include:
Focus on Attractive Markets. We design our educational programs to benefit
from favorable demographic and economic trends. We offer programs in the
rapidly growing fields of healthcare, business, information technology, and
criminal justice and seek to locate our colleges to achieve operating
efficiencies and strong competitive positions in attractive and growing
markets.
Centralize Key Functions. In order to capitalize on the experience of our
executive management team, we have established a regional management
organization to divide responsibilities among school administrators, regional
administrators and senior management. Local school administrators are
responsible for day-to-day operations, while our regional and corporate teams
centralize key services to achieve operating efficiencies.
Emphasize Student Outcomes. Since positive student outcomes are a critical
driver of our long-term success, we devote substantial resources to maintaining
and improving our student retention and placement rates. We offer a variety of
student services such as tutoring, counseling and placement assistance. As a
result of these efforts, 86% of our graduates who were available for placement
in calendar 1999 were placed in jobs for which they were trained within six
months of their graduation date.
Create a Supportive and Friendly Environment. We view our students as
customers and seek to provide them with a supportive and convenient learning
environment. We operate our colleges year-round, offer flexible scheduling and
encourage personal interaction between faculty and students.
Growth Strategy
We intend to achieve continued growth in our revenues and profitability by
pursuing the following components of our growth strategy:
Enhance Growth at Existing Campuses. We intend to enhance growth at our
existing campuses by:
. continuing to refine, develop and add curricula based on market research
and the recommendations of faculty, employees and industry advisory
board members;
. employing an extensive direct response advertising campaign delivered
through television, radio, newspaper, direct mail and the Internet; and
. strategically relocating and expanding selected colleges to increase our
facilities' capacity.
Establish Additional Locations. We will continue to expand into new
geographic markets by "branching" new campuses from existing institutions. In
order to effectively employ this strategy, we identify markets with high
enrollment potential and significant placement opportunities that will enable
us to effectively leverage our existing curriculum, management and marketing
infrastructure.
Acquire Accredited Colleges. We will generally seek to acquire schools that:
. possess complementary or attractive new curricula;
. have locations in or near metropolitan areas;
. have strong franchise value because of name recognition or
marketability; and
. can.benefit from our operational expertise.
2
<PAGE>
Expand Service Areas and Delivery Models. We intend to increase the number
of our campuses that offer distance learning and further adapt our curricula
for online presentation. Additionally, we will seek to expand our presence in
the government and corporate training market.
Recent Developments
On September 4, 2000, we signed an agreement to acquire substantially all of
the assets of Educorp, Inc., a proprietary school company with four campuses in
the Los Angeles metropolitan area. As of the end of August 2000, Educorp had
approximately 1,375 students. We expect to complete the purchase of these
schools during the second quarter of fiscal 2001, subject to the satisfaction
of certain customary conditions to closing, including the receipt of regulatory
approvals from the State of California. Although we expect to complete this
transaction in the second quarter of fiscal 2001, we can give no assurance that
the transaction will be completed at that time, or at all. The purchase price
for these assets will be approximately $12.0 million in cash.
Our Address
Our executive offices are located at 6 Hutton Centre Drive, Suite 400, Santa
Ana, California 92707, and our telephone number at that address is (714) 427-
3000. Our Web site address is www.cci.edu. We do not intend for the information
on our Web site to constitute part of this prospectus.
The Offering
<TABLE>
<C> <S>
Common stock offered............................ 200,000 shares by us
2,800,000 shares by the
selling stockholders
Common stock and nonvoting common stock to be
outstanding after the offering................. 10,549,235 shares
Use of proceeds................................. We will use the net proceeds
from the sale of the shares
offered by us for general
corporate purposes, including
acquisitions. We will not
receive any proceeds from the
sale of shares by the selling
stockholders. See "Use of
Proceeds."
Nasdaq National Market symbol................... COCO
</TABLE>
The number of shares of our common stock outstanding after this offering is
based on the number of shares outstanding as of June 30, 2000. It does not
include:
. 371,929 shares of common stock issuable upon exercise of options
outstanding at a weighted average exercise price of $15.60 per share;
and
. 153,593 shares of common stock reserved for grant under our 1998
Performance Award Plan.
3
<PAGE>
Summary Consolidated Financial And Other Data
The following tables summarize our consolidated financial data. The as
adjusted column of the consolidated balance sheet data reflects the sale of
200,000 shares of common stock by us at an assumed public offering price of
$54.50, the closing price of our common stock on September 6, 2000, after
deducting the estimated underwriting discount and offering expenses payable by
us.
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1998 1999 2000
-------- -------- --------
(In thousands, except
per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Net revenues................................... $106,486 $132,972 $170,734
-------- -------- --------
Operating expenses:
Educational services......................... 65,927 76,425 92,757
General and administrative................... 10,777 13,961 16,346
Marketing and advertising.................... 24,268 29,702 37,225
-------- -------- --------
Total operating expenses..................... 100,972 120,088 146,328
-------- -------- --------
Income from operations......................... $ 5,514 $ 12,884 $ 24,406
======== ======== ========
Net income (1)................................. $ 1,221 $ 4,492 $ 15,422
======== ======== ========
Net income attributable to common stockholders
(1)........................................... $ 856 $ 4,137 $ 15,422
======== ======== ========
Income per share attributable to common
stockholders (1):
Basic........................................ $ 0.16 $ 0.57 $ 1.49
======== ======== ========
Diluted...................................... $ 0.12 $ 0.48 $ 1.48
======== ======== ========
Weighted average number of common shares
outstanding:
Basic........................................ 5,236 7,266 10,347
======== ======== ========
Diluted...................................... 7,125 8,549 10,425
======== ======== ========
Other Data:
EBITDA (2)..................................... $ 8,573 $ 16,329 $ 28,204
EBITDA margin (2).............................. 8.1% 12.3% 16.5%
Cash flow provided by (used in):
Operating activities......................... (3,373) 5,794 23,582
Investing activities......................... (1,676) (16,140) (19,362)
Financing activities......................... 4,630 9,731 (1,121)
Capital expenditures........................... 1,926 2,790 4,182
Number of colleges at end of period............ 35 37 44
Student population at end of period............ 13,992 16,012 19,464
Starts during the period (3)................... 18,261 21,008 24,660
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000
-------------------
As
Actual Adjusted (5)
------- -----------
(Dollars in
thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and restricted cash (4)........... $ 4,896 $14,619
Marketable investments................................... 24,107 24,107
Working capital.......................................... 29,069 38,792
Total assets............................................. 95,233 104,956
Long-term debt, net of current maturities................ 2,230 2,230
Total stockholders' equity............................... $69,003 $78,726
</TABLE>
4
<PAGE>
--------------------
(1) Net income for fiscal 1999 is net of an extraordinary loss from the early
extinguishment of debt of $2.0 million or $0.28 per basic common share and
$0.24 per diluted common share.
(2) EBITDA equals earnings before interest, taxes, depreciation and
amortization (including amortization of deferred financing costs). For the
year ended June 30, 1999, EBITDA excludes the extraordinary loss from early
extinguishment of debt which amounted to $2.0 million (net of tax benefit
of $1.5 million). EBITDA is presented because we believe it allows for a
more complete analysis of our results of operations. EBITDA should not be
considered as an alternative to, nor is there any implication that it is
more meaningful than, any measure of performance or liquidity as
promulgated under GAAP. EBITDA margin equals EBITDA as a percentage of net
revenues.
(3) Represents the new students starting school during the periods presented.
(4) Includes approximately $10,000 of restricted cash at June 30, 2000.
(5) As adjusted gives effect to this offering and the application of net
proceeds thereof, as if the offering occurred on June 30, 2000.
5
<PAGE>
RISK FACTORS
Before investing in our common stock, investors should consider carefully
the following risk factors. The occurrence of any of the following risks could
materially harm our business and you could suffer a complete loss of your
investment.
Risks Related To Extensive Regulation Of Our Business
If we fail to follow extensive regulatory requirements for our business, we
could suffer severe fines and penalties, including loss of access to federal
student loans and grants for our students. For a more detailed description of
the regulatory requirements of our business, see the section entitled
"Business--Financial Aid and Regulation" in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission on September 27, 1999.
We derive a majority of our revenues from federal student financial aid
programs. To participate in such programs an institution must obtain and
maintain authorization by the appropriate state agencies, accreditation by an
accrediting agency recognized by the Department of Education, or "DOE," and
certification by the DOE. As a result, our schools are subject to extensive
regulation by these agencies that, among other things, requires us to:
. undertake steps to assure that the students at each of our schools do
not default on federally guaranteed or funded student loans at a rate of
25% or more for three consecutive years;
. limit the percentage of revenues derived at each of our institutions
from federal student financial aid programs to less than 90%;
. adhere to financial responsibility and administrative capability
standards;
. prohibit the payment of incentives to personnel engaged in student
recruiting and admissions activities; and
. achieve stringent completion and placement outcomes for short-term
programs.
These regulations also affect our ability to acquire or open additional
schools or change our corporate structure. These regulatory agencies
periodically revise their requirements and modify their interpretations of
existing requirements.
If one or more of our schools were to violate any of these regulatory
requirements, we could suffer fines, penalties or other censure, including the
loss of our ability to participate in federal student financial aid programs at
those schools that could have a materially adverse effect on our business. We
cannot predict how all of these requirements will be applied, or whether we
will be able to comply with all of the requirements in the future. Some of the
most significant regulatory requirements and risks that apply to our schools
are described in the following paragraphs.
Congress may change the law or reduce funding for federal student financial
programs, which could harm our business.
Congress regularly reviews and revises the laws governing the federal
student financial aid programs and annually determines the funding level for
each of these programs. Any action by Congress that significantly reduces
funding for the federal student financial aid programs or the ability of our
schools or students to participate in these programs could harm our business.
Legislative action may also increase our administrative costs and burden and
require us to modify our practices in order for our schools to comply fully
with applicable requirements, which could have a material adverse effect on our
business.
For example, the 1998 amendments to the Higher Education Act changed
substantially the way federal student financial aid funds are handled when a
student withdraws from a school. Instead of the previous federal refund policy,
institutions must follow requirements which ensure the return to the federal
student financial aid programs all of the unearned funds of a student who
withdraws from a program. Final regulations implementing
6
<PAGE>
the new return of federal student financial aid funds policy were issued in
November 1999. The regulations become effective October 7, 2000. We must ensure
that all of our schools adhere to the new regulations by that date. If our
schools fail to adhere to such new regulations, or we fail to appropriately
implement procedures to mitigate the anticipated effect of such new
regulations, it could have a material adverse effect on our business.
In August 2000, the DOE published proposed revisions to certain regulations
pertaining to federal student financial aid programs. Among the proposed
regulations are changes to the DOE's change of ownership standards that would
expand the definition of a change of control resulting in a change of ownership
for a publicly held company to include any transaction that results in a
controlling stockholder ceasing to be a controlling stockholder. The proposed
regulations define a controlling stockholder to be a person owning 25% or more
of the total outstanding voting stock of the corporation. Based on the DOE's
administrative schedule, the proposed regulations regarding a change of
control, if adopted, will not become effective prior to July 1, 2001. Other
proposed changes to the regulations pertain to the process for calculating
default rates and the process for challenging default rate determinations,
changes to the process for seeking approval of additional locations, as well as
other changes to technical aspects of the various federal loan programs.
Consistent with the requirements of federal law, the DOE is providing
interested parties with an opportunity to comment on the proposed regulations.
Once the comment process is concluded, the DOE likely will issue revised
regulations. The revised regulations adopted by the DOE may differ in form and
substance from those initially proposed. If final regulations are adopted which
cause us to materially alter our business practices, or if we fail to
adequately respond to changes in the regulatory environment, it could have a
material adverse effect on our business.
If we do not meet specific financial responsibility ratios and tests
established by the Department of Education, our schools may lose eligibility to
participate in federal student financial aid programs.
To participate in the federal student financial aid programs, an institution
must either satisfy numeric standards of financial responsibility, or post a
letter of credit in favor of the DOE and possibly accept other conditions on
its participation in the federal student financial aid programs. Each year,
based on financial information submitted by institutions that participate in
federal student financial aid programs, the DOE calculates three financial
ratios for an institution: an equity ratio, a primary reserve ratio and a net
income ratio. Each of these ratios is scored separately and then combined to
determine the institution's financial responsibility. If an institution's score
is above 1.5, it may continue its participation in federal student financial
aid programs. For fiscal 2000, our calculations show that all of our schools
exceed this requirement on an individual basis, with composite scores from 1.7
to 3.0. On a consolidated basis, our company also exceeds this requirement with
a composite score of 3.0. We cannot assure you that we or our institutions will
satisfy the numeric standards in the future.
Our schools may lose eligibility to participate in federal student financial
aid programs if the percentage of their revenues derived from those programs is
too high.
A proprietary institution loses its eligibility to participate in the
federal student financial aid programs for a period of one year if it derives
more than 90% of its revenues, on a cash basis, from these programs in any
fiscal year. Any institution that violates this rule immediately becomes
ineligible to participate in federal student financial aid programs and is
ineligible to reapply to regain its eligibility until the following fiscal
year. Based on our calculations, none of our schools received more than 90% of
its revenues, on a cash basis, in fiscal 2000, with our highest institution
receiving 86% of its revenues, on a cash basis, from federal student financial
aid programs. On a consolidated basis, our company received 77% of its
revenues, on a cash basis, from federal student financial aid programs. If any
of our institutions, depending on its size, loses eligibility to participate in
federal student financial aid programs, it could have a material adverse effect
on our business.
Our schools may lose eligibility to participate in federal student financial
aid programs if their current and former students' loan default rates are too
high.
An institution may lose its eligibility to participate in some or all of the
federal student financial aid programs if defaults by its former students on
their federal student loans exceed 25% per year for three consecutive years.
7
<PAGE>
For federal fiscal year 1997, the last year for which final rates have been
published, the published default rates for our institution ranged from a low of
6.6% to a high of 30.1%, with both FMU-Ft. Lauderdale and Kee Business College
in Newport News, Virginia exceeding the 25% threshold with default rates of
25.5% and 30.1%, respectively. Based on our preliminary rates for federal
fiscal year 1998 none of our institutions had student default rates of 25% or
more. The preliminary rates are subject to change and could change materially.
If any of our institutions, depending on its size, loses eligibility to
participate in federal student financial aid programs because of high student
loan default rates, it could have a material adverse effect on our business.
If regulators do not approve our acquisitions, the acquired school would not
be permitted to participate in federal student financial aid programs.
When we acquire an institution, we must seek approval from the DOE and most
applicable state agencies and accrediting agencies, because an acquisition is
considered a change of ownership or control of the acquired institution under
applicable regulatory standards. A change of ownership or control of an
institution under the DOE standards can result in the temporary suspension of
the institution's participation in the federal student financial aid programs
unless a timely and materially complete application for recertification is
filed with the DOE and the DOE issues a temporary certification document. If we
were unable to reestablish the state authorization, accreditation or DOE
certification of an institution we acquired, depending on the size of that
acquisition, that failure could have a material adverse effect on our business.
Additionally, if regulators do not approve transactions involving a change
of control of our company or any of our schools, we may lose our ability to
participate in federal student financial aid programs. If we or any of our
institutions experience a change of control under the standards of applicable
state agencies or accrediting agencies or the DOE, we or the affected
institutions must seek the approval of the relevant agencies. Some of these
transactions or events, such as a significant acquisition or disposition of our
common stock, may be beyond our control. The adverse regulatory effect of a
change of ownership resulting in a change of control could also discourage bids
for your shares of common stock at a premium and could have an adverse effect
on the market price of your shares.
If this offering is deemed to be a change of control by the DOE, accrediting
agencies or state agencies, we may have to reapply for certification,
accreditation or state authority to operate.
We have not received any assurances from the DOE, accrediting agencies, or
applicable state agencies that this offering will not constitute a change of
ownership resulting in a change of control. While we do not believe that this
offering will cause our company to undergo a change of ownership resulting in a
change of control under applicable DOE regulations, the DOE may interpret the
regulations differently. If the DOE deems this transaction to constitute a
change of control of our company, we would be required to apply for
recertification from the DOE and would also be required to reaffirm our state
authorizations and agency accreditations.
Under the DOE regulations, we could apply for temporary provisional
certification so that federal student financial aid funds may not be
interrupted. To qualify for a temporary provisional certification, we would
have to submit a "materially complete" application for recertification within
10 business days of the completion of the offering. Additionally, no later than
the end of the month following the month in which the change of ownership
occurred, we would be required to submit audited balance sheets for our company
and all of our institutions as of the date of the change of control and to
demonstrate the continuation of our institutions' state authorizations and
agency accreditations.
If this offering constitutes a change of ownership resulting in a change of
control under the regulations of the DOE, applicable state agencies or
accrediting agencies, the foregoing process would divert management resources
and may have a material adverse effect on our business. Additionally, we cannot
predict with certainty whether the DOE, accrediting agencies or the various
states would grant recertification, reauthorizations or reaccreditation if this
offering constitutes a change of ownership resulting in a change of control. If
we or any of our schools fails to qualify for any material recertifications,
reauthorizations or reaccreditations, our business would be materially harmed.
8
<PAGE>
If any of our schools fails to maintain its state authorizations and
accreditations, we may lose our ability to operate in that state and to
participate in federal student financial aid programs.
An institution that grants degrees, diplomas or certificates must be
authorized by the relevant agencies of the state in which it is located and, in
some cases, other states. Requirements for authorization vary substantially
among the states. State authorization and accreditation by an accrediting
agency recognized by the DOE are also required for an institution to
participate in the federal student financial aid programs. If any of our
campuses were to lose its state authorization or accreditation, it could have a
materially adverse effect on our business.
During calendar year 2000, current accreditation for nine of our schools
will expire and these schools will be subject to reaccreditation reviews by
their respective accrediting agencies. In addition, during calendar year 2001,
current accreditation for 16 of our schools will expire and these schools will
be subject to reaccreditation reviews. If one or more of these schools fails to
be reaccredited, our business could be harmed.
If we fail to demonstrate "administrative capability" to the Department of
Education, our business could suffer.
DOE regulations specify extensive criteria an institution must satisfy to
establish that it has the requisite "administrative capability" to participate
in federal student financial aid programs. These criteria require, among other
things, that the institution:
. comply with all applicable federal student financial aid regulations;
. have capable and sufficient personnel to administer the federal student
financial aid programs;
. have acceptable methods of defining and measuring the satisfactory
academic progress of its students;
. provide financial aid counseling to its students; and
. submit all reports and financial statements required by the regulations.
If an institution fails to satisfy any of these criteria, the DOE may:
. require the repayment of federal student financial aid funds;
. transfer the institution from the "advance" system of payment of federal
student financial aid funds to the "reimbursement" system of payment or
cash monitoring;
. place the institution on provisional certification status; or
. commence a proceeding to impose a fine or to limit, suspend or terminate
the participation of the institution in federal student financial aid
programs.
Should one or more of our institutions be limited in their access to, or
lose, federal student financial aid funds due to their failure to demonstrate
administrative capability, our business could be materially adversely affected.
Regulatory agencies or third parties may commence investigations or bring
claims instituting litigation against us.
Because we operate in a highly regulated industry, we may be subject from
time to time to investigations, claims of non-compliance, or lawsuits by
governmental agencies or third parties, which may allege statutory violations,
regulatory infractions, or common law causes of action. If the results of the
investigations are unfavorable to us or if we are unable to successfully defend
against third-party lawsuits, we may be required to pay money damages or be
subject to fines, penalties, injunctions or other censure that could have a
materially adverse effect on our business. Even if we adequately address the
issues raised by an agency investigation or successfully defend a third-party
lawsuit, we may have to devote significant money and management resources to
address these issues, which could harm our business.
9
<PAGE>
Specific Risks That Could Have A Material Adverse Effect On Our Business
If students fail to repay the loans we make, our business will be harmed.
We offer short-term installment payment plans to many of our students to
supplement their financial aid. In late 1997, we expanded the internal loan
program to assist students in six of our colleges that lost access to federal
student loan programs during that year. As of June 30, 2000, outstanding
student loan balances were approximately $4.1 million, net of a $1.2 million
allowance for bad debts. These student loans are unsecured and not guaranteed.
Losses related to unpaid student loans in excess of the amounts we have
reserved for bad debts could have a material adverse effect on our business.
Failure to effectively manage our growth could harm our business.
We have grown rapidly since we formed our company in 1995. Our rapid
growth, now or in the future, could place a strain on our management,
operations, employees or resources. We cannot assure you that we will be able
to maintain or accelerate our current growth rate, effectively manage our
expanding operations or achieve planned growth on a timely or profitable
basis. If we are unable to manage our growth effectively, our business could
be materially adversely affected.
If we cannot effectively identify, acquire and integrate additional
schools, it could harm our business.
We expect to continue to rely on acquisitions as a key component of our
growth. We often engage in evaluations of, and discussions with, possible
acquisition candidates. We cannot assure you that we will be able to identify
suitable acquisition candidates or that we will be able to acquire any of the
acquisition candidates on favorable terms. Furthermore, we cannot assure you
that any acquired schools can be successfully integrated into our operations
or be operated profitably. Acquisitions involve a number of risks that
include:
. diversion of management resources;
. integration of the acquired schools' operations;
. adverse short-term effects on reported operating results; and
. possible loss of key employees.
Continued growth through acquisition may also subject us to unanticipated
business or regulatory uncertainties or liabilities. When we acquire an
existing school, we typically allocate a significant portion of the purchase
price to fixed assets, curriculum, goodwill and intangibles, such as covenants
not-to-compete. For our acquisitions to date, we have amortized goodwill and
trade names over a period of 40 years and curricula over 15 years. In
addition, our acquisition of a school is a change of ownership of that school,
which may result in the temporary suspension of that school's participation in
federal student financial aid programs until it obtains the DOE's approval. If
we fail to manage successfully our acquisitions, our business would likely
suffer.
Failure to open new schools and add new services could harm our business.
Establishing new schools requires us to make investments in management,
capital expenditures, marketing expenses and other resources. To open a new
school, we would be required to obtain appropriate state and accrediting
agency approvals. In addition, to be eligible for federal student financial
aid programs, the new school would have to be certified by the DOE. We cannot
assure you that we will be able to successfully open new schools in the
future. Our failure to effectively manage the operations of newly established
schools could have a material adverse effect on our business.
Our success depends upon our ability to recruit and retain key personnel.
We depend on key personnel, including David G. Moore, Paul R. St. Pierre,
Dennis L. Devereux and Dennis N. Beal, to effectively operate our business. If
we ceased to employ any of these people and failed to manage a transition to
new people, our business could suffer.
10
<PAGE>
Our success also depends, in large part, upon our ability to attract and
retain highly qualified faculty, school presidents and administrators and
corporate management. Due to the nature of our business, we may have difficulty
locating and hiring qualified personnel, and retaining such personnel once
hired. The loss of the services of any of our key personnel, or our failure to
attract and retain other qualified and experienced personnel on acceptable
terms, could cause our business to suffer.
Anti-takeover provisions in our charter documents and Delaware law could
make an acquisition of our company difficult.
Our certificate of incorporation, our by-laws and Delaware law contain
provisions that may delay, defer or inhibit a future acquisition of us not
approved by our board of directors. These provisions are intended to encourage
any person interested in acquiring us to negotiate with and obtain the approval
of our board of directors. Our certificate of incorporation also permits our
board of directors to issue shares of preferred stock with voting, conversion
and other rights as it determines, without any further vote or action by our
stockholders. By using preferred stock, we could:
. discourage a proxy contest,
. make the acquisition of a substantial block of our common stock more
difficult, or
. limit the price investors may be willing to pay in the future for shares
of our common stock.
In addition, our bylaws provide that (a) special meetings of our
stockholders may be called only by our board of directors and (b) only two of
our six Directors may be elected at a special meeting. These provisions also
could discourage bids for your shares of common stock at a premium and could
have a material adverse effect on the market price of your shares.
Failure to keep pace with changing market needs and technology could harm
our business.
Prospective employers of our graduates increasingly demand that their entry-
level employees possess appropriate technological skills. Educational programs
at our schools, particularly programs in information technology, must keep pace
with these evolving requirements. If we cannot respond to changes in industry
requirements, it could have a material adverse effect on our business.
Competitors with greater resources could harm our business.
The post-secondary education market is highly competitive. Our schools
compete with traditional public and private two-year and four-year colleges and
universities and other proprietary schools, including those that offer distance
learning programs. Some public and private colleges and universities, as well
as other private career-oriented schools, may offer programs similar to those
of our schools. Although tuition at private non-profit institutions is, on
average, higher than tuition at our schools, some public institutions are able
to charge lower tuition than our schools, due in part to government subsidies,
government and foundation grants, tax-deductible contributions and other
financial sources not available to proprietary schools. Some of our competitors
in both the public and private sectors have substantially greater financial and
other resources than us.
Failure to obtain additional capital in the future could reduce our ability
to grow.
We believe that funds from operations, cash, investments and borrowings
under our $10 million credit facility pursuant to our credit agreement will be
adequate to fund our current operation plans for the foreseeable future.
However, we may need additional debt or equity financing in order to carry out
our strategy of growth through acquisitions. We may also need additional debt
or equity financing in the future to carry out our growth strategy. The amount
and timing of such additional financing will vary principally depending on the
timing and size of acquisitions and the sellers' willingness to provide
financing themselves. To the extent that we require additional financing in the
future and are unable to obtain such additional financing, we may not be able
to fully implement our growth strategy.
11
<PAGE>
Risks Specific To This Offering Could Have A Material Adverse Effect On Our
Company
The number of shares eligible for public sale after this offering could
cause our stock price to decline. The sale of a substantial number of shares of
our common stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for our common stock. As of June 30,
2000, we had approximately 10,349,235 shares of common stock outstanding.
Substantially all of these shares are eligible for immediate sale in the public
market without restriction unless such shares are held by persons who are
deemed to be our "affiliates" because they, directly or indirectly through one
or more intermediaries, control, or are controlled by, or are under common
control, with us. Based on shares outstanding as of June 30, 2000, upon
completion of this offering, 2,773,169 shares will be held by our affiliates,
which shares of common stock are subject to lock-up agreements between the
holders of our shares and the representatives of the underwriters, pursuant to
which the holders have agreed that they will not, directly or indirectly, sell
or otherwise dispose of any shares of common stock, or securities or other
rights convertible into or exchangeable or exercisable for any shares of common
stock, for 90 days after the date of the offering without the prior written
consent of Credit Suisse First Boston Corporation. Upon expiration of this
period, the shares subject to the lock-up agreements will be eligible for sale
under Rule 144, subject to volume and other limitations, other than the holding
period requirement, of such rule. An additional 371,929 shares of common stock
are issuable at various dates upon exercise of options granted to certain of
our employees, officers, directors and consultants pursuant to stock option
agreements. After the offering, our affiliates holding 2,762,969 shares of our
common stock have registration rights. We cannot predict the effect, if any,
that future sales of shares, or the availability of shares for future sales,
will have on the market price of the common stock prevailing from time to time
or on our ability to raise capital through an offering of our equity
securities.
12
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the sale of 200,000 shares of common stock
by us at an assumed public offering price of $54.50 per share, based on the
closing price of our common stock of $54.50 on September 6, 2000, to be
approximately $9,723,000, after deducting the estimated underwriting discount
and offering expenses payable by us. We intend to use the net proceeds from
this offering for working capital and other general corporate purposes,
including acquisitions.
We will not receive any proceeds from the sale of shares by the selling
stockholders.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently
anticipate retaining future earnings, if any, to finance internal growth and
potential acquisitions. Payment of dividends in the future, if at all, will
depend upon our earnings and financial condition and various other factors our
directors may deem appropriate at the time. Our credit agreement restricts the
payment of cash dividends.
PRICE RANGE OF COMMON STOCK
Our common stock is listed on the Nasdaq National Market System under the
symbol "COCO." The approximate number of holders of record of our common stock
as of August 31, 2000 was 21 and the number of beneficial owners is believed to
be in excess of 750. Our common stock was first listed after the completion of
our initial public offering of shares in February, 1999.
The range of high and low sales prices of our common stock, as reported by
the Nasdaq National Market System, for each applicable quarter in fiscal 1999,
2000 and 2001 is as follows:
<TABLE>
<CAPTION>
Price Range
of Common
Stock
-------------
High Low
1999: ------ ------
<S> <C> <C>
Third Quarter (from February 5, 1999)....................... $25.00 $20.88
Fourth Quarter.............................................. 22.06 12.50
2000:
First Quarter............................................... $23.50 $13.88
Second Quarter.............................................. 24.13 16.63
Third Quarter............................................... 27.25 15.88
Fourth Quarter.............................................. 25.75 15.50
2001:
First Quarter (through September 6, 2000)................... $59.00 $23.00
</TABLE>
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000 on an
actual basis, and as adjusted to reflect the sale of 200,000 shares of common
stock by us at an assumed public offering price of $54.50 per share, based on
the closing price of our common stock of $54.50 on September 6, 2000, after
deducting the estimated underwriting discount and offering expenses. This table
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and our consolidated financial
statements, including the notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
June 30, 2000
------------------------
Actual As Adjusted
----------- ------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Cash and marketable investments..................... $ 29,003 $ 38,726
=========== ===========
Total debt.......................................... $ 2,332 $ 2,332
Stockholders' equity:
Common stock, $0.0001 par value:
Common stock, 40,000,000 shares authorized;
9,172,675 shares outstanding actual and
10,156,351 outstanding as adjusted.............. 1 1
Nonvoting common stock, 2,500,000 shares
authorized; 1,176,560 shares outstanding actual
and 392,884 outstanding as adjusted............. -- --
Additional paid-in capital........................ 49,654 59,377
Retained earnings................................... 19,348 19,348
----------- -----------
Total stockholders' equity........................ 69,003 78,726
----------- -----------
Total capitalization............................ $ 71,335 $ 81,058
=========== ===========
</TABLE>
The number of shares of common stock issued and outstanding as of June 30,
2000 does not include:
. 371,929 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $15.60 per share; and
. 153,593 shares of common stock reserved for grants under our 1998
Performance Award Plan.
The number of shares outstanding, as adjusted, includes the conversion of
783,676 shares of nonvoting common stock into our voting common stock by
the selling stockholders in connection with this offering.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial and other data are
qualified by reference to, and should be read in conjunction with, our
consolidated financial statements and the related notes thereto appearing
elsewhere in this prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected statement of
operations data and the balance sheet data set forth below for each of the five
years ended June 30, 1996, 1997, 1998, 1999 and 2000, and as of June 30, 1996,
1997, 1998, 1999 and 2000 are derived from our audited consolidated financial
statements. These historical results are not necessarily indicative of the
results that may be expected in the future.
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------
1996 1997 1998 1999 2000
------- ------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues (1).............. $31,498 $77,201 $106,486 $132,972 $170,734
------- ------- -------- -------- --------
Operating expenses:
Educational services........ 18,594 50,568 65,927 76,425 92,757
General and administrative.. 3,298 8,101 10,777 13,961 16,346
Marketing and advertising... 7,562 19,000 24,268 29,702 37,225
------- ------- -------- -------- --------
Total operating expenses.... 29,454 77,669 100,972 120,088 146,328
------- ------- -------- -------- --------
Income (loss) from
operations................... 2,044 (468) 5,514 12,884 24,406
Interest expense (income),
net.......................... 274 2,524 3,305 1,678 (1,681)
Other (income)................ -- -- -- -- (175)
------- ------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
(loss)....................... 1,770 (2,992) 2,209 11,206 26,262
Provision (benefit) for income
taxes........................ 722 (1,107) 988 4,703 10,840
------- ------- -------- -------- --------
Net income (loss) before
extraordinary (loss)......... 1,048 (1,885) 1,221 6,503 15,422
Extraordinary (loss) net of
tax benefit.................. -- -- -- (2,011) --
------- ------- -------- -------- --------
Net income (loss)............. $ 1,048 $(1,885) $ 1,221 $ 4,492 $ 15,422
======= ======= ======== ======== ========
INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS:
Net income (loss) before
extraordinary (loss)....... $ 1,048 $(1,885) $ 1,221 $ 6,503 $ 15,422
Less preferred stock
dividends.................. (111) (118) (365) (355) --
------- ------- -------- -------- --------
Income (loss) before
extraordinary (loss)
attributable to common
stockholders.............. 937 (2,003) 856 6,148 15,422
Extraordinary (loss)........ -- -- -- (2,011) --
------- ------- -------- -------- --------
Net income (loss)
attributable to common
stockholders ............. $ 937 $(2,003) $ 856 $ 4,137 $ 15,422
======= ======= ======== ======== ========
INCOME (LOSS) PER SHARE
ATTRIBUTABLE TO COMMON
STOCKHOLDERS:
Basic --
Income (loss) before
extraordinary (loss)....... $ 0.21 $ (0.41) $ 0.16 $ 0.85 $ 1.49
Extraordinary (loss)........ -- -- -- (0.28) --
------- ------- -------- -------- --------
Net income (loss).......... $ 0.21 $ (0.41) $ 0.16 $ 0.57 $ 1.49
======= ======= ======== ======== ========
Diluted --
Income (loss) before
extraordinary (loss)....... $ 0.15 $ (0.41) $ 0.12 $ 0.72 $ 1.48
Extraordinary (loss)........ -- -- -- (0.24) --
------- ------- -------- -------- --------
Net income (loss).......... $ 0.15 $ (0.41) $ 0.12 $ 0.48 $ 1.48
======= ======= ======== ======== ========
Weighted average number of
common shares outstanding:
Basic........................ 4,409 4,896 5,236 7,266 10,347
======= ======= ======== ======== ========
Diluted...................... 6,339 4,896 7,125 8,549 10,425
======= ======= ======== ======== ========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------
1996 1997 1998 1999 2000
------- -------- ------- -------- --------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C>
Other Data:
EBITDA (2)................... $ 2,726 $ 1,602 $ 8,573 $ 16,329 $ 28,204
Cash flow provided by (used
in):
Operating activities....... 997 995 (3,373) 5,794 23,582
Investing activities....... (4,295) (30,973) (1,676) (16,140) (19,362)
Financing activities....... 3,903 30,975 4,630 9,731 (1,121)
Capital expenditures (3)..... 1,046 5,936 1,926 2,790 4,182
Number of colleges at end of
period...................... 16 36 35 37 44
Student population at end of
period...................... 4,938 12,820 13,992 16,012 19,464
Starts during the period
(4)......................... 5,834 13,673 18,261 21,008 24,660
Balance Sheet Data:
Cash, cash equivalents and
restricted cash (5)......... $ 2,024 $ 3,831 $ 3,162 $ 1,797 $ 4,896
Marketable investments....... -- -- -- 14,501 24,107
Working capital.............. 2,306 1,844 606 19,108 29,069
Total assets................. 13,487 53,809 59,905 73,857 95,233
Long-term debt, net of
current maturities.......... 2,537 36,168 31,535 3,396 2,230
Redeemable preferred stock... 1,924 2,042 2,167 -- --
Convertible preferred stock.. -- -- 5,174 -- --
Total stockholders' equity... $ 2,124 $ 121 $ 977 $ 53,536 $ 69,003
</TABLE>
---------------------
(1) Represents student tuition and fees and bookstore sales, net of refunds.
Year ended June 30, 1996 includes a non-recurring management fee of
approximately $2.1 million earned by us for managing certain colleges owned
by National Education Corporation during the first six months of that year.
(2) EBITDA equals earnings before interest, taxes, depreciation and
amortization, including amortization of deferred financing costs. For the
year ended June 30, 1999, EBITDA excludes the extraordinary loss from early
extinguishment of debt which amounted to $2.0 million (net of $1.5 million
tax benefit). EBITDA is presented because we believe it allows for a more
complete analysis of our results of operations. EBITDA should not be
considered as an alternative to, nor is there any implication that it is
more meaningful than, any measure of performance or liquidity as
promulgated under GAAP.
(3) Year ended June 30, 1997 includes approximately $3.4 million for real
estate acquired in connection with the acquisition of certain schools from
Philips Colleges, Inc.
(4) Represents the new students starting school during the periods presented.
(5) Includes approximately $200,000, $1.0 million, $760,000, $10,000 and
$10,000 of restricted cash at June 30, 1996, 1997, 1998, 1999 and 2000,
respectively.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the consolidated financial statements
and the related notes included in another part of this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in those forward-looking statements as a result of a number of factors,
including those set forth in "Risk Factors," and elsewhere in this prospectus.
Background and Overview
As of June 30, 2000, we operated 44 colleges, with more than 19,400
students, in 18 states. During the fiscal year ended June 30, 2000, our company
had net revenues of $170.7 million. Our revenues consist principally of student
tuition, enrollment fees and bookstore sales, and are presented as net revenues
after deducting refunds.
Net revenues increased 28.4% to $170.7 million in 2000 from $133.0 million
in 1999. The increase is largely the result of a 15.7% increase in the average
student population and a 10.6% increase in the average tuition rate per student
during the period. Tuition revenues, which represented 91.8% of fiscal 2000
total net revenues, fluctuate with the aggregate enrolled student population
and the average program or credit hour charge. The student population varies
depending on, among other factors, the number of (i) continuing students at the
beginning of a fiscal period, (ii) new student enrollments during the fiscal
period, (iii) students who have previously withdrawn but who reenter during the
fiscal period, and (iv) graduations and withdrawals during the fiscal period.
New student starts occur on a monthly basis in the diploma-granting colleges.
In the degree-granting colleges, the majority of new student starts occur in
the first month of each calendar quarter with an additional "mini-start" in the
second month of each quarter in most colleges. The tuition charges vary by
college depending on the local market, the program level, such as diploma, or
associate's, bachelor's or masters degree, and the specific curriculum.
The majority of students at our colleges rely on funds received under
various government sponsored student financial aid programs to pay a
substantial portion of their tuition and other education-related expenses. In
fiscal 2000, approximately 77% of our net revenues, on a cash basis, was
derived from federal student financial aid programs.
We categorize our expenses as educational services, general and
administrative, and marketing and advertising. Educational services expense is
primarily comprised of those costs incurred to deliver and administer the
education programs at the colleges, including faculty and college
administration compensation; education materials and supplies; college facility
rent and other occupancy costs; bad debt expense; depreciation and amortization
of college property, equipment and goodwill; and default management and
financial aid processing costs.
General and administrative expense consists principally of those costs
incurred at the corporate and regional level in support of college operations,
except for marketing and advertising related costs. Included in general and
administrative costs are company executive management, corporate staff and
regional operations management compensation; rent and other occupancy costs for
corporate headquarters; depreciation and amortization of corporate property,
equipment and intangibles; and other expenses incurred at corporate
headquarters.
Marketing and advertising expense includes compensation for college
admissions staff, regional admissions directors, corporate marketing and
advertising executive management, and staff and all advertising and production
costs.
Acquisitions
Since our inception, we have completed the following acquisitions, each of
which was accounted for as an asset purchase using the purchase method of
accounting, and the results of their operations are included in our
consolidated results of operations since their respective dates of acquisition:
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On June 30, 1995, we acquired five colleges from National Education
Corporation. As part of the same transaction, we subsequently acquired from
National Education Corporation a second group of five colleges on September
30, 1995 and an additional six colleges on December 31, 1995. The adjusted
purchase price for all 16 colleges was approximately $4.7 million in cash.
On July 1, 1996, we acquired one college from Repose, Inc., for a purchase
price of $250,000 in cash.
On August 31, 1996, we acquired one college from Concorde Career Colleges,
Inc., for a purchase price of $350,000 in cash.
On October 17, 1996, we acquired 18 colleges from Phillips Colleges, Inc.,
for an adjusted purchase price of approximately $23.6 million in cash.
On January 18, 2000, we acquired substantially all of the assets of Harbor
Medical College, which operated one college in Torrance, California, for
approximately $300,000 in cash.
On April 1, 2000, we acquired substantially all of the assets of the
Georgia Medical Institute, which operated three colleges in the greater
Atlanta, Georgia metropolitan area, for approximately $7.0 million in cash.
On June 1, 2000, we acquired substantially all of the assets of Academy of
Business College, which operated one college in Phoenix, Arizona, for
approximately $1.0 million in cash.
Results of Operations
Comparisons of results of operations between fiscal year ended June 30,
2000 and fiscal years ended June 30, 1999 and 1998 are difficult due to the
acquisitions of five campuses in fiscal 2000, the opening of two branch
campuses in fiscal 2000 and the opening of two additional branch campuses in
fiscal 1999.
The following table summarizes our operating results as a percentage of net
revenues for the periods indicated.
<TABLE>
<CAPTION>
Years Ended
June 30,
-------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Statement of Operations Data:
Net revenues.......................................... 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Educational services.................................. 61.9 57.5 54.3
General and administrative............................ 10.1 10.5 9.6
Marketing and advertising............................. 22.8 22.3 21.8
----- ----- -----
Total operating expenses............................ 94.8 90.3 85.7
Income from operations................................ 5.2 9.7 14.3
Interest expense (income), net........................ 3.1 1.3 (1.0)
Other (income)........................................ -- -- (0.1)
----- ----- -----
Income before income taxes............................ 2.1 8.4 15.4
Provision for income taxes............................ 0.9 3.5 6.4
----- ----- -----
Net income before extraordinary (loss)................ 1.2 4.9 9.0
Extraordinary (loss), net of tax benefit.............. -- (1.5) --
----- ----- -----
Net income.......................................... 1.2% 3.4% 9.0%
===== ===== =====
</TABLE>
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
Net Revenues. Net revenues increased $37.8 million, or 28.4%, from $133.0
million in fiscal 1999 to $170.7 million in fiscal 2000 due primarily to a
15.7% increase in the average student population during the
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year and a 10.6% increase in the average tuition rate per student. At June 30,
2000, the total student population was 19,464, compared with 16,012 at June 30,
1999. Same school student population increased 13.0% as of June 30, 2000.
In connection with our acquisition of 18 colleges from Phillips Colleges,
Inc. in fiscal 1997, we honored certain fixed price commitments to students
already in school ("grandfathered students") when we acquired those colleges.
As a result, over the last several years, including fiscal 2000, our average
tuition rate per student has increased more dramatically than the actual
tuition price increases at our schools. This is as a result of the changing mix
of new to grandfathered students, as the latter students have graduated or
discontinued their education. With virtually all grandfathered students having
now graduated or discontinued their education, we expect year-over-year
increases in the average tuition rate per student to more closely track the
actual tuition price increases implemented.
Educational Services. Educational services expense increased $16.3 million,
or 21.4%, from $76.4 million in fiscal 1999 to $92.8 million in fiscal 2000.
The increase was due primarily to the 15.7% increase in the average student
population and wage increases for employees. Additionally, a number of colleges
were moved to larger upgraded facilities, two new branches were opened, and
five campuses were acquired. As a percentage of net revenues, educational
services expense decreased from 57.5% to 54.3%.
General and Administrative. General and administrative expense increased
$2.4 million, or 17.1%, from $14.0 million in fiscal 1999 to $16.4 million in
fiscal 2000. The increase was primarily a result of (i) additional headquarters
staff to support operations, (ii) wage increases for employees, (iii) higher
management incentive compensation due to our performance, (iv) increased travel
and training, and (v) one-time Year 2000 remediation expenses. As a percentage
of net revenues, general and administrative expense decreased from 10.5% to
9.6%.
Marketing and Advertising. Marketing and advertising expense increased $7.5
million, or 25.3%, from $29.7 million in fiscal 1999 to $37.2 million in fiscal
2000, primarily due to the increased volume of advertising and additional
admissions staff necessary to support the 17.4% increase in starts. Also
contributing to the increase was advertising cost inflation and wage increases
for employees. As a percentage of net revenues, marketing and advertising
expense decreased from 22.3% to 21.8%.
Income From Operations. Income from operations increased 89.4% to $24.4
million, or 14.3% of revenues in fiscal 2000, compared to $12.9 million, or
9.7% of revenues in fiscal 1999.
Interest Income, Net. Interest income (net of interest expense of $0.4
million) amounted to $1.7 million in fiscal 2000 compared to interest expense
(net of interest income of $0.7 million) of $1.7 million in fiscal 1999. In the
third quarter of fiscal 1999, we retired approximately $35.8 million of long-
term debt and, as such, did not incur the related interest expense during
fiscal 2000. Additionally, as a result of increased earnings and related cash
flow available for investing, interest income increased by $1.3 million in
fiscal 2000 when compared to fiscal 1999.
Provision for Income Taxes. The effective income tax rate for fiscal 2000
decreased to 41.3% of income before taxes compared to 42.0% of income before
taxes in fiscal 1999.
Net Income. Net income for fiscal 2000 increased 243% to $15.4 million, or
9.0% of revenues, compared to net income of $4.5 million, or 3.4% of revenues,
for fiscal 1999. Net income for fiscal 1999 includes an extraordinary loss from
the early retirement of debt of $2.0 million (net of $1.5 million from income
tax benefits).
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Net Revenues. Net revenues increased $26.5 million, or 24.9%, from $106.5
million in fiscal 1998 to $133.0 million in fiscal 1999 due primarily to a
12.4% increase in the average student population during the
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year and a 9.7% increase in the average tuition rate per student. At June 30,
1999, the total student population was 16,012 compared with 13,992 at June 30,
1998. Except for 151 students in the two new branches opened in March and
April, 1999, the increase in student population was all "same school" growth.
Educational Services. Educational services expense increased $10.5 million,
or 15.9%, from $65.9 million in fiscal 1998 to $76.4 million in fiscal 1999.
The increase was due primarily to the 14.4% increase in the student population
and wage increases for employees. Additionally, a number of colleges were moved
to larger upgraded facilities, two new branches were opened, and annual lease
escalations took place during the year resulting in higher facility-related
expenses. As a percentage of net revenues, educational services expense
decreased from 61.9% to 57.5%.
General and Administrative. General and administrative expense increased
$3.2 million, or 29.5%, from $10.8 million in fiscal 1998 to $14.0 million in
fiscal 1999. The increase was primarily a result of (i) additional headquarters
staff to support operations, (ii) wage increases for employees, (iii) higher
management incentive compensation due to our performance, (iv) increased travel
and training, and (v) the one-time Year 2000 remediation expenses. As a
percentage of net revenues, general and administrative expense increased from
10.1% to 10.5%. However, if the one-time Year 2000 remediation expenses were
excluded, the general and administrative expense would be 9.9% of net revenues
for 1999.
Marketing and Advertising. Marketing and advertising expense increased $5.4
million, or 22.4%, from $24.3 million in fiscal 1998 to $29.7 million in fiscal
1999, primarily due to the increased volume of advertising and additional
admissions staff necessary to support the 15% increase in starts. Also
contributing to the increase was advertising cost inflation and wage increases
for employees. As a percentage of net revenues, marketing and advertising
expense decreased from 22.8% to 22.3%.
Income From Operations. Income from operations increased 133% to $12.9
million in fiscal 1999, or 9.7% of revenues, compared to $5.5 million, or 5.2%
of revenues in fiscal 1998.
Interest Expense, Net. Net interest expense decreased $1.6 million, or
49.2%, from $3.3 million in fiscal 1998 to $1.7 million in fiscal 1999, due
primarily to the repayment of debt with a portion of the proceeds from our
initial public offering in February 1999.
Provision for Income Taxes. The provision for income taxes increased $3.7
million from $1.0 million in fiscal 1998 to $4.7 million in fiscal 1999. The
effective tax rate decreased from 44.7% to 42.0% as a result of a reduction in
the state income tax component.
Income before Extraordinary Loss. Income before extraordinary loss increased
$5.3 million, or 433%, from $1.2 million in fiscal 1998 to $6.5 million in
fiscal 1999, due primarily to the factors discussed above.
Extraordinary Loss. In fiscal 1999 we recorded an extraordinary loss of $2.0
million (net of a $1.5 million tax benefit) related to a prepayment penalty and
the write-off of deferred loan fees associated with the early extinguishment of
debt with a portion of the proceeds from the initial public offering, compared
to no extraordinary items in fiscal 1998.
Net Income. Net income increased $3.3 million, or 268%, from $1.2 million in
fiscal 1998 to $4.5 million in fiscal 1999 as a result of the factors discussed
above.
Seasonality
Our revenues normally fluctuate as a result of seasonal variations in our
business, principally in its total student population. Student population
varies as a result of new student enrollments and student attrition.
Historically, our colleges have had lower student populations in the first
fiscal quarter than in the remainder of the year. Our expenses, however, do not
vary as significantly as student population and revenues. We expect
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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 for any future period. See Note 13 of the
Consolidated Financial Statements included elsewhere herein.
Liquidity and Capital Resources
In February 2000, we entered into an Amended and Restated Loan Agreement,
our "Credit Facility," for $10.0 million with Union Bank of California, which
expires in September 2002. The Credit Facility includes a non-usage fee of 1/8%
per year on the unused portion and borrowings will bear interest at LIBOR plus
150 basis points. At September 2002, any outstanding acquisition advances, as
defined by the Credit Facility, will be converted into a three year amortizing
term loan. The Credit Facility requires us to meet various financial covenants
with which we were in compliance as of June 30, 2000. There were no borrowings
outstanding at June 30, 2000 and June 30, 1999 and average daily borrowings
outstanding amounted to $20,000 in fiscal 2000. The Credit Facility provides
for a standby letter of credit sub-limit of $2.0 million, of which $218,000 was
issued and $1.8 million was available as of June 30, 2000.
Working capital amounted to $29.1 million as of June 30, 2000 and $19.1
million as of June 30, 1999 and the current ratios were 2.3:1 and 2.2:1,
respectively.
Cash flows provided by operating activities amounted to $23.6 million in
fiscal 2000 compared to $5.8 million in fiscal 1999. Cash used in operating
activities amounted to $3.4 million in 1998. The increase in cash provided by
operating activities in fiscal 2000 was due to increased earnings, reductions
in student receivables, increases in accounts payable, accrued expenses and
prepaid tuition. The increase in cash provided by operating activities in
fiscal 1999 was due to increases in student receivables and prepaid and other
current assets, partially offset by increases in accounts payable and increases
in accrued expenses, net income and prepaid tuition. Cash used in operating
activities of $3.4 million in fiscal 1998 was due to increases in accounts
receivable and student notes receivable, deferred income taxes and prepaid
tuition.
Cash flows used in investing activities amounted to $19.4 million in fiscal
2000, $16.1 million in fiscal 1999 and $1.7 million in fiscal 1998. The change
in cash flows used in investing activities is due primarily to the acquisition
of colleges, net of liabilities assumed, capital expenditures, net of proceeds
from asset dispositions, and from changes in restricted cash and in marketable
investments. During fiscal 2000, we completed the acquisition of substantially
all of the assets of five colleges in three separate transactions for a
combined purchase price of $8.3 million in cash, including $0.7 million of
liabilities assumed or paid. The amount paid in excess of the fair market value
of the assets acquired, net of liabilities assumed, was $7.9 million and was
allocated to goodwill and is being amortized over 40 years. The acquisitions
were accounted for using the purchase method of accounting and their respective
results of operations are included in our consolidated results of operations
since their respective acquisition dates.
Capital expenditures amounted to $4.2 million in fiscal 2000, $2.8 million
in fiscal 1999 and $1.9 million in fiscal 1998. Capital expenditures were
incurred to open two new branches in each of fiscal 2000 and 1999, for
purchases of equipment to accommodate the increasing student population and to
continue to upgrade existing schools and equipment. Capital expenditures were
also incurred to relocate, remodel and enlarge campuses. During fiscal 2000,
two campuses were relocated and one campus was remodeled. During fiscal 1999,
five campuses were relocated and one campus was remodeled and during fiscal
1998, six campuses were relocated and one campus was remodeled. In June 2000,
we sold one of our Colorado facilities and subsequently leased the facility
back at rents which approximate fair market rents. Net proceeds from the sale
were approximately $2.0 million and the gain on the sale of the facility was
approximately $1.0 million which will be amortized into income over the term of
the lease. We believe that our capital expenditures for fiscal 2001 will
approximate $6.0 million.
During fiscal 2000 and fiscal 1999, marketable securities increased by $9.6
million and $14.5 million, respectively.
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Net cash used in financing activities amounted to $1.1 million in fiscal
2000. Net cash provided from financing activities amounted to $9.7 million in
fiscal 1999 and $4.6 million in fiscal 1998. During fiscal 2000, net cash used
in financing activities consisted primarily of payments on long-term debt.
During fiscal 1998, net cash provided by financing activities amounted to $4.6
million and consisted primarily of proceeds from the issuance of convertible
preferred stock, net of reductions in long-term debt. During fiscal 1999, net
cash provided by financing activities amounted to $9.7 million primarily from
the our initial public offering in February 1999.
Initial Public Stock Offering
In February 1999, we issued and sold 2,700,000 shares of common stock at a
price of $18.00 per share in our initial public offering, or "IPO." We received
total net proceeds, after deduction of underwriting discounts, of approximately
$45.2 million. After the IPO, we applied $1.9 million of the proceeds to the
expenses of the IPO, 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, and paid accumulated dividends of $0.5 million on convertible
preferred stock. The remaining $10.0 million of proceeds were available for
general corporate purposes. In conjunction with the early retirement of debt in
February 1999, we recorded a $2.0 million extraordinary loss, net of tax
benefit of $1.5 million, resulting from prepayment penalties and the write-off
of deferred loan fees associated with the indebtedness. In February 1999, we
received $187,312 from five of our executive officers as full payment for notes
receivable from these executive officers, plus the accumulated interest on the
notes.
We believe that our working capital, cash flow from operations, access to
operating leases and borrowings from our Credit Facility will provide us with
adequate resources for ongoing operations through fiscal 2001 and currently
identified expansion and planned capital expenditures.
Quantitative and Qualitative Disclosure about Market Risk
We do not utilize interest rate swaps, forward or option contracts on
foreign currencies or commodities, or other types of derivative financial
instruments. Our only assets or liabilities which are subject to risks from
interest rate changes are (i) mortgage debt in the aggregate amount of $2.3
million, (ii) notes receivable from students in the aggregate amount of $4.1
million, and (iii) marketable investments of $24.1 million, all as of June 30,
2000. Our mortgage debt, student notes receivable, and marketable investments
are all at fixed interest rates. We do not believe we are subject to material
risks from reasonably possible near-term changes in market interest rates.
Recent Developments
On September 4, 2000, we signed an agreement to acquire substantially all of
the assets of Educorp, Inc., a proprietary school company with four campuses in
the Los Angeles metropolitan area. As of the end of August 2000, Educorp had
approximately 1,375 students. We expect to complete the purchase of these
schools during the second quarter of fiscal 2001, subject to the satisfaction
of certain customary conditions to closing, including the receipt of regulatory
approvals from the State of California. Although we expect to complete this
transaction in the second quarter of fiscal 2001, we can give no assurance that
the transaction will be completed at that time, or at all. The purchase price
for these assets will be approximately $12.0 million in cash.
New Accounting Pronouncements
For fiscal 2000, we were required to adopt Statement of Position ("SOP") No.
98-1, "Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use" and SOP No. 98-5, "Reporting on the Costs of Start-Up
Activities." The adoptions of SOP No. 98-1, and SOP No. 98-5 did not have a
material impact on our presentation of financial position or results of
operations.
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For fiscal 2001, we will be required to adopt SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The adoption of SFAS No. 133 is
not expected to have a material adverse effect on our financial position or
results of operations.
Additionally, on or before June 30, 2001, we will be required to adopt Staff
Accounting Bulletin 101 ("SAB 101"). SAB 101 requires us to change our
accounting method of revenue recognition of certain one-time non-refundable
fees from immediate recognition, to amortizing the fees into revenues over the
period of active enrollment of the student. We have completed preliminary
calculations with respect to SAB 101 upon adoption and we anticipate a charge
to earnings of approximately $0.03 per diluted common share, which will be
accounted for as a cumulative effect from a change in accounting principal.
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BUSINESS
Overview
Our company is one of the largest private, for-profit, post-secondary
education companies in the United States, with more than 19,400 students
enrolled as of June 30, 2000. We currently operate 45 colleges in 18 states,
including ten in California, nine in Florida, and four in Georgia and serve the
large and growing segment of the population seeking to acquire career-oriented
education. Our schools generally enjoy long operating histories and strong
franchise value in their local markets.
We offer a variety of master's, bachelor's and associate's degrees and
diploma programs through two operating divisions. Our Corinthian Schools
division operates diploma-granting schools in the healthcare, electronics and
information technology fields and seeks to provide its students a solid base of
training for a variety of entry-level positions. Our Rhodes Colleges division
operates degree-granting schools principally in the business, healthcare and
information technology areas and provides its students with professional
education to succeed in today's competitive workplace. Both divisions receive
strategic direction and operational support from senior management and
corporate staff.
Our company is led by David G. Moore, our President and Chief Executive
Officer, and an experienced executive management team. Our team of eight
executives, including Mr. Moore, has an average of approximately 12 years
experience in various fields of education and an average of approximately ten
years in the for-profit, post-secondary education industry. We have five
regions, each headed by a regional operations director and a regional
admissions director. This regional structure is supported by our proprietary
management information system, which links all of our colleges and provides
management with real-time access to marketing reports, lead tracking, academic
records, grades, transcripts and placement information.
Industry Background
The market for post-secondary education is large and growing, with total
expenditures expected to increase 42.0% (in constant dollars) between 1998 and
2010 (from $213 billion to $303 billion) and student enrollment, 19.5% (from
14.6 million to 17.5 million). The private, for-profit, post-secondary
education industry is highly fragmented. Of the approximately 6,000 post-
secondary institutions that are eligible to participate in federal financial
aid programs, approximately one-third are private, for-profit institutions. We
believe the growing demand for skilled labor, positive demographic trends, the
economic value of post-secondary education to students and budgetary
constraints at public colleges will combine to broaden the market for our
services over the next decade.
Growing Demand for Skilled Labor. According to the Bureau of Labor
Statistics, demand for professional and technical jobs in the United States
continues to grow. The percentage of professional and technical jobs grew from
15.7% in 1988 to 17.6% in 1998 and is projected to grow to 19.4% in 2008. The
total number of professional and technical jobs in the year 2008 is projected
to reach more than 31.0 million, an increase of 6.4 million jobs over 1998.
Growth in certain sectors of the economy is expected to be particularly high.
The Bureau of Labor Statistics projects that jobs in the healthcare and
technology-related fields will significantly outpace the growth of the overall
labor market over the next several years. The demand for computer support
specialists and entry-level medical assistants, for instance, is expected to
grow more than 102.3% and 57.8%, respectively, from 1998 to 2008. We believe
the economy is also generating increased demand for business professionals.
According to the Bureau of Labor Statistics, employment in service producing
industries will increase faster than the national average, with growth of 17.1%
between 1998 and 2008. Business, health and education services will account for
more than 60% of the growth within the service sector.
Positive Demographic Trends. Favorable demographic shifts are expected to
occur over the next decade as children of "baby boomers" reach adulthood and
seek post-secondary education. For the first time in more
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than 25 years, the number of new high school graduates is increasing. The DOE
projects a 15% increase in annual high school graduates by the year 2008, from
2.7 million in 1998 to 3.1 million in 2010, and high school graduates are
pursuing post-secondary education at higher rates. In 1996, 65% of new high
school graduates pursued post-secondary education, compared with 53% in 1986.
The number of young adults that do not graduate high school is also growing and
these non-high school graduates can also benefit from career-oriented
education, including training for entry level skilled positions in healthcare
and other growing industries. According to the DOE's National Center for
Educational Statistics, the number of adult enrollments, aged 25 and older, is
also expected to grow, reaching 6.8 million by 2010.
Economic Value of Post-Secondary Education. Post-secondary education leads
to significant and measurable improvements in a person's financial prospects
and we believe that the public is increasingly aware of this relationship. On
average, a person with an associate's degree earns 30% more than a high school
graduate, while a person with a bachelor's degree earns 77% more than a high
school graduate. Independent research studies have demonstrated that
prospective students consider these benefits in making their education
decisions.
Budgetary Constraints at Public Colleges. Limited recent growth in federal,
state and local budgets for post-secondary education has caused budgetary
constraints among traditional colleges and made additional facility expansion
difficult. At the same time, the number of private, for-profit, post-secondary
institutions has remained relatively constant over the last three years. We
believe that these factors, combined with significant barriers to entry for new
proprietary education companies, create significant opportunities for well-
capitalized, proprietary institutions.
Operating Strategy
We have increased enrollment and improved profitability through the
successful implementation of our operating strategy. Key elements of our
operating strategy include the following components:
Focus on Attractive Markets. We design our educational programs to benefit
from favorable demographic trends. Our diploma-granting colleges provide
programs in healthcare and technology related fields, allowing us to capitalize
on the growth in entry-level positions in these industries. Our degree-granting
colleges, with their business focus, and modern facilities and equipment and
excellent faculty, seek to provide students with specific knowledge and skills
necessary to advance in business and industry. Our geographic strategy is to
build a strong competitive position in attractive and growing local markets
where we can take advantage of operating efficiencies and benefit from
favorable demographic trends. For example, we moved into the Atlanta, Georgia
market, one of the fastest growing metropolitan areas in the country, with four
new schools in fiscal 2000. Additionally, we are well positioned, with ten
schools in California and nine schools in Florida, to benefit from the
population growth in these states which is expected to exceed the national
average over the next several years.
Centralize Key Functions. In order to capitalize on the experience of our
senior management and encourage best practices, we have established a regional
management organization to divide responsibilities among school administrators,
regional administrators and senior management. Since our initial public
offering in February 1999, we have created a new Southeast region to help
manage our recent acquisitions and branches, particularly our five new schools
in Virginia and Georgia.
Local school administrators retain control of, and accountability for, the
day-to-day academic, operational and financial performance of their individual
schools and receive appropriate financial incentives. The corporate management
team controls key operational functions such as financial aid management,
marketing, curriculum development, staff training, human resources and
centralized purchasing, which we believe enables us to achieve significant
operating efficiencies. For example, our corporate headquarters controls the
advertising function and utilizes our proprietary management information system
to analyze the effectiveness of our marketing efforts and make timely and
efficient decisions regarding the allocation of marketing resources at
individual colleges.
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Emphasize Student Outcomes. We believe that positive student outcomes are a
critical driver of our long-term success. Accordingly, we devote substantial
resources to maintaining and improving our retention and placement rates.
Modest increases in student retention can have a significant impact on our
profitability and high graduation and placement rates enhance a school's
reputation and marketability, increase referrals and improve cohort default
rates. We have studied attrition patterns and implemented a variety of
programs, including tutoring, advising, ride-sharing and referral programs, all
of which are designed to improve student retention. We utilize a curriculum
development team and advisory boards comprised of local business professionals
to help maintain our current, market driven curricula that provide the
foundation of our placement effort. We also maintain dedicated, full-time
placement personnel at each school that undertake extensive placement efforts,
including recruiting prospective employers, helping students prepare resumes,
conducting practice interviews, establishing internship programs and tracking
students' placement success on a monthly basis. As a result of our efforts in
this area, 86% of our graduates in calendar 1999 who were "available for
placement," as defined by industry and accreditation standards, were placed in
a job for which they had trained within six months after graduation.
Create a Supportive and Friendly Learning Environment. We view our students
as customers and seek to provide a supportive and convenient learning
environment where student satisfaction is achieved. We offer a flexible
schedule of classes, providing our students with the opportunity to attend
classes throughout the day, as well as nights and weekends. Schools operate
year-round, permitting students to complete their course of study more quickly.
We limit class sizes and focus the efforts of our faculty on teaching students
rather than research. Personal interaction between students and faculty is
encouraged and we offer several support programs, such as on-campus advising
and tutoring, which are designed to help students successfully complete their
course of study. We also maintain a toll-free student hotline to address and
help resolve student concerns.
Growth Strategy
We intend to achieve continued growth in revenues and profitability by
pursuing the following components of our growth strategy:
Enhance Growth at Existing Campuses. We have enhanced growth at existing
campuses through the following measures:
Curriculum Expansion and Development. We have refined, developed and
added curricula based on market research and the recommendations of our
faculty, employees, industry advisory board members and our curriculum
development team. We believe considerable opportunities exist for
curriculum expansion and expect to continue developing and adding new
curricula and selectively replicating existing programs at new locations,
including introducing our longer-term programs more broadly. In fiscal
2000, we developed four new programs and implemented those programs in an
aggregate of 18 locations. Additionally we replicated a total of 32
programs in 17 locations.
Integrated and Centralized Marketing Program. We have increased student
enrollment at our existing, newly opened and acquired schools by employing
an integrated marketing program that utilizes an extensive direct response
advertising campaign delivered through television, newspaper, direct mail
and the Internet. In addition, we began a significant sales and marketing
effort directed at high school guidance counselors in fiscal 2000. A
professional marketing staff at our headquarters coordinates marketing
efforts through an in-bound call center and the sophisticated real-time
leads tracking capability of our proprietary management information system.
Facilities Enhancement and Expansion. In order to expand capacity to
meet enrollment demand, as well as to improve the location and appearance
of its facilities, we have relocated, and will continue to systematically
relocate, selected colleges within their respective markets to larger,
enhanced facilities upon lease expiration. Since 1995, 17 colleges have
been relocated and an additional seven campuses have been either remodeled
or enlarged. As of August 15, 2000, the total square footage of our
campuses was approximately 906,000 square feet.
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<PAGE>
Establish Additional Locations. Since our initial public offering in
February 1999, we have opened and successfully integrated five branch campuses
into our operations. Of the five branch campuses, two were opened in each of
fiscal 2000 and fiscal 1999, and one was opened in mid July 2000, during fiscal
2001. A key advantage of this strategy is that students attending new campuses
branched from existing campuses have immediate access to federally funded
student financial aid. Students attending new campuses that are not branched
from an existing campus must wait at least two years before they are eligible
to participate in federal student financial aid programs. We believe that
opening new branch campuses will allow us to enter new geographic markets,
create additional capacity in existing markets and effectively leverage our
infrastructure and curriculum library.
Acquire Accredited Colleges. Since our founding in 1995, acquisitions have
been an important part of our growth strategy. Of the 45 campuses that we
currently operate, 40 have been acquired and successfully integrated into our
operations. During fiscal 2000, we acquired and successfully integrated five
campuses. Additionally, on September 4, 2000, we announced that we had signed
an agreement to acquire substantially all the assets of Educorp, Inc. a
proprietary education company with four campuses in Southern California, and
approximately 1,375 students as of August 31, 2000. To evaluate acquisition
opportunities, we have established several criteria, such as demographics,
curricula, geographic proximity to our existing campuses and selected financial
measurements.
Expand Service Areas and Delivery Models. We intend to expand our distance
learning and contract training initiatives.
Distance Learning. We believe that distance learning will become an
increasingly important component of the higher education market. During
fiscal 1999, we began offering selected courses over the Internet to our
students and currently offer courses over the Internet at twelve campuses.
We expect to continue to expand these offerings at selected campuses in
fiscal 2001 and are actively pursuing relationships with technology
providers to capitalize on additional distance learning opportunities.
Contract Training. We employ a full-time contracts administrator and
actively pursue corporate training opportunities and other state and
federal programs. Although we do not derive a significant portion of our
revenues from contract training, we believe that the corporate training
arena is an attractive market and that our curricula and national market
presence address the needs of a variety of employers.
Programs of Study
Our diploma programs are intended to provide students with the requisite
knowledge and job skills for entry-level positions in their chosen career
field. Our degree programs are primarily designed to help career-oriented
adults advance in business and industry. Our curriculum development team has
responsibility for maintaining high quality, market driven curricula. Each
college also utilizes advisory boards to help evaluate and improve the
curriculum for each program offered. These advisory boards meet at least twice
a year and are comprised of local industry and business professionals. Board
members provide valuable input regarding changes in the discipline, new
technologies and any other factors that require curriculum adjustments.
Among the diploma-granting colleges, the curriculum principally includes
medical assisting, dental assisting, medical office management, information
technology, business operation, medical administrative assistant, dialysis
technician, respiratory therapy technician, and electronics and computer
technology. Medical assisting is the most popular program of study, often
accounting for 60% or more of the student body at any given diploma-granting
campus. Six of the National Institute of Technology, or "NIT," colleges also
offer electronics technology, network administration and Microsoft Office User
Specialist. At these colleges, the student population is generally split
between technology programs and medical assisting. The curriculum at the
degree-granting colleges includes accounting, business administration, computer
information technology, hospitality management, marketing, criminal justice,
medical assisting, paralegal, commercial art, court reporting, film and video
and travel and tourism. Most programs lead to an associate's degree, while at
the Florida Metropolitan University, or "FMU," campuses most programs also lead
to a bachelor's degree. Master's degrees are also offered at FMU in business
administration and criminal justice.
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<PAGE>
Diploma programs generally have a duration of 8-19 months, depending on the
course of study. Associate's degree programs have a duration of 18-24 months,
bachelor's degree programs last 36-48 months and master's degree programs have
a duration of 24 months, except for the executive MBA, which is 12 months. As
of June 30, 2000, we had 7,874 students enrolled in associate's programs, 1,801
enrolled in bachelor's programs, 423 enrolled in master's programs, and 9,366
enrolled in diploma programs.
The following table reflects our schools, their locations and principal
curricula. In the table below, programs offered are designated as follows:
healthcare (HC), business (B), information technology and/or electronics (IT),
and criminal justice (CJ).
<TABLE>
<CAPTION>
Principal
Degree-Granting Colleges Curricula
------------------------ -------------
<S> <C>
Blair College, Colorado Springs, CO.............................. HC, B, IT, CJ
Duff's, Pittsburgh, PA........................................... HC, B, IT, CJ
FMU, Brandon, FL................................................. HC, B, IT, CJ
FMU, Ft. Lauderdale, FL.......................................... B, IT, CJ
FMU, Jacksonville, FL............................................ B, IT, CJ
FMU, Lakeland, FL................................................ HC, B, IT, CJ
FMU, Melbourne, FL............................................... HC, B, IT, CJ
FMU, Orlando, FL North........................................... HC, B, IT, CJ
FMU, Orlando, FL South........................................... HC, B, IT, CJ
FMU, Pinellas, FL................................................ HC, B, IT, CJ
FMU, Tampa, FL................................................... HC, B, IT, CJ
Las Vegas College, Las Vegas, NV................................. HC, B, IT, CJ
Mountain West College, Salt Lake City, UT........................ HC, B, IT, CJ
Parks College, Thornton, CO...................................... HC, B, IT, CJ
Parks College, Aurora, CO........................................ HC, B, IT, CJ
RBI, Rochester, NY............................................... B, IT
Rhodes College, Phoenix, AZ...................................... B, IT, CJ
Springfield College, Springfield, MO............................. HC, B, IT, CJ
Western Business College, Vancouver, WA.......................... HC, B, IT, CJ
Western Business College, Portland, OR........................... HC, B, IT, CJ
<CAPTION>
Principal
Diploma-Granting Colleges Curricula
------------------------- ---------
<S> <C>
Bryman, Brighton, MA............................................. HC
Bryman, El Monte, CA............................................. HC, B, IT
Bryman, Gardena, CA.............................................. HC
Bryman, Los Angeles, CA.......................................... HC
Bryman, New Orleans, LA.......................................... HC
Bryman, Anaheim, CA.............................................. HC
Bryman, San Francisco, CA........................................ HC
Bryman, San Jose, CA North....................................... HC
Bryman, San Jose, CA South....................................... HC
Bryman, Reseda, CA............................................... HC
Bryman, Sea Tac, WA.............................................. HC
GMI, Atlanta, GA................................................. HC
GMI, Jonesboro, GA............................................... HC
GMI, Marietta, GA................................................ HC
Harbor Medical College, Torrance, CA............................. HC
Kee Business College, Newport News, VA........................... HC, B, IT
Kee Business College, Chesapeake, VA............................. HC, B, IT
NIT, Atlanta, GA................................................. HC, IT
NIT, Cross Lanes, WV............................................. HC, IT
NIT, Greenspoint, TX............................................. HC, B
NIT, Houston, TX................................................. HC, IT
NIT, San Antonio, TX............................................. HC, B, IT
NIT, Southfield, MI.............................................. HC, IT
NIT, Wyoming, MI................................................. HC, IT
Skadron College, San Bernardino, CA.............................. HC, B, IT
</TABLE>
Marketing and Recruitment
We employ a variety of methods to attract qualified applicants who will
benefit from our programs and achieve success in their chosen career fields. We
believe that one of the principal attractions for prospective students is the
excellent reputation which our schools enjoy in their respective communities,
where nine have been operating for more than 80 years. We believe the franchise
value of these schools enhances their marketability within their respective
communities. This franchise value, along with the quality of the programs
offered, has enabled us to generate significant new student enrollments from
referrals. For the year ended June 30, 2000, we generated approximately 30% of
our new student enrollments from referrals.
We also employ a variety of direct response advertising techniques to
generate leads on candidates for its schools. Our advertising department
generates more than 200,000 leads per year through television, direct mail,
newspaper, and yellow pages. The effectiveness of this advertising campaign is
dependent on timely and accurate lead tracking. To that end, we operate a Call
Center at our headquarters, staffed by a team of operators who receive incoming
lead calls generated by all television and newspaper media sources. These
trained operators enter data on each prospect into our proprietary management
information system during the call and immediately transmit the lead to the
appropriate college. The college admissions department receives the lead and
the local admissions representative contacts the prospect to begin the
admissions process.
This leads tracking capability allows us to identify leads generated by
specific commercials and spot time. Our four advertising agencies are networked
into our proprietary management information database and are
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provided with real time information on the effectiveness of individual
commercials as well as the effectiveness of the media "buy." The agencies
consult with our advertising department to adjust schedules for ads depending
on our needs and the effectiveness of particular ads. Since more than 80% of
our advertising budget is spent on television and newspaper ads, the
availability of timely and accurate lead information is critical to management
of the leads generation process. For the year ended June 30, 2000,
approximately 53% of our new student enrollments were generated through
television, newspaper and yellow pages advertising, 30% were generated through
referrals, 8% were generated through direct mail, and 9% were generated through
a variety of other methods. Television and referrals combined generate
approximately two-thirds of all our new student enrollments. In fiscal 2000, we
initiated a significant marketing effort directed at the high school market.
Admissions
We employ approximately 235 admissions representatives who work directly
with prospective students to facilitate the enrollment process. These
representatives interview and advise students interested in specific careers to
determine the likelihood of their success and are a key component of our effort
to generate interest in our educational services. In satisfaction surveys
conducted quarterly, students have consistently given high marks to our
admissions personnel for helpfulness, courtesy and accuracy of information.
Because our success is highly dependent on the efficiency and effectiveness of
our admissions process, we spend considerable time and energy training our
representatives to improve their product knowledge and customer service. We
also employ various supervisory and monitoring efforts, including a survey of
students to solicit their views of the "truthfulness" of the admissions
process, to help ensure compliance with government regulations and our
corporate policies.
One of the our primary objectives in the admissions process is to identify
students who have appropriate qualifications to succeed in its schools. Most
candidates for admission to colleges in our degree-granting colleges must have
a high school diploma or a GED and must pass a standardized admissions test.
Students with these credentials can also attend our diploma-granting colleges.
In addition, most diploma-granting colleges accept non-high school graduates
who can demonstrate an ability to benefit, or "ATB," from the program by
passing certain tests required by the U.S. Department of Education. We believe
that ATB students can successfully complete many of our diploma programs and
our colleges have demonstrated success in graduating and placing these students
over the years. As of June 30, 2000, ATB students accounted for approximately
4.8% of total enrollments in our schools.
Placement
Our placement success is critical to our colleges' reputations and their
ability to continue to successfully recruit new students. We maintain a
placement department at each college and, in the aggregate, employ
approximately 85 professionals in this capacity. In many cases, our placement
staff work with students from the time they begin their courses of study to
prepare them for the job search they will conduct at the end of their programs.
We view our placement departments as essentially in-house employment agencies,
assisting students with resumes, conducting practice interview sessions, and
recruiting prospective employers for the colleges' graduates.
The efforts we devote to place our students have achieved excellent results.
Based on information received from graduating students and employers for
calendar year 1999, 86% of our graduates who were "available for placement"
were placed within six months after their graduation date. In accordance with
industry practice, the term "available for placement" includes all graduates
except those who are continuing their education, are in active military service
or are deceased or disabled, and foreign students who are ineligible to work in
the United States after graduation.
Tuition
Typical tuition for our diploma programs range from $6,000 to $23,000,
depending upon the nature and length of the program. Tuition for degree
programs is charged on a credit hour basis and varies by college,
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<PAGE>
typically ranging from $160 to $250 per undergraduate credit hour, depending
upon the program of study and the number of courses taken per quarter. Tuition
for graduate programs ranges from $275 to $289 per credit hour, except for the
executive MBA program, which is $457 per credit hour. On average, an
undergraduate degree candidate can expect tuition of approximately $6,500 per
academic year, while a master's degree candidate can expect tuition of
approximately $7,000 per academic year. In addition to tuition, students at our
schools must also typically purchase textbooks and other supplies as part of
their educational programs. We anticipate increasing tuition based on the
market conditions prevailing at our individual colleges. Our tuition ranges are
competitive with similar institutions, but like many proprietary institutions,
are somewhat higher than public institutions such as community colleges and
state universities.
Under DOE regulations, if a student fails to complete the initial period of
enrollment such as a quarter, trimester, semester, academic year, or program,
the institution must refund an amount calculated under one of the following:
(i) the state refund policy, as in California, where a pro rata refund may be
required for the duration of the program; or (ii) the accrediting agency refund
policy. If the student terminates after the initial period, the institution
must pay the refund for such subsequent period under the state refund policy
or, if no such policy applies, the larger of the amount required by additional
federal refund policy requirements or the institution's own policy.
Management and Employees
Our company is led by David G. Moore, President and Chief Executive Officer
and a senior management team of Paul R. St. Pierre, Dennis L. Devereux, Dennis
N. Beal, Beth A. Wilson, Mary H. Barry, Nolan A. Miura and Stan A. Mortensen.
In fiscal 2000, we created the position of Vice President Strategic Planning in
recognition of the importance of acquisitions to our growth strategy.
Additionally, a general counsel joined the executive team with extensive
mergers and acquisition experience. Beyond the senior management level, our
management structure includes five regional operations directors and five
regional admissions directors. As of June 30, 2000, we had approximately 2,945
employees, of whom approximately 1,846 were part-time and approximately 118
were employed at our headquarters and regional offices.
Campus Administration
We set policy and monitor the performance of all of the schools and
implement these policies through the coordination of a Vice President of
Operations and five Regional Operations Directors. The college presidents, in
consultation with their respective management teams, have the responsibility
for the day-to-day operation of the schools. Each college employs the following
management personnel which report to the college president:
. an academic dean or education director;
. an admissions director;
. a placement director; and
. a finance or business director.
Corporate personnel at headquarters manage several key functions, including
financial aid, MIS, finance, marketing and advertising, purchasing, human
resources, payroll, curriculum development, leads management, staff training
and development, and internal compliance audit. Among the principal oversight
functions performed by us, in cooperation with our regional and college
managers, is the budget, strategic planning and forecasting processes. These
processes establish goals for each college, implement strategies and set
performance incentives for achieving targeted results. Our senior management
team monitors operating performance and profitability of each college and has
daily access to operational data through our proprietary management information
system and conducts weekly conference calls with the college presidents to
review results of operations and set or reorder priorities for the coming week.
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Faculty
Faculty at all of our colleges is expected to be industry professionals and
hold appropriate credentials in their respective disciplines. We choose faculty
carefully and provide support for these professionals to pursue professional
development activities. We believe the skill and dedication of our faculty have
the single greatest impact on the placement and success of our students
following their graduation. As of June 30, 2000, we employed 1,772 faculty, 468
of whom were full time employees. Faculty represents 60% of all our employees.
Competition
The post-secondary education market, consisting of approximately 6,000
accredited institutions, is highly fragmented and competitive, with no
institution having a significant market share. Many of the programs offered by
our colleges are also offered by public and private non-profit institutions, as
well as by many of the approximately 2,000 private, for-profit colleges and
schools. Typically, the tuition charged by public institutions is less than
tuition we charge for comparable programs because public institutions receive
state tax subsidies, donations, and government grants that are not available to
our colleges. However, tuition at private non-profit institutions is typically
higher than that at our colleges.
We compete in most markets with other private, for-profit institutions
offering similar programs. We believe that the franchise value of our colleges,
the qualifications of our faculty, our facilities, and our emphasis on student
services allow us to compete effectively. In addition, most of our colleges
have been operating in their markets for more than 35 years, which has led to a
substantial number of graduates who are working in the market and validating
the quality of the colleges' programs. For example, the Bryman Colleges have
been well known in the healthcare education field in California for over 35
years. Many physicians and dentists in California have hired Bryman graduates
and continue to view Bryman as a source of qualified Medical and Dental
Assistants.
Facilities
Our corporate office is located in Santa Ana, California and our 45 campuses
are located in 18 states. Each campus provides our students with modern lecture
halls, medical labs, libraries, Internet access and an administrative staff
lead by a college president.
We actively monitor our facility capacity and future facility capacity
required to accommodate campus growth initiatives. We provide for expansion and
future growth at each campus through relocations to larger facilities and by
expanding or remodeling at existing facilities. From the end of fiscal 1995
through August 15, 2000, approximately 37% of the campuses have been relocated
and an additional 15% of total campuses have been either expanded or remodeled.
The following table reflects the number of campuses added or closed during each
of the last five fiscal years, the number of campuses at the end of each of the
last five fiscal years and the number of campuses that have been remodeled,
enlarged or relocated in each of the last five fiscal years:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1996 1997 1998 1999 2000 (1)
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Opened
Acquired...................................... 11 20 0 0 5
Branched...................................... 0 0 0 2 2
Closed.......................................... 0 0 1 0 0
Total campuses at year end...................... 16 36 35 37 44
Relocated....................................... 1 2 6 5 2
Enlarged or remodeled........................... 0 0 1 1 1
</TABLE>
---------------------
(1) Does not include one branch opened on July 17, 2000, one relocation and
four enlargements and remodels completed in August 2000.
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<PAGE>
All but four of our campuses are leased and we lease our headquarters
offices. Most of our leases have primary terms between five and ten years with
options to extend the lease, at our election.
Legal Proceedings
In the ordinary conduct of our business, we and our colleges are subject to
occasional lawsuits, investigations and claims. Although we cannot predict the
ultimate resolution of lawsuits, investigations and claims asserted against us,
we do not believe that any currently pending legal proceeding to which we are a
party will have a material adverse effect on our business, results of
operations or financial condition.
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MANAGEMENT
Directors, Executive Officers and Key Employees
The following table sets forth certain information with respect to our
executive officers, directors and selected key employees:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David G. Moore.......... 62 President, Chief Executive Officer, Director
Paul R. St. Pierre...... 55 Executive Vice President, Marketing and Admissions, Director
Dennis L. Devereux...... 53 Executive Vice President, Human Resources, Assistant Secretary
Dennis N. Beal.......... 49 Executive Vice President and Chief Financial Officer
Beth A. Wilson.......... 48 Vice President, Operations
Mary H. Barry........... 51 Vice President, Education
Nolan A. Miura.......... 45 Vice President, Strategic Planning, Treasurer
Stan A. Mortensen....... 33 Vice President, General Counsel and Corporate Secretary
Loyal Wilson............ 52 Director
Jack D. Massimino....... 51 Director
Dr. Carol D'Amico....... 48 Director
Linda Arey Skladany..... 55 Director
</TABLE>
David G. Moore is one of the founders of our company and has served as our
President and Chief Executive Officer, as well as a member of our board of
directors, since our inception in July 1995. Immediately prior to forming our
company, he was President of National Education Centers, Inc., a subsidiary of
National Education Corporation. From 1992 to 1994, Mr. Moore served as
President of DeVry Institute of Technology in Los Angeles, where he developed
DeVry's West Coast growth strategy. From 1980 to 1992, he was employed by Mott
Community College in Flint, Michigan, where he was President from 1984 to 1992.
From 1960 to 1980, Mr. Moore served a distinguished career in the U.S. Army,
retiring at the rank of Colonel. Mr. Moore received a Bachelor of Arts in
Political Science from Seattle University and Master of Business Administration
from the University of Puget Sound. He has also completed the Management of
Higher Education Program at Harvard University, post graduate studies in Higher
Education Management at the University of Michigan and graduate study and
research in Computer Science at Kansas State University.
Paul R. St. Pierre has served as our Vice President, Marketing & Admissions
as well as a member of our board of directors since our inception in July 1995.
He was promoted to Executive Vice President in April 1998. He was employed by
National Education Centers, Inc. from 1991 to 1995. His first assignment at
NECI was as School President for its San Bernardino, California campus.
Subsequently, he held corporate assignments as Director of Special Projects,
Vice President of Operations for the Learning Institutes Group (the largest
colleges owned by NEC) and as Vice President, Marketing & Admissions for NEC.
From 1986 to 1991, Mr. St. Pierre was employed by Allied Education Corporation,
initially as School Director, but the majority of the period as Regional
Operations Manager. He was employed as School Director at Watterson College in
1985. From 1982 to 1985, Mr. St. Pierre was Executive Vice President and
Partner for University Consulting Associates, principally responsible for the
marketing and sales of education services, on a contract basis, to institutions
of higher education. He was previously employed, from 1980 to 1982, as Division
Manager for the Institute for Professional Development, a division of Apollo
Group. Mr. St. Pierre received a Bachelor of Arts in Philosophy from Stonehill
College, a Master of Arts in Philosophy from Villanova University and is a
Ph.D. candidate in Philosophy at Marquette University.
Dennis L. Devereux has served as our Vice President, Human Resources since
our inception in July 1995. He was promoted to Executive Vice President in
April 1998. He was employed by National Education Centers, Inc. as its Vice
President, Human Resources from 1988 to 1995. From 1987 to 1988, he was
Director, Human Resources for Jacobs Engineering Group, Inc. He was employed by
American Diversified Companies, Inc. as its Director, Human Resources from 1985
to 1987. From 1973 to 1984, Mr. Devereux was employed by Bechtel Group, Inc. in
a variety of human resources management positions, including Personnel Manager
for a subsidiary
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company and Personnel Supervisor for a major construction site and within a
large regional operation. Previously, he was employed in a compensation
assignment with Frito-Lay, Inc. and as Personnel Manager and Personnel
Assistant with Anaconda Wire & Cable Company from 1969 to 1973. Mr. Devereux
received a Bachelor of Science in Business Administration (Industrial
Relations) from California State University, Long Beach.
Dennis N. Beal joined us as our Executive Vice President and Chief Financial
Officer in May 2000. Prior to joining our company, Mr. Beal was employed by
Stater Bros. Holdings Inc. (an operator of 155 supermarkets in California) as
its Vice President and Chief Financial Officer from 1992 to 1998 and as its
Senior Vice President and Chief Financial Officer from 1998 to May 2000. From
1981 to 1992, Mr. Beal was employed by American Stores Company (an operator of
1,500 supermarkets and drug stores) and served in various financial capacities
including Vice President, Controller. From 1974 to 1981, Mr. Beal was employed
by the firm of Bushman, Daines, Rasmussan and Wisan CPA's and was admitted as a
Partner in 1980. Mr. Beal, a Certified Public Accountant, graduated with a
Bachelor of Science degree in Accounting from the University of Utah and
received a Masters of Business Administration degree from Westminster College,
Salt Lake City, Utah.
Beth A. Wilson has been employed by us since our inception in July 1995. She
is currently our Vice President of Operations. Previously, Ms. Wilson was
Regional Operations Director for the College Region of Rhodes Colleges, Inc.
from May 1997 to June 1998. From July 1995 to May 1997 she was Operations
Director and Regional Operations Director for Corinthian Schools, Inc. Ms.
Wilson was employed by National Education Centers, Inc. from 1991 to 1995,
initially as Executive Director of its Capital Hill campus, then as Area
Operations Manager. From 1990 to 1991, she was Vice President, Branch
Operations for National College. She was employed by United Education and
Software from 1984 to 1990, initially as Executive Director of a business
school, then as Group Manager for four to fifteen locations and finally as Vice
President, Administration. She was Scholarship Administrator for National
University from 1982 to 1984 and Assistant Director of American Business
College from 1976 to 1981. Ms. Wilson earned an MBA from National University
and a Bachelor of Arts degree from California State College, Sonoma.
Mary H. Barry has served as our Vice President of Education since April
1998. She was previously employed by University of Phoenix from 1992 through
April 1998, where her assignments included Director of Academic Affairs,
Director of Administration and Director of the California Center for
Professional Education. From 1990 to 1991, Ms. Barry was Director of National
College. During the period 1980 to 1990, she was employed in the banking
industry as Senior Vice President of Marquette Banks, Director for Citibank,
South Dakota and Vice President of First National Bank, Chicago. Ms. Barry
served as a public affairs officer in the U.S. Marine Corps from 1971 to 1979,
achieving the rank of Major. Ms. Barry earned a Bachelor of Science in
Speech/Drama from Bowling Green State University, a Master of Management from
Northwestern University and a Juris Doctorate from Western State University.
Nolan A. Miura has been our Vice President of Strategic Planning and
Treasurer since his promotion to this position in October 1999. Mr. Miura
joined the company as Director of Treasury and Business Analysis in November
1997 and was promoted to Treasurer in December 1998. He was employed by
Atlantic Richfield Company ("ARCO") from 1990 to 1997 in various financial and
marketing positions including Planning Manager--ARCO Products Company,
Marketing Director--ARCO Pipe Line Company, Marketing Analysis Manager--ARCO
Products Company and Planning, Evaluation and Business Development Manager--
ARCO Marine, Inc. During the period from 1979 to 1990, his assignments ranged
from Senior Internal Auditor to Government Compliance Manager--ARCO
Transportation Company and Budgets and Performance Analysis Manager--ARCO
Marine, Inc. Mr. Miura received an MBA (Corporate Finance) from the University
of Southern California and a Bachelor of Science in Business Administration
(Finance) from California State University, Long Beach. Mr. Miura is also a
Certified Internal Auditor.
Stan A. Mortensen has been Vice President, General Counsel and Corporate
Secretary since January 2000. Prior to that time, Mr. Mortensen was an
associate at the law firm of O'Melveny & Myers LLP from March 1997 through
December 1999, where his practice focused on corporate finance, mergers and
acquisitions, and general corporate matters. From August 1994 through February
1997, Mr. Mortensen was an associate at the law firm of
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Robins, Kaplan, Miller & Ciresi, where his practice focused on complex
commercial litigation. Mr. Mortensen received a Juris Doctor and a Bachelor of
Arts in Political Science from Brigham Young University.
Loyal Wilson has served as a member of our board of directors since our
inception in July 1995. He has been a Managing General Partner of Primus
Venture Partners since 1983 and a Managing Director of Primus Venture Partners,
Inc. since 1993. In those capacities, Mr. Wilson has overseen investments by
various venture funds controlled by those entities in numerous private
companies. From 1973 to 1983, Mr. Wilson was employed by First Chicago
Corporation. He is also a Director of STERIS Corporation and was formerly a
Director of DeVry, Inc. He received a Bachelor of Arts in Economics from the
University of North Carolina and a Masters in Business Administration from
Indiana University.
Jack D. Massimino became a member of the board of directors upon the
completion of our initial pubic offering of common stock in February 1999. Mr.
Massimino is retired and manages his personal investment portfolio. He was
President and Chief Executive Officer of Talbert Medical Management
Corporation, a publicly traded physician practice management company from 1995
through late 1997. Prior to his association with Talbert, Mr. Massimino was
Executive Vice President and Chief Operation Officer of FHP International
Corporation, a multi-state, publicly traded HMO, with revenues in excess of $4
billion. He also served in other executive positions since joining FHP in 1988,
including Senior Vice President and Vice President, Corporate Development. Mr.
Massimino has held other executive positions in the healthcare field since the
mid 1970's. He received a Bachelor of Arts in Psychology from California
Western University and earned a Master's Degree in Management from the American
Graduate School for International Management. Mr. Massimino has served on
several boards, including Talbert Medical Management Corporation, FHP, Inc.,
Texas Health Plans, Great States Insurance Company, Art Institute of Southern
California, Thunderbird World Business Advisory Council and the Orange County
Business Committee for the Arts.
Dr. Carol D'Amico became a member of the board of directors effective upon
the completion of our initial public offering in February 1999. Since January
1999, Dr. D'Amico has served as Executive Director for Workforce, Economic and
Community Development for Ivy Tech State College in Indianapolis, Indiana. From
July 1995 to January 1999, she was employed by the Hudson Institute, located in
Indianapolis, Indiana, as Senior Fellow and Co-Director of the Workforce
Development Center, established to conduct research on the future of the
American workforce and American economic competitiveness. She is also co-author
of Workforce 2020: Work and Workers in the 21st Century, published by Hudson
Institute in 1997. Prior to that, Dr. D'Amico served as Director, Educational
Excellence Network and as Research Fellow at the Hudson Institute. From 1986 to
1990, she was a Policy and Planning Specialist with the Indiana Department of
Education. She also served as Senior Program Analyst for the Indiana General
Assembly from 1982 to 1986. Dr. D'Amico received a Bachelor of Science in
Biology from Ball State University, and a Master of Science in Adult Education
and an ED.D in Educational Leadership and Policy Studies from Indiana
University.
Linda Arey Skladany, Esq. became a member of the board of directors
effective upon the completion of our initial public offering in February 1999.
Ms. Skladany has been Vice President for Congressional Relations at Parry,
Romani & DeConcini, a Washington D.C. lobbying firm since 1995. Ms. Skladany
joined the Reagan administration in 1981 as Special Assistant, first to the
Secretary of Education and then later to the United States Attorney General,
before joining the United States Department of Transportation as Director of
the Executive Secretariat under Secretary Elizabeth Dole. In 1985, she joined
President Reagan's White House staff as Special Assistant to the President and
Deputy Director of the White House Office of Public Liaison. In 1988, President
Reagan appointed Ms. Skladany to the Advisory Committee for Trade Negotiation.
She was later appointed by Presidents Reagan and Bush, respectively, to the
positions of Commissioner and Acting Chair of the Occupational Safety and
Health Review Commission. From 1990 to 1995, Ms. Skladany was a legislative
attorney and of counsel with the law firm of Holland and Hart. From 1993 to
1995, she also served as Executive Director of the Foundation for Environmental
and Economic Progress. In 1994, Governor George Allen of Virginia appointed her
to a four-year term on the Board of Visitors of the College of William and
Mary. Ms. Skladany earned a Bachelor of Arts in Education from the College of
William and Mary, a Master of Arts in Education from Wake Forest University and
a Juris Doctorate from the University of Richmond Law School. She was admitted
to the bar in Virginia and the District of Columbia.
35
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of August 31, 2000 and as adjusted to reflect
the sale of 200,000 shares of common stock being offered by us and 2,800,000
shares of common stock being offered by the selling stockholders. Unless
otherwise indicated below, the persons in the table have sole voting and
investment power with respect to all shares shown as beneficially owned by
them.
<TABLE>
<CAPTION>
Shares of Common
Stock Shares of Common
Beneficially Shares of Stock Beneficially
Owned Prior to Common Stock Owned After
the Offering(1) Being Offered the Offering(1)(2)
----------------- ------------- ---------------------
Number Percent Number Number Percent
--------- ------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Primus Capital Fund III 2,918,652 28.2 1,616,324 1,302,328 12.3
Limited Partnership (3)...
5900 Landerbrook Drive
Suite 200 Cleveland, OH
44124
BancOne entities (4)....... 1,415,112 13.7 783,676 631,436 6.0
c/o Stonehenge Holdings,
Inc.
150 East Gay Street, 24th
Floor
Columbus, OH 43215
David G. Moore (5)......... 626,829 6.1 100,000 526,829 5.0
Paul R. St. Pierre (6)..... 622,025 6.0 100,000 522,025 4.9
Frank J. McCord (7)........ 511,788 4.9 100,000 411,788 3.9
Dennis L. Devereux (8)..... 511,787 4.9 100,000 411,787 3.9
</TABLE>
---------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially owned
by a person and the percentage ownership of that person includes shares of
common stock subject to options or warrants held by that person that are
currently exercisable or exercisable within 60 days of June 30, 2000. As of
June 30, 2000, there were issued and outstanding 9,172,675 shares of common
stock and 1,176,560 shares of nonvoting common stock which are convertible
into common stock upon a sale of such nonvoting common stock. Calculations
of percentage ownership are based on an aggregate of 10,349,235 shares of
common stock and nonvoting common stock outstanding at June 30, 2000 and
10,549,235 shares of common stock and nonvoting common stock outstanding
after the offering.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) Primus Capital Fund III Limited Partnership ("Primus") has granted the
underwriters an option to purchase 235,714 shares of its common stock to
cover the underwriters' over-allotment option. Assuming such option is
exercised in full, Primus would beneficially own 1,066,614 shares, or
approximately 10.1% of our common stock and nonvoting common stock after
completion of this offering.
(4) Consists of shares held by BOCPII, Limited Liability Company ("BOCPII"),
and BancOne Capital Partners II, LLC ("BancOne"). BOCPII holds an aggregate
of 861,585 shares, including 623,033 shares of nonvoting common stock that
will be convertible into common stock on a share for share basis upon sale
of these shares. In connection with the offering, BOCPII will convert
477,138 shares of nonvoting common stock into shares of common stock and
sell such shares in the offering. BancOne holds 553,527 shares of nonvoting
common stock that will be converted into common stock on a share for share
basis upon its sale. In connection with this offering, BancOne will convert
306,538 shares of nonvoting common stock into shares of common stock and
sell such shares in the offering. BancOne and BOCPII have granted the
underwriters an option to purchase 69,582 and 44,704 shares, respectively,
of their non-voting common stock to cover the underwriters' over-allotment
option. Assuming such option is exercised in full, all such shares would be
converted to common stock in connection with their sale to the
underwriters, and the BancOne entities would beneficially own 517,150
shares, or approximately 4.9%, of our common stock and nonvoting common
stock (including 278,598 shares of non-voting common stock) after the
offering.
36
<PAGE>
(5) Includes 10,534 shares of common stock which may be acquired by Mr. Moore,
who is our President and Chief Executive Officer and a member of our board
of directors, upon the exercise of stock options which are currently
exercisable or exercisable within 60 days of June 30, 2000. Mr. Moore has
granted the underwriters an option to purchase 25,000 shares of his common
stock to cover the underwriters' over-allotment option. Assuming the
underwriters' option is exercised in full, Mr. Moore would beneficially own
501,829 shares, or approximately 4.8%, of our common stock and nonvoting
common stock after completion of this offering.
(6) All of these shares are held in a family trust of which Mr. St. Pierre, one
of our Executive Vice Presidents and a member of our board of directors, is
a grantor and a trustee and include 10,534 shares of common stock which may
be acquired by Mr. St. Pierre upon the exercise of stock options which are
currently exercisable or exercisable within 60 days of June 30, 2000. Mr.
St. Pierre has granted the underwriters an option to purchase 25,000 shares
of his common stock to cover the underwriters' over-allotment option.
Assuming the underwriters' option is exercised in full, Mr. St. Pierre
would beneficially own 497,025 shares, or approximately 4.7%, of our common
stock and nonvoting common stock after completion of this offering.
(7) All of these shares are held in a family trust of which Mr. McCord, who was
one of our Executive Vice Presidents and our Chief Financial Officer until
his retirement on June 30, 2000, is a grantor and a trustee and include
10,534 shares of common stock which may be acquired by Mr. McCord upon the
exercise of stock options which are currently exercisable or exercisable
within 60 days of June 30, 2000. Mr. McCord has granted the underwriters an
option to purchase 25,000 shares of his common stock to cover the
underwriters' over-allotment option. Assuming the underwriters' option is
exercised in full, Mr. McCord would beneficially own 386,788 shares, or
approximately 3.7%, of our common stock and nonvoting common stock after
completion of this offering.
(8) All of these shares are held in a family trust of which Mr. Devereux, one
of our Executive Vice Presidents and our Assistant Secretary, is a grantor
and a trustee and include 10,534 shares of common stock which may be
acquired by Mr. Devereux upon the exercise of stock options which are
currently exercisable or exercisable within 60 days of June 30, 2000. Mr.
Devereux has granted the underwriters an option to purchase 25,000 shares
of his common stock to cover the underwriters' over-allotment option.
Assuming the underwriters' option is exercised in full, Mr. Devereux would
beneficially own 386,787 shares, or approximately 3.7%, of our common stock
and nonvoting common stock after completion of this offering.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 40,000,000 shares of common stock, $0.0001 par value per share, 2,500,000
shares of nonvoting common stock, $0.0001 par value per share, and 500,000
shares of Preferred Stock, $1.00 par value per share.
The following summary of certain provisions relating to the common stock,
our nonvoting common stock and our preferred stock does not purport to be
complete and is subject to, and qualified in its entirety by, provisions of
applicable law and the provisions of our certificate of incorporation and our
bylaws that are included as exhibits to the registration statement of which
this prospectus is a part.
Common Stock
Voting. Holders of our common stock are entitled to one vote per share on
all matters to be voted on by our stockholders. Holders of our nonvoting common
stock have no right to vote, except that holders of nonvoting common stock are
entitled to one vote per share together with the common stock as one class on
(i) any merger or consolidation of our company with or into another entity,
(ii) any sale of all or substantially all of our assets, and (iii) any
amendment to our certificate of incorporation. The certificate of incorporation
does not provide for cumulative voting in the election of directors.
Dividends. Dividends on our common stock and nonvoting common stock may be
declared by the board of directors at any regular or special meeting, pursuant
to law, and may be paid in cash, in property, or in securities issued by us.
When dividends are paid, subject to the provisions of our preferred stock, the
holders of common stock and the holders of nonvoting common stock are entitled
to receive such dividends pro rata at the same rate per share; provided that
dividends paid in stock will be paid in common stock to the holders of common
stock and in nonvoting common stock to the holders of nonvoting common stock
and that dividends consisting of other voting securities will be paid in
equivalent nonvoting securities to holders of nonvoting common stock. We do not
anticipate paying any cash dividends in the foreseeable future.
Liquidation. Subject to the rights of holders of our preferred stock, the
holders of our common stock shall be entitled to participate pro rata upon any
liquidation, dissolution, or winding up of our company.
Amendment and Waiver. Our certificate of incorporation limits our authority
to amend or waive the rights, preferences and powers given to the holders of
common stock and nonvoting common stock. Any such amendment to or waiver our
certificate of incorporation must be approved by the holders of a majority of
the outstanding common stock voting as a separate class and the holders of a
majority of the then outstanding nonvoting common stock voting as a separate
class.
The rights, preferences, and privileges of holders of common stock and
nonvoting common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock which we may
designate and issue in the future. For example, if we issue a series of
preferred stock which grants a liquidation preference to the holders of such
preferred stock, the rights of holders of common stock and nonvoting common
stock upon liquidation would be adversely affected. See "--Preferred Stock."
Certain Corporate Provisions
Anti-takeover Provisions. Our certificate of incorporation and bylaws
contain a number of provisions related to corporate governance and to the
rights of stockholders. Certain of these provisions may be deemed to have a
potential "anti-takeover" effect in that such provisions may delay, defer or
prevent a change of control of our company. These provisions include (i) a
requirement that stockholder action be taken only at stockholder meetings, (ii)
notice requirements relating to nominations to the board of directors and to
the raising of business matters at stockholders meetings, and (iii) the
classification of the board of directors into three classes, each serving for
staggered three year terms.
38
<PAGE>
Certain Provisions of Delaware Law. We are a Delaware corporation and are
subject to Section 203 of the Delaware General Corporations Law, or DGCL. In
general, Section 203 prevents an "interested stockholder" (defined generally as
a person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a "business combination" (as defined therein) with a Delaware
corporation for three years following the date such person became an interested
stockholder, unless
. before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
. upon consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares
owned by persons who are both officers and directors of the corporation
and shares held by certain employee stock ownership plans); or
. following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
Limitation of Liability and Indemnification
Our Certificate of Incorporation provides that to the fullest extent
permitted by the DGCL, our directors will not be liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director.
Under the DGCL, liability of a director may not be limited
. for any breach of the director's duty of loyalty to us or our
stockholders,
. for any acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law,
. in respect of certain unlawful dividend payments or stock redemptions or
repurchases, and
. for any transaction from which the director derives an improper personal
benefit.
The effect of the provisions of our certificate of incorporation is to
eliminate our rights and our stockholders (through stockholders' derivative
suits on our behalf) to recover monetary damages against a director for breach
of the fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior), except in the situations described
above. This provision does not limit or eliminate our rights or any stockholder
to seek non-monetary relief, such as an injunction or rescission, in the event
of a breach of a director's duty of care. Our certificate of incorporation and
bylaws provide that we shall indemnify our directors, officers, employees and
agents against claims, liabilities, damages, expenses, losses, costs, penalties
or amounts paid in settlement incurred by such director or officer in or
arising out of his or her capacity as our director, officer, employee and/or
agent to the extent the person acted in good faith and in a manner reasonably
believed to be in or not opposed to our best interests. In addition, such
director or officer is entitled to an advance of expenses to the maximum extent
authorized or permitted by law.
Authorized but Unissued Shares
Upon completion of this offering, there will be approximately 29,844,000
shares of common stock, 2,107,000 shares of nonvoting common stock and 500,000
shares of preferred stock available for further issuance. Delaware law does not
require stockholder approval for the issuance of authorized shares, or to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of the preferred stock. The additional shares may be
used for a variety of corporate purposes. The issuance of common stock,
nonvoting common stock or preferred stock may have the effect of delaying,
deferring, or preventing a change in control of our company by making it more
difficult for a third party to acquire a majority of our outstanding voting
stock.
39
<PAGE>
1998 Performance Award Plan
On April 28, 1998, our board of directors adopted, and our stockholders
approved, our 1998 Performance Award Plan (the "Plan"). The Plan authorized the
issuance of up to 529,134 shares of our common stock pursuant to options or
other awards granted under the Plan to directors, officers, employees and other
eligible persons. As of June 30, 2000, approximately 371,929 shares were
subject to outstanding awards and an additional 153,593 shares were available
for future award grants. On August 30, 2000 our board approved a grant (to be
carried out within 30 days of such date) of stock options covering an aggregate
153,000 shares to certain of our employees and officers. On September 6, 2000,
the board approved, subject to stockholder approval, an amendment of the Plan
to authorize an additional 1,100,000 shares for issuance under the Plan. We
have until September 3, 2001 to obtain stockholder approval of such Plan
amendment.
Employee Stock Purchase Plan
On August 30, 2000, our board of directors adopted, subject to stockholder
approval, an Employee Stock Purchase Plan, the "Purchase Plan". We have until
August 30, 2001 to obtain stockholder approval of the Purchase Plan. A total of
250,000 shares of common stock has been authorized for issuance under the
Purchase Plan. The Purchase Plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Code. Under the Purchase
Plan, eligible employees will be able to purchase common stock at a discount in
periodic offerings. The Purchase Plan will commence on January 1, 2001 if it is
approved by our stockholders prior to that date. Unless otherwise determined by
the board, all our employees who have been employed for at least six months are
eligible to participate in the Purchase Plan so long as they are employed by us
(or a subsidiary designated by the board) for at least 20 hours per week and
are customarily employed by us (or a subsidiary designated by the board) for at
least 5 months per calendar year. Employees who participate in an offering
under the Purchase Plan may have up to 15% of their earnings (subject to
certain other limits required by the Code) for the period of that offering
withheld. The amount withheld is used at the end of the offering period to
purchase shares of common stock. The price paid for common stock at the end of
an offering period will equal the lower of 90% of the fair market value of the
common stock at the commencement date of that offering period or 90% of the
fair market value of the common stock at the end of the offering period.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment.
Registration Rights
We and the following stockholders are parties to a Registration Rights
Agreement: Primus and BancOne (collectively, the "Investors"), and David Moore,
Paul St. Pierre, Frank McCord, Dennis Devereux, and Lloyd Holland
(collectively, the "Founders"). Under the Registration Rights Agreement, the
parties have rights with respect to the registration under the Securities Act
of shares of common stock owned by them.
Demand Registration Rights. The Investors are entitled to demand
registration rights as follows. The Investors have demand registration rights
with respect to some of the shares of our common stock that they hold, except
that (i) if after two company-paid long-form registrations one-third or more of
the aggregate number of shares of Investors' registrable securities initially
issuable have not been sold pursuant to such registrations, the holders of the
Investors' registrable securities are entitled to request one additional
company-paid long-form registration, provided that the aggregate offering value
of the registrable securities requested to be registered in each case is at
least $1,000,000, and (ii) holders of the Investors' registrable securities are
not entitled to demand additional Holder-Paid Long-Form Registrations.
Piggyback Registration Rights. The Investors and the Founders are entitled
to the following "piggyback" registration rights. Whenever we propose to
register any of our securities under the Securities Act (other than pursuant to
a demand registration), we must notify all holders of Registrable Securities of
the registration, and must include in the registration all Registrable
Securities whose holders so request. If a "piggyback" registration is
underwritten, and the managing underwriters advise us that the number of
securities requested to be included exceeds the number which can be sold at an
acceptable price, priority in the registration is as follows: (i) the
securities we propose to sell, (ii) the Investors' Registrable Securities, and
(iii) the Registrable Securities held by the Founders requested to be included.
We will pay all registration
40
<PAGE>
expenses, except underwriting discounts and commissions, in connection with any
"piggyback" registration. The Investors and certain Founders are participating
in this offering pursuant to their "piggyback" registration rights.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is U.S. Stock Transfer
Corporation.
41
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we and the selling stockholders have agreed to
sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Chase Securities Inc., U.S. Bancorp Piper Jaffray Inc. and
SunTrust Equitable Securities Corporation are acting as representatives, the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Chase Securities Inc...............................................
U.S. Bancorp Piper Jaffray Inc.....................................
SunTrust Equitable Securities Corporation..........................
---------
Total............................................................ 3,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters be obligated to
purchase all the shares of common stock in this offering, other than those
shares covered by the over-allotment option described below. The underwriting
agreement also provides that, if an underwriter defaults, the purchase
commitments of non-defaulting underwriters may be increased or the offering of
common stock may be terminated.
The selling stockholders have granted to the underwriters a 30-day option to
purchase on a pro rata basis up to 450,000 additional shares at the public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling stockholders will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and Commissions paid by
us.....................
Expenses payable by us..
Underwriting Discounts
and Commissions paid by
the selling
stockholders...........
Expenses payable by the
selling stockholders...
</TABLE>
We have agreed not to offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933, as
42
<PAGE>
amended (the "Securities Act"), relating to, any shares of our common stock or
securities or other rights convertible into or exchangeable or exercisable for
any shares of our common stock, or publicly disclose the intention to make any
such offer, sale, pledge, disposition or filing, without the prior written
consent of Credit Suisse First Boston Corporation, for a period of 90 days
after the date of this prospectus, except that such restrictions will not apply
to our ability to grant employee or director stock options pursuant to the
terms of a plan in effect on the date of this prospectus or issuance of common
stock pursuant to the exercise of such options.
Our officers and directors and the selling stockholders and certain other
stockholders have agreed that they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of our
common stock or securities convertible into, or exchangeable or exercisable
for, any shares of our common stock, enter into a transaction which would have
the same effect, or enter into any swap, hedge or other arrangement that
transfers in whole or in part, any of the economic consequences of ownership of
our common stock, whether any of these transactions are to be settled by
delivery of our common stock or such other securities, in cash or otherwise, or
publicly disclose the intention to make any offer, sale, pledge or disposition,
or to enter into any such transaction, swap, hedge or other arrangement,
without, in each case, the prior written consent of Credit Suisse First Boston
Corporation for a period of 90 days after the date of this prospectus.
We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments which
the underwriters may be required to make in that respect.
We have applied to list the shares of common stock on the Nasdaq Stock
Market's National Market.
In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions,
penalty bids and passive market making in accordance with Regulation M under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the over-
allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares in the
open market.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares
through the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked short
position, the position can only be closed out by buying shares in the
open market. A naked short position is more likely to be created if the
underwriters are concerned that there could be downward pressure on the
price of the shares in the open market after pricing that could
adversely affect investors who purchase in the offering.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
. In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to limitations,
make bids for purchases of the common stock until the time, if any, at
which a stabilizing bid is made.
43
<PAGE>
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of our
common stock or preventing or retarding a decline in the market price of the
common stock. As a result, the price of the common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format will be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to the
underwriters for sale to their online brokerage account holders. Internet
distributions will be allocated by the underwriters that will make Internet
distributions on the same basis as other allocations.
44
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are made. Any resale
of the common stock in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common stock.
Representations of Purchasers
By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us, the selling stockholders and the dealer from
whom the purchase confirmation is received that:
. the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,
. where required by law, that the purchaser is purchasing as principal and
not as agent, and
. the purchaser has reviewed the text above under Resale Restrictions.
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchaser will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein and the selling shareholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock of their particular circumstance and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian Legislation.
45
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will
be passed upon for us and the selling stockholders by O'Melveny & Myers LLP,
Newport Beach, California. Certain legal matters will be passed upon for the
underwriters by Gibson, Dunn & Crutcher LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of Corinthian Colleges, Inc. and its
subsidiaries as of June 30, 1999 and 2000, and for each of the three years in
the period ended June 30, 2000, included in this prospectus and registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and is included
herein in reliance upon authority of said firm as experts in giving said
report.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements of Corinthian Colleges, Inc. and
Subsidiaries:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of June 30, 1999 and 2000................ F-3
Consolidated Statements of Operations for the years ended June 30, 1998,
1999 and 2000.......................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1998, 1999 and 2000........................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1998,
1999 and 2000.......................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Corinthian Colleges, Inc.:
We have audited the accompanying consolidated balance sheets of CORINTHIAN
COLLEGES, INC. (a Delaware corporation) and subsidiaries as of June 30, 1999
and 2000 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Corinthian
Colleges, Inc. and subsidiaries, as of June 30, 1999 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 2000 in conformity with accounting principles generally
accepted in the United States.
/s/ Arthur Andersen LLP
Orange County, California
August 17, 2000
F-2
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30,
---------------
1999 2000
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 1,787 $ 4,886
Restricted cash.............................................. 10 10
Marketable investments....................................... 14,501 24,107
Accounts receivable, net of allowance for doubtful accounts
of $3,258 and $4,363 at June 30, 1999 and 2000,
respectively................................................ 11,385 14,208
Student notes receivable, net of allowance for doubtful
accounts of $463 and $247 at June 30, 1999 and 2000,
respectively................................................ 1,959 919
Deferred income taxes........................................ 1,901 2,481
Prepaid expenses and other current assets.................... 4,037 4,125
------- -------
Total current assets....................................... 35,580 50,736
PROPERTY AND EQUIPMENT, net.................................... 10,981 12,141
OTHER ASSETS:
Intangibles, net of accumulated amortization of $3,110 and
$4,248 at June 30, 1999 and 2000, respectively.............. 21,218 27,946
Student notes receivable, net of allowance for doubtful
accounts of $1,435 and $934 at June 30, 1999 and 2000,
respectively................................................ 5,175 3,157
Deposits and other assets.................................... 903 1,253
------- -------
TOTAL ASSETS............................................... $73,857 $95,233
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................. $ 4,828 $ 5,521
Accrued compensation and related liabilities................. 5,749 7,722
Accrued expenses............................................. 652 1,310
Income tax payable........................................... 1,848 1,161
Prepaid tuition.............................................. 3,257 5,851
Current portion of long-term debt............................ 138 102
------- -------
Total current liabilities.................................. 16,472 21,667
LONG-TERM DEBT, net of current portion......................... 3,396 2,230
DEFERRED INCOME................................................ -- 808
DEFERRED INCOME TAXES.......................................... 453 935
OTHER LIABILITIES.............................................. -- 590
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $0.0001 par value:
Common Stock, 40,000 shares authorized, 9,169 shares and
9,172 shares issued and outstanding at June 30, 1999 and
2000, respectively........................................ 1 1
Nonvoting Common Stock, 2,500 shares authorized, 1,177
shares issued and outstanding at June 30, 1999 and 2000... -- --
Additional paid-in capital................................... 49,609 49,654
Retained earnings............................................ 3,926 19,348
------- -------
Total stockholders' equity................................. 53,536 69,003
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $73,857 $95,233
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
NET REVENUES..................................... $106,486 $132,972 $170,734
-------- -------- --------
OPERATING EXPENSES:
Educational services (including a provision for
bad debt expense of $5,963, $7,673 and $8,760
for the years ended June 30, 1998, 1999 and
2000, respectively)........................... 65,927 76,425 92,757
General and administrative..................... 10,777 13,961 16,346
Marketing and advertising...................... 24,268 29,702 37,225
-------- -------- --------
Total operating expenses..................... 100,972 120,088 146,328
-------- -------- --------
Income from operations....................... 5,514 12,884 24,406
INTEREST EXPENSE (INCOME), net................... 3,305 1,678 (1,681)
OTHER (INCOME)................................... -- -- (175)
-------- -------- --------
Income before provision for income taxes and
extraordinary (loss)........................ 2,209 11,206 26,262
PROVISION FOR INCOME TAXES....................... 988 4,703 10,840
-------- -------- --------
INCOME BEFORE EXTRAORDINARY (LOSS)............... 1,221 6,503 15,422
EXTRAORDINARY (LOSS) FROM EARLY EXTINGUISHMENT OF
DEBT (net of tax benefit of $1,518)............. -- (2,011) --
-------- -------- --------
NET INCOME....................................... $ 1,221 $ 4,492 $ 15,422
======== ======== ========
INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS:
Net income before extraordinary (loss)......... $ 1,221 $ 6,503 $ 15,422
Less preferred stock dividends................. (365) (355) --
-------- -------- --------
Income before extraordinary (loss)
attributable to common stockholders......... 856 6,148 15,422
Extraordinary (loss)........................... -- (2,011) --
-------- -------- --------
Net income attributable to common
stockholders................................ $ 856 $ 4,137 $ 15,422
======== ======== ========
INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS:
Basic
Income before extraordinary (loss)........... $ 0.16 $ 0.85 $ 1.49
Extraordinary (loss)......................... -- (0.28) --
-------- -------- --------
Net income................................. $ 0.16 $ 0.57 $ 1.49
======== ======== ========
Diluted
Income before extraordinary (loss)........... $ 0.12 $ 0.72 $ 1.48
Extraordinary (loss)......................... -- (0.24) --
-------- -------- --------
Net income................................. $ 0.12 $ 0.48 $ 1.48
======== ======== ========
Weighted average number of common shares
outstanding:
Basic.......................................... 5,236 7,266 10,347
======== ======== ========
Diluted........................................ 7,125 8,549 10,425
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Nonvoting
Common Stock Common Stock Retained
------------ ------------- Additional Earnings Total
Par Par Paid-in Notes (Accumulated Stockholders'
Shares Value Shares Value Capital Receivable Deficit) Equity
------ ----- ------ ----- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1997................... 4,924 $ 1 1,415 $ -- $ 1,374 $(187) $(1,067) $ 121
Redeemable Preferred
Stock dividend
accrual............... -- -- -- -- -- -- (125) (125)
Convertible Preferred
Stock dividend
accrual............... -- -- -- -- -- -- (240) (240)
Net income............. -- -- -- -- -- -- 1,221 1,221
----- --- ----- ----- ------- ----- ------- -------
Balance at June 30,
1998................... 4,924 1 1,415 -- 1,374 (187) (211) 977
Redeemable Preferred
Stock dividend
accrual............... -- -- -- -- -- -- (85) (85)
Convertible Preferred
Stock dividend
accrual............... -- -- -- -- -- -- (270) (270)
Conversion of
Convertible Preferred
Stock to Common Stock
and Nonvoting Common
Stock................. 388 -- 388 -- 4,934 -- -- 4,934
Conversion of Nonvoting
Common Stock to Common
Stock................. 827 -- (827) -- -- -- -- --
Exercise of warrants
for Common Stock and
Nonvoting Common
Stock................. 330 -- 201 -- -- -- -- --
Issuance of Common
Stock from initial
public offering....... 2,700 -- -- -- 43,301 -- -- 43,301
Proceeds from notes
receivable for stock.. -- -- -- -- -- 187 -- 187
Net income............. -- -- -- -- -- -- 4,492 4,492
----- --- ----- ----- ------- ----- ------- -------
Balance at June 30,
1999................... 9,169 1 1,177 -- 49,609 -- 3,926 53,536
Exercise of Stock
Options............... 3 -- -- -- 45 -- -- 45
Net income............. -- -- -- -- -- -- 15,422 15,422
----- --- ----- ----- ------- ----- ------- -------
Balance at June 30,
2000................... 9,172 $ 1 1,177 $ -- $49,654 $ -- $19,348 $69,003
===== === ===== ===== ======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------
1998 1999 2000
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 1,221 $ 4,492 $ 15,422
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization.................. 3,051 3,445 3,798
Deferred income taxes.......................... (1,083) 827 (98)
Write-off of deferred financing costs.......... -- 911 --
(Gain) on disposal of assets................... -- -- (175)
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable.......................... (820) (1,308) (2,192)
Student notes receivable..................... (3,966) (950) 3,058
Income tax refund receivable................. 195 -- --
Prepaid expenses and other assets............ (2,184) (2,660) (397)
Accounts payable............................. (420) 101 463
Accrued expenses............................. 1,207 522 2,068
Income tax payable........................... 1,739 109 (687)
Prepaid tuition.............................. (2,313) 305 1,732
Other long-term liabilities.................. -- -- 590
------- -------- --------
Net cash provided by (used in) operating
activities.................................... (3,373) 5,794 23,582
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of schools and colleges, net of
cash acquired................................... -- -- (7,588)
Change in restricted cash........................ 250 750 --
Capital expenditures............................. (1,926) (2,790) (4,182)
Proceeds from sale of assets..................... -- -- 2,014
Phillips College acquisition purchase price
adjustment...................................... -- 401 --
Increase in marketable investments............... -- (14,501) (9,606)
------- -------- --------
Net cash used in investing activities.......... (1,676) (16,140) (19,362)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of convertible preferred
stock........................................... 4,934 -- --
Increase in deferred financing costs............. (182) (256) --
Borrowings under long-term debt.................. 3,000 3,200 --
Principal repayments on long-term debt........... (3,122) (35,835) (1,166)
Proceeds from initial public offering............ -- 45,198 --
Payment of redeemable preferred stock and
accrued dividends............................... -- (2,253) --
Payment of convertible preferred stock
dividends....................................... -- (510) --
Exercise of stock options........................ -- -- 45
Proceeds from notes receivable for stock......... -- 187 --
------- -------- --------
Net cash provided by (used in) financing
activities.................................... 4,630 9,731 (1,121)
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... (419) (615) 3,099
CASH AND CASH EQUIVALENTS, beginning of year...... 2,821 2,402 1,787
------- -------- --------
CASH AND CASH EQUIVALENTS, end of year............ $ 2,402 $ 1,787 $ 4,886
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes................................... $ 334 $ 2,666 $ 11,526
======= ======== ========
Interest....................................... $ 3,192 $ 3,673 $ 392
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND
FINANCING ACTIVITIES:
Preferred stock dividend accrual................ $ 365 $ 355 $ --
======= ======== ========
Acquisitions of various schools and colleges--
Fair value of assets acquired.................. $ -- $ -- $ 9,051
Net cash used in acquisitions.................. -- -- 7,588
======= ======== ========
Liabilities assumed or incurred.............. $ -- $ -- $ 1,463
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of the Business
Corinthian Colleges, Inc. (the "Company"), a Delaware corporation, was
formed in October 1996 during a reorganization transaction with a predecessor
company which was accounted for as a recapitalization. Prior to October 1996,
the Company operated under the name of its predecessor, Corinthian Schools,
Inc.
The Company's primary business is the operation of degree-granting and
diploma-granting private, for-profit, post-secondary schools devoted to career
program training primarily in the medical, technical and business fields. The
Company currently operates 45 colleges located in 18 states: Virginia, West
Virginia, Texas, Michigan, Massachusetts, Louisiana, California, Oregon,
Colorado, Nevada, Utah, Missouri, Pennsylvania, New York, Washington, Arizona,
Georgia and Florida. Revenues generated from these schools consist primarily of
tuition and fees paid by students. To pay for a substantial portion of their
tuition, the majority of students rely on funds received from federal financial
aid programs under Title IV ("Title IV Programs") of the Higher Education Act
of 1965, as amended ("HEA"). For further discussion see Concentration of Risk
below and Note 12--Governmental Regulation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Corinthian Colleges, Inc. and each of its wholly owned subsidiaries. All
intercompany activity has been eliminated in consolidation.
Financial Statement Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from estimated amounts.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Marketable Investments
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
For Certain Debt and Equity Securities" requires that all applicable
investments be classified as trading securities, available-for-sale securities
or held-to-maturity securities. The Company does not currently have any trading
securities or held-to-maturity securities.
Securities classified as available-for-sale may be sold in response to
changes in interest rates, liquidity needs and for other purposes. Available-
for-sale securities are carried at fair value and include all debt and equity
securities not classified as held-to-maturity or trading. Unrealized holding
gains and losses for available-for-sale securities are excluded from earnings
and reported, net of any income tax effect, as a separate component of
stockholders' equity. Realized gains and losses for securities classified as
available-for-sale are reported in earnings based on the adjusted cost of the
specific security sold. At June 30, 1999 and 2000, the unrealized loss on
available-for-sale securities was immaterial.
F-7
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Restricted Cash
Restricted cash consists of $10,000 as required by the State of
Pennsylvania Department of Education.
Revenue Recognition
Revenues consist primarily of tuition derived from courses taught in the
Company's career colleges. Tuition revenues are recognized on a straight-line
basis over the term of the applicable course. If a student withdraws from a
course or program, the paid but unearned portion of the student tuition is
refunded. Textbook sales and other revenues are recognized as sales occur or
services are performed and represent less than 10% of total revenues. Prepaid
tuition is the portion of payments received but not earned and is reflected as
a current liability in the accompanying consolidated balance sheets as such
amount is expected to be earned within the next year.
Educational Services
Educational services include direct operating expenses of the schools
consisting primarily of payroll and payroll related, occupancy and supplies
costs, as well as amortization of goodwill.
Marketing and Advertising
Marketing and advertising consists primarily of payroll and payroll
related, direct-response and other advertising, promotional materials and
other related marketing costs. All marketing and advertising costs are
expensed as incurred.
Property and Equipment
Property and equipment are stated at cost and are being depreciated or
amortized utilizing the straight-line method over the following estimated
useful lives:
<TABLE>
<S> <C>
Furniture and equipment.................. 7 years
Computer hardware and software........... 3-5 years
Leasehold improvements................... Shorter of 7 years or term of lease
Buildings................................ 39 years
</TABLE>
Deferred Financing Costs
Costs incurred in connection with obtaining financing are capitalized and
amortized over the maturity period of the debt and are included in deposits
and other assets in the accompanying consolidated balance sheets.
Intangible Assets
Intangible assets consist of goodwill, trade names and course curriculum.
Goodwill represents the excess of cost over the fair market value of net
assets acquired, including identified intangible assets. Goodwill is amortized
using the straight-line method over 40 years. Course curriculum represents the
cost of acquiring such curriculum and is amortized using the straight-line
method over 15 years. Trade names represent the cost to acquire and use the
names of the colleges acquired and are amortized using the straight line
method over 40 years. Amortization of curriculum and trade names is included
in general and administrative expenses in the accompanying consolidated
statements of operations. Management evaluates the realizability of
intangibles periodically as events or circumstances indicate a possible
inability to recover the carrying amount. If such
F-8
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
events or changes in circumstances occur, the Company will recognize an
impairment loss if the undiscounted future cash flows expected to be generated
by the asset (or acquired business) are less than the carrying value of the
related asset. The impairment loss would adjust the asset to its fair value.
Deferred Income
The Company sold one of its Colorado facilities and subsequently leased the
facility back at rents which we believe approximate fair market rents. The gain
on the sale of the facility was approximately $1.0 million and will be
amortized into income over the term of the lease.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, restricted cash, marketable
investments, receivables and accounts payable approximates the fair value. In
addition, the carrying value of all borrowings approximate fair value based on
interest rates currently available to the Company.
Post Retirement Benefit Obligation
The Company has elected to provide certain post retirement benefits to
certain key employees. Accordingly, the Company has adopted SFAS No. 106
"Accounting For Postretirement Benefits Other Than Pensions". The adoption of
SFAS No. 106 did not have a material effect on the Company's consolidated
financial position or results of operations.
Income Taxes
The Company accounts for income taxes as prescribed by SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 prescribes the use of the asset and
liability method to compute the differences between the tax basis of assets and
liabilities and the related financial amounts, using currently enacted tax
laws. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount that more likely than not will be realized.
Stock-Based Compensation
In accordance with SFAS No. 123 "Accounting for Stock-Based Compensation,"
the Company accounts for stock option grants in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and has adopted the "disclosure only" alternative allowed under
SFAS No. 123.
Net Income (Loss) Per Common Share
The Company accounts for net income per common share in accordance with SFAS
No. 128 "Earnings Per Share" and SFAS No. 129, "Disclosure of Information about
Capital Structure." Basic net income (loss) per common share is computed by
dividing income (loss) available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income (loss) per common share
is computed by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding plus the effect of any
dilutive stock options, common stock warrants and convertible preferred stock,
utilizing the treasury stock method.
New Accounting Pronouncements
For fiscal 2000, the Company adopted Statement of Position ("SOP") No. 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use" and SOP No. 98-5, "Reporting on the Costs of
F-9
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Start-Up Activities." The adoptions of SOP No. 98-1 and SOP 98-5 did not have a
material impact on the Company's results of operations.
For fiscal 2001, the Company will be required to adopt SFAS No. 133,
"Accounting for Derivative Investments and Hedging Activities." The adoption of
SFAS No. 133 is not expected to have a material impact on the Company's
financial position or results of operations.
Additionally, on or before June 30, 2001, we will be required to adopt Staff
Accounting Bulletin 101 ("SAB 101"). SAB 101 requires us to change our
accounting method of revenue recognition of certain one-time non-refundable
fees from immediate recognition, to amortizing the fees into revenues over the
period of active enrollment of the student. We have completed preliminary
calculations with respect to SAB 101 upon adoption and we anticipate a charge
to earnings of approximately $0.03 per diluted common share, which will be
accounted for as a cumulative effect from a change in accounting principal.
Concentration of Risk
The Company extends credit for tuition to a majority of the students. A
substantial portion is repaid through the student's participation in federally
funded financial aid programs. Transfers of funds from the financial aid
programs to the Company are made in accordance with the DOE requirements.
Approximately 72%, 78% and 77% of the Company's revenues, on a cash basis, were
collected from funds distributed under Title IV Programs of the HEA for the
years ended June 30, 1998, 1999 and 2000 respectively. The financial aid and
assistance programs are subject to political and budgetary considerations.
There is no assurance that such funding will be maintained at current levels.
Extensive and complex regulations in the U.S. govern all the government
financial assistance programs in which the Company's students participate. The
Company's administration of these programs is periodically reviewed by various
regulatory agencies. Any regulatory violation could be the basis for the
initiation of a suspension, limitation or termination proceeding which could
have a material adverse effect to the Company.
The Company has routinely afforded relatively short-term installment payment
plans to many of its students to supplement their federally funded financial
aid. During fiscal 1998, the Company expanded the internal loan program to
assist students in those colleges that lost access to Federal Family Education
Loans ("FFEL") (see Note 12). During fiscal 1999, various schools that had lost
access to FFEL were reinstated. Accordingly, there were fewer internal loans
granted during fiscal 1999 as compared to fiscal 1998. During fiscal 2000, the
Company continued to reduce its reliance on the issuance of internal loans.
While these loans are unsecured, the Company believes it has adequate reserves
against these loan balances. However, there can be no assurance that losses
will not exceed reserves. Losses in excess of reserves could have a material
adverse effect on the Company's business.
NOTE 2--INITIAL PUBLIC OFFERING
On February 10, 1999, the Company completed an initial public offering
("IPO") of Common Stock. Prior to the IPO, 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 IPO, 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 Convertible
F-10
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 IPO, 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
percent on each of the first and second anniversaries of the grant date.
In the IPO, 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 IPO, the Company applied $1.9 million of the proceeds to the expenses of
the IPO, 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 $10.0 million of proceeds were available for general corporate
purposes.
NOTE 3--DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
June 30,
-------------
1999 2000
------ ------
(In
thousands)
<S> <C> <C>
Course materials, net......................................... $1,288 $1,460
Prepaids...................................................... 2,549 2,492
Other current assets.......................................... 200 173
------ ------
$4,037 $4,125
====== ======
</TABLE>
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
----------------
1999 2000
------- -------
(In thousands)
<S> <C> <C>
Furniture and equipment.................................... $ 8,231 $10,417
Computer hardware and software............................. 3,504 4,146
Leasehold improvements..................................... 1,453 3,231
Land....................................................... 2,249 1,687
Buildings.................................................. 1,178 884
------- -------
16,615 20,365
Less--accumulated depreciation and amortization............ (5,634) (8,224)
------- -------
$10,981 $12,141
======= =======
</TABLE>
Depreciation and amortization expense associated with property and equipment
was $1,778,000, $2,141,000, $2,640,000 for the years ended June 30, 1998, 1999
and 2000, respectively.
F-11
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible assets consist of the following:
<TABLE>
<CAPTION>
June 30,
----------------
1999 2000
------- -------
(In thousands)
<S> <C> <C>
Goodwill................................................... $ 7,884 $15,750
Curriculum................................................. 11,405 11,405
Trade names................................................ 5,039 5,039
------- -------
24,328 32,194
Less--accumulated amortization............................. (3,110) (4,248)
------- -------
$21,218 $27,946
======= =======
</TABLE>
Amortization expense associated with intangibles was $1,120,000, $1,100,000
and $1,138,000 for the years ended June 30, 1998, 1999, and 2000, respectively.
NOTE 4--STUDENT NOTES RECEIVABLE
Student notes receivable represent loans which have maturity dates of 6
months to 84 months from the loan origination date. The interest charged on the
notes ranges from 8.25 to 18.00 percent per annum.
The following reflects on analysis of student notes receivable at June 30,
2000:
<TABLE>
<CAPTION>
Net Allowance Gross
Student for Student
Notes Doubtful Notes
Receivable Accounts Receivable
---------- --------- ----------
(In thousands)
<S> <C> <C> <C>
Current..................................... $ 919 $247 $1,166
Long-term................................... 3,157 934 4,091
Add-unearned portion........................ 634
Add-unrecorded interest..................... 1,854
------
Total....................................... $7,745
======
</TABLE>
Payments due under student notes receivable are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
--------------
(In thousands)
<S> <C>
2001.......................................................... $2,421
2002.......................................................... 1,829
2003.......................................................... 1,677
2004.......................................................... 974
2005.......................................................... 462
Thereafter.................................................... 382
------
Total......................................................... $7,745
======
</TABLE>
F-12
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 5--BUSINESS ACQUISITIONS
In the first quarter of fiscal 1997, the Company entered into asset purchase
agreements with Repose, Inc. and Concorde Career Colleges, Inc. to purchase
certain assets and assume certain liabilities of the Bryman Colleges, in
Bellevue, Washington and San Jose, California for $600,000 in cash. The
colleges currently offer career training in the medical and technical fields.
Subsequent to the acquisition, the Bellevue location moved to Sea Tac,
Washington.
In the second quarter of fiscal 1997, the Company entered into an asset
purchase agreement with Phillips Colleges, Inc. ("Phillips") to purchase
certain assets and assume certain liabilities of 18 colleges currently
operating under the names of Rhodes Colleges, Inc., and Florida Metropolitan
University, Inc., for $6.0 million in cash. Additionally, the Company entered
into a separate transaction with Phillips to purchase certain curriculum and
trade names. The cost to purchase the curriculum, trade names and other
intangibles was approximately $17.6 million.
During fiscal year ended June 30, 2000 the Company completed the acquisition
of substantially all of the assets of five colleges in three separate
transactions for a combined purchase price of $8.3 million before working
capital adjustments and liabilities assumed. The amount paid in excess of the
fair market value of the assets acquired, net of liabilities assumed was $7.9
million and was allocated to goodwill and is being amortized over 40 years. The
acquisitions were accounted for using the purchase method of accounting and
their respective results of operations are included in the consolidated results
of operations of the Company since their respective acquisition dates.
NOTE 6--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
--------------
1999 2000
------ ------
(In
thousands)
<S> <C> <C>
Promissory note due April 2007, with interest at 10.95% per
annum, secured by certain land and improvements............ $3,528 $2,332
Other....................................................... 6 --
------ ------
3,534 2,332
Less--current portion....................................... (138) (102)
------ ------
$3,396 $2,230
====== ======
</TABLE>
During 2000, the Company entered into a $10.0 million credit facility with
Union Bank of California (the "Credit Facility"). The Credit Facility expires
in September 2002 and is unsecured, bears interest at LIBOR plus 150 basis
points, and includes a non-usage fee of 1/8% per year on the unused portion.
Under the Credit Facility, the Company will be required to maintain certain
financial and other covenants and the Company was in compliance with these
covenants as of June 30, 2000. At June 30, 2000, there were no outstanding
borrowings under the Credit Facility.
F-13
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principal payments due under the long-term debt arrangements discussed above
are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
--------------
(In thousands)
<S> <C>
2001.......................................................... $ 102
2002.......................................................... 114
2003.......................................................... 127
2004.......................................................... 141
2005.......................................................... 158
Thereafter.................................................... 1,690
------
$2,332
======
</TABLE>
NOTE 7--PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
The Company is authorized to issue 500,000 shares of preferred stock.
Preferred stock outstanding at June 30, 1998 consisted of Series 1 Preferred
Stock, $1.00 par value ("Redeemable Preferred Stock"), Series 2 Preferred
Stock, $1.00 par value ("Series 2 Convertible Preferred Stock") and Series 3
Preferred Stock, $1.00 par value ("Series 3 Convertible Preferred Stock"). As
of June 30, 2000, there were no outstanding Shares of Preferred Stock.
Redeemable Preferred Stock
There were no issued and outstanding shares of Redeemable Preferred Stock at
June 30, 2000. The Company redeemed the Redeemable Preferred Stock including
accumulated dividends thereon in connection with the IPO in February 1999.
Convertible Preferred Stock
There are no outstanding shares of Series 2 and Series 3 Convertible
Preferred Stock. All outstanding shares of the Series 2 and Series 3
Convertible Preferred Stock were converted into Nonvoting Common Stock and
Common Stock, respectively, in connection with the IPO in February 1999.
Common Stock
Class A common stock (referred to herein as the "Common Stock") is entitled
to one vote per share on all matters. Class B common stock (referred to herein
as the "Nonvoting Common Stock") has no voting rights, except the Nonvoting
Common Stock together with Common Stock, as one class, has the right to vote on
(i) any merger or consolidation of the Company with or into another company,
(ii) any sale of all or substantially all of the Company's assets and (iii) any
amendment to the Company's Certificate of Incorporation.
In connection with 2,204,726 shares of Common Stock issued on June 30, 1995,
the Company entered into various Executive Stock Agreements (the "Agreements"),
as amended, with each of its principal executives. Under the terms of these
Agreements, the shares of Common Stock acquired by the executives vested
concurrent with the Company's IPO in February 1999 (See Note 2).
On June 30, 1995, the Company also sold 826,773 shares of Nonvoting Common
Stock at $0.2268 per share to certain executives. Concurrent with the Company's
IPO, and, pursuant to contractual obligations of the Company to the executives,
the Nonvoting Common Stock was exchanged for an equal number of shares of
Common Stock (See Note 2).
F-14
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrants
The following represents a summary of the warrant activity:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------
1998 1999 2000
-------------- --------------- ----------------
Wt. Wt.
Average Average Wt.
Ex. Ex. Average
Shares Price Shares Price Shares Ex. Price
------ ------- ------ -------- ------ ---------
(In thousands, except Wt. Average Ex. Price)
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
the year................ 525 $0.0005 968 $ 0.0004 -- $ --
Granted.................. 443 0.0002 -- -- -- --
Exercised................ -- -- (530) (0.0002) -- --
Forfeited/expired........ -- -- (438) (0.0005) -- --
--- ------- ---- -------- --- -----
Outstanding, end of the
year.................... 968 $0.0004 -- $ -- -- $ --
=== ======= ==== ======== === =====
</TABLE>
The warrants granted during fiscal 1997 were issued to lenders in
conjunction with loans made to the Company. No amount was allocated to these
warrants because management believes the effect would not be material to the
consolidated results of operations. In November 1997, in connection with the
amended Senior Credit Agreement, the lenders received additional warrants
equivalent to two percent of the Company on a fully diluted basis, exercisable
at $0.0002 per share. These warrants were subject to forfeiture by the lenders
if the Company attained certain performance criteria, as defined. In connection
with the IPO, 330,362 warrants were exercised into Common Stock and 200,005
warrants were exercised into Nonvoting Common Stock during fiscal 1999. The
remaining outstanding warrants were forfeited.
Stock Options
On April 28, 1998, the Board of Directors adopted the 1998 Performance Award
Plan (the "Plan"). Under the Plan, 529,134 options, stock appreciation rights
or other common stock based securities may be granted to directors, officers,
employees and other eligible persons. As of June 30, 2000, approximately
153,593 shares were available for granting. Options granted under the Plan were
issued at exercise prices ranging from $12.47-$23.875 per share and have
expiration dates not longer than 10 years. Options granted generally vest over
a period of two to five years.
A summary of the status of the Company's stock option plan is presented
below:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Shares Price
------- ---------
<S> <C> <C>
Outstanding at June 30, 1997.............................. -- $ --
Stock options granted during the year..................... 121,039 12.47
Stock options exercised................................... -- --
Forfeitures............................................... -- --
------- ------
Outstanding at June 30, 1998.............................. 121,039 12.47
Stock options granted during the year..................... 24,000 18.00
Stock options exercised................................... -- --
Forfeitures............................................... (2,473) 12.47
------- ------
Outstanding at June 30, 1999.............................. 142,566 13.42
Stock options granted during the year..................... 239,640 16.83
Stock options exercised................................... (3,612) 12.47
Forfeitures............................................... (6,665) 14.32
------- ------
Outstanding at June 30, 2000.............................. 371,929 $15.60
======= ======
</TABLE>
F-15
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
and exercisable at June 30, 2000.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ --------------------------------------
Weighted- Weighted- Weighted-
Number Average Average Number Average
Exercise Outstanding Remaining Outstanding Exercisable Exercise
Prices at 6/30/00 Life Price at 6/30/00 Price
-------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$12.47 111,789 8.0 $12.47 54,197 $12.47
16.00 166,500 9.2 16.00 -- --
17.00 39,640 9.6 17.00 -- --
18.00 24,000 8.6 18.00 12,000 18.00
20.00 20,000 9.8 20.00 -- --
$23.88 10,000 9.5 23.88 -- --
------- ------ ------ ------
371,929 $15.60 66,197 $13.47
======= ====== ====== ======
</TABLE>
There were no stock options exercisable at June 30, 1998 and June 30, 1999.
Pursuant to SFAS No. 123, the weighted average fair value of stock options
granted during fiscal 1998, 1999 and 2000 was $4.01, $11.16 and $11.64,
respectively. As discussed in Note 1, the Company elected the "disclosure
alternative" allowed under SFAS No. 123. Accordingly, the Company is required
to disclose pro forma net income over the vesting period of the options. As the
initial 121,039 stock options were granted on the last day of the 1998 fiscal
year, the pro forma effect for 1998 is immaterial.
The following is the pro forma effect for fiscal 1999 and 2000:
<TABLE>
<CAPTION>
Fiscal Years
----------------------
1999 2000
---------- -----------
(In thousands, except
per share data)
<S> <C> <C>
Net income:
As reported........................................ $4,492 $ 15,422
Pro forma.......................................... $4,315 $ 14,589
Diluted earnings per share:
As reported........................................ $ 0.48 $ 1.48
Pro forma.......................................... $ 0.46 $ 1.40
</TABLE>
For pro forma disclosure, the fair value of compensatory stock options,
stock appreciation rights and other common stock based securities was estimated
using the Black-Scholes option pricing model using the following weighted
average assumptions:
<TABLE>
<CAPTION>
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Risk-free rate....................................... 5.54% 6.00% 6.75%
Expected years until exercise........................ 7 years 7 years 7 years
Expected stock volatility............................ 0% 54% 64%
Expected dividends................................... $ -- $ -- $ --
</TABLE>
F-16
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8--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 (loss) per common
share utilizing the treasury stock method:
<TABLE>
<CAPTION>
June 30,
------------------
1998 1999 2000
----- ----- ------
(In thousands)
<S> <C> <C> <C>
Basic common shares outstanding........................... 5,236 7,266 10,347
Effects of dilutive securities:
Warrants................................................ 787 584 --
Non-vested executive Common Stock....................... 275 166 --
Non-vested executive Nonvoting Common Stock............. 827 498 --
Stock options........................................... -- 35 78
----- ----- ------
Diluted common shares outstanding......................... 7,125 8,549 10,425
===== ===== ======
</TABLE>
The computation of diluted net income per common share for the year ended
June 30, 1998 did not assume the conversion of the Convertible Preferred Stock
as it would have been antidilutive.
NOTE 9--INCOME TAXES
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------
1998 1999 2000
------- ------ -------
(In thousands)
<S> <C> <C> <C>
Current provision:
Federal.......................................... $ 1,562 $3,178 $ 8,843
State............................................ 510 698 2,095
------- ------ -------
2,072 3,876 10,938
------- ------ -------
Deferred provision:
Federal.......................................... (857) 615 (221)
State............................................ (227) 212 123
------- ------ -------
(1,084) 827 (98)
------- ------ -------
Total provision for income taxes............... $ 988 $4,703 $10,840
======= ====== =======
</TABLE>
Actual income tax provision (benefit) differs from the income tax provision
(benefit) computed by applying the U.S. federal statutory tax rate of 34% for
fiscal 1998 and 1999 and 35% for fiscal 2000 to income (loss) before provision
for income taxes as follows:
<TABLE>
<CAPTION>
Years Ended
June 30,
-------------------
1998 1999 2000
---- ------ -------
(In thousands)
<S> <C> <C> <C>
Provision at the statutory rate......................... $751 $3,810 $ 9,192
State income tax provision, net of federal benefit...... 187 822 1,441
Other................................................... 50 71 207
---- ------ -------
$988 $4,703 $10,840
==== ====== =======
</TABLE>
F-17
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the Company's deferred tax asset and liability are as
follows:
<TABLE>
<CAPTION>
June 30,
----------------
1999 2000
------- -------
(In thousands)
<S> <C> <C>
Current deferred tax asset:
Accounts receivable allowance for doubtful accounts...... $ 1,108 $ 1,286
Accrued vacation......................................... 429 533
State taxes.............................................. 364 662
------- -------
Current deferred tax asset............................. 1,901 2,481
------- -------
Non-current deferred tax asset (liability):
Notes receivable allowance for doubtful accounts......... 490 301
Depreciation............................................. (354) (384)
Amortization............................................. (589) (852)
------- -------
Non-current deferred tax liability..................... (453) (935)
------- -------
$1,448 $ 1,546
======= =======
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
Leases
The Company leases most of its operating facilities and various equipment
under non-cancellable operating leases expiring at various dates through 2017.
The facilities leases require the Company to pay various operating expenses of
the facilities in addition to base monthly lease payments.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
--------------
(In thousands)
<S> <C>
2001...................................................... $14,020
2002...................................................... 12,301
2003...................................................... 9,625
2004...................................................... 7,520
2005...................................................... 7,242
Thereafter................................................ 19,510
-------
$70,218
=======
</TABLE>
Rent expense for the years ended June 30, 1998, 1999 and 2000 amounted to
$9,078,000, $10,126,000, and $12,441,000, respectively, and is reflected in
educational services and general and administrative expense in the accompanying
consolidated statements of operations.
Legal Matters
The Company is involved in various legal proceedings which have been routine
and in the normal course of business. In the opinion of management, after
consultation with legal counsel, the resolution of these matters will not have
a material adverse impact on the Company's financial position or results of
operations.
F-18
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--EMPLOYEE SAVINGS PLAN
The Company has established an employee savings plan under Section 401(k) of
the Internal Revenue Code. All employees with at least one year and 1,000 hours
of employment are eligible to participate. Contributions to the plan by the
Company are discretionary. The plan provides for vesting of Company
contributions over a five-year period. Employees previously employed by each of
the sellers shall vest in the plan based on total service time. Company
contributions to the plan were $293,000, $333,000 and $498,000 for the years
ended June 30, 1998, 1999 and 2000, respectively.
NOTE 12--GOVERNMENTAL REGULATION
The Company and each school are subject to extensive regulation by federal
and state governmental agencies and accrediting bodies. In particular, the
Higher Education Act ("HEA"), and the regulations promulgated thereunder by DOE
subject the schools to significant regulatory scrutiny on the basis of numerous
standards that schools must satisfy in order to participate in the various
federal student financial assistance programs under Title IV of the HEA ("Title
IV Programs").
To participate in the Title IV Programs, an institution must be authorized
to offer its programs of instruction by the relevant agencies of the state in
which it is located, accredited by an accrediting agency recognized by the DOE
and certified as eligible by the DOE. The DOE will certify an institution to
participate in the Title IV Programs only after the institution has
demonstrated compliance with the HEA and the DOE's extensive regulations
regarding institutional eligibility. An institution must also demonstrate its
compliance to the DOE on an ongoing basis. As of June 30, 2000, management
believes all of the Company's schools meet these requirements.
Political and budgetary concerns significantly affect the Title IV Programs.
Congress must reauthorize the HEA approximately every six years. The most
recent reauthorization in October 1998 reauthorized the HEA for an additional
five years (the "1998 HEA Reauthorization"). Congress reauthorized all of the
Title IV Programs in which the schools participate, generally in the same form
and at funding levels no less than for the prior year. Changes made by the 1998
HEA Reauthorization include (i) expanding the adverse effects on schools with
high student loan default rates, (ii) increasing from 85% to 90% the portion a
proprietary school's cash basis revenues that may be derived each year from the
Title IV Programs, (iii) revising the refund standards that require an
institution to return a portion of the Title IV Program funds for students who
withdraw from school and (iv) giving the DOE flexibility to continue an
institution's Title IV participation without interruption in some circumstances
following a change of ownership or control.
A significant component of Congress' initiative to reduce abuse in the Title
IV Programs has been the imposition of limitations on institutions whose former
students default on the repayment of their federally guaranteed or funded
student loans above specific rates (cohort default rate). An institution whose
cohort default rates equal or exceed 25% for three consecutive years will no
longer be eligible to participate in the FFEL or FDL programs. An institution
whose cohort default rate ("CDR") under certain Title IV programs for any
federal fiscal year exceeds 40% may have its eligibility to participate in all
of the Title IV Programs limited, suspended or terminated by the DOE.
All institutions participating in the Title IV Programs must satisfy
specific standards of financial responsibility. The DOE evaluates institutions
for compliance with these standards each year, based on the institution's
annual audited financial statements and following a change of ownership of the
institution.
Under new regulations which took effect July 1, 1998, the DOE calculates the
institution's composite score for financial responsibility based on its (i)
equity ratio, which measures the institution's capital resources,
F-19
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ability to borrow and financial viability; (ii) primary reserve ratio, which
measures the institution's ability to support current operations from
expendable resources; and (iii) net income ratio, which measures the
institution's ability to operate at a profit. An institution that does not meet
the DOE's minimum composite score may demonstrate its financial responsibility
by posting a letter of credit in favor of the DOE in an amount equal to at
least 50% of the Title IV Program funds received by the institution during its
prior fiscal year and possibly accepting other conditions on its participation
in the Title IV Programs. At June 30, 2000, all of the Company's schools and
the Company on a consolidated basis satisfied each of the DOE's standards of
financial responsibility.
As of June 30, 1999, all schools except for four (NIT in Wyoming, Michigan;
Bryman College in New Orleans, Louisiana; Bryman College (South) in San Jose,
California; and Skadron College in San Bernardino, California) were eligible to
receive federal funding, including loan funds. These schools were ineligible
for federal loan funds as they exceeded the CDR threshold. NIT in Wyoming,
Michigan was reinstated in calendar 1999 and Bryman College in New Orleans,
Louisiana, Bryman College (South) in San Jose, California and Skadron College
in San Bernardino, California will be eligible for reinstatement in calendar
2000.
Because the Company operates in a highly regulated industry, it, like other
industry participants, may be subject from time to time to investigations,
claims of non-compliance, or lawsuits by governmental agencies or third parties
which allege statutory violations, regulatory infractions or common law causes
of action. In October 1998, the Inspector General's Office (IG) of the DOE
began an examination of the Company's compliance with the 85/15 rule and to
review in general the Company's administration of Title IV funds. This
examination was part of a broader review conducted by the IG of proprietary
institutions' compliance with these requirements. The Company provided all
information and documentation requested by the IG. During fiscal 2000, the
Company received the final audit report from the DOE. There were no actions
taken against the Company as a result of the examination. However, there can be
no assurance that other regulatory agencies or third parties will not undertake
investigations or make claims against the Company, or that such claims, if
made, will not have a material adverse effect on the Company's business,
results of operations or financial condition.
F-20
<PAGE>
CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 13--QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Quarters
-------------------------------- Fiscal
First Second Third Fourth Year
------- ------- ------- ------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Fiscal 2000
Net revenues........................ $38,644 $42,183 $43,874 $46,033 $170,734
Income from operations.............. 3,729 6,216 7,544 6,917 24,406
Net income.......................... 2,379 3,852 4,659 4,532 15,422
Net income per common share
Basic............................. $ 0.23 $ 0.37 $ 0.45 $ 0.44 $ 1.49
Diluted........................... $ 0.23 $ 0.37 $ 0.45 $ 0.43 $ 1.48
Fiscal 1999
Net revenues........................ $30,296 $32,974 $34,939 $34,763 $132,972
Income from operations.............. 1,393 3,574 4,225 3,692 12,884
Income before extraordinary loss
from the early retirement of debt.. 295 1,518 2,352 2,338 6,503
Net income.......................... 295 1,518 341 2,338 4,492
Net income per common share
Basic--before extraordinary loss.. $ 0.03 $ 0.26 $ 0.27 $ 0.23 $ 0.85
Basic--after extraordinary loss... $ 0.03 $ 0.26 $ 0.03 $ 0.23 $ 0.57
Diluted--before extraordinary
loss............................. $ 0.02 $ 0.19 $ 0.25 $ 0.23 $ 0.72
Diluted--after extraordinary
loss............................. $ 0.02 $ 0.19 $ 0.03 $ 0.23 $ 0.48
Fiscal 1998
Net revenues........................ $24,346 $26,440 $27,841 $27,859 $106,486
Income from operations.............. 70 2,075 1,833 1,536 5,514
Net income (loss)................... (427) 712 614 322 1,221
Net income (loss) per common share
Basic............................. $ (0.10) $ 0.14 $ 0.09 $ 0.03 $ 0.16
Diluted........................... $ (0.07) $ 0.10 $ 0.06 $ 0.03 $ 0.12
</TABLE>
NOTE 14--LOAN TO COMPANY OFFICER
The Company has loaned a Company officer a total of $350,000 under the terms
of a promissory note and pledge agreement (the "Agreement") between the Company
and the officer. The terms of the Agreement provide for an interest rate of
seven percent per annum, payable on an annual basis and when the principal
becomes due and payable in August 2002. As security for this loan, the officer
has pledged to the Company 34,043 shares of his common stock in the Company.
F-21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee, and the Nasdaq National Market
additional listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 49,639
NASD filing fee.................................................... 19,475
Nasdaq National Market listing fee................................. 4,000
Printing and engraving............................................. 113,000
Legal fees and expenses............................................ 225,000
Accounting fees and expenses....................................... 50,000
Blue sky fees and expenses......................................... 7,000
Transfer agent fees................................................ 5,000
Miscellaneous...................................................... 156,886
--------
Total............................................................ $630,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
We have adopted provisions in our Restated Certificate of Incorporation that
limit the liability of our directors in certain instances. As permitted by the
Delaware General Corporation Law, directors will not be liable to us for
monetary damages arising from a breach of their fiduciary duty as directors in
certain circumstances. See Item 17 of this registration statement regarding the
opinion of the Securities and Exchange Commission as to indemnification of
liabilities arising under the Securities Act. Such limitation does not affect
liability (i) for any breach of a director's duty of loyalty to us or our
stockholders, (ii) with respect to any acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law, (iii) with
respect to certain unlawful dividend payments or stock redemptions or
repurchases, or (iv) for any transaction from which the director derives an
improper personal benefit. Such limitation of liability also does not affect
the availability of equitable remedies such as injunctive relief or rescission,
although in certain circumstances equitable relief may not be available as a
practical matter. The limitation may relieve the directors of monetary
liability to us for grossly negligent conduct, including conduct in situations
involving attempted takeovers. No claim or litigation is currently pending
against our directors that would be affected by the limitation of liability.
Our Restated Certificate of Incorporation and Bylaws provide that we shall
indemnify our directors and may indemnify our officers to the fullest extent
permitted by Delaware law, including circumstances in which indemnification is
otherwise discretionary under Delaware law.
Reference is made to the form of underwriting agreement filed as Exhibit 1.1
to this registration statement for certain provisions regarding the
indemnification of officers and directors by the several underwriters.
Item 16. Exhibits
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Incorporation
Number Description of Exhibit Reference
------- ---------------------- -------------
<C> <S> <C>
1.1 ++ Form of Underwriting Agreement
3.3 + Restated Certificate of Incorporation................. (b)
3.4 + Bylaws of the Company incorporated by reference to
Exhibit 3.3 of the Company's Registration Statement on
Form S-1 (Registration No. 33-59505) as filed with the
Securities and Exchange Commission on July 21, 1998
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation
Number Description of Exhibit Reference
------- ---------------------- -------------
<C> <S> <C>
4.9 + Specimen Common Stock Certificate of the Company....... (b)
5.1 ++ Opinion of O'Melveny & Myers LLP
10.12+ Amended and Restated Registration Agreement dated
October 17, 1996, by and between the Company, Primus
Capital Fund III Limited Partnership, The Prudential
Insurance Company of America, BancOne Capital Partners
II, LLC, BancOne Capital Partners II, Limited
Partnership, David G. Moore, Paul St. Pierre, Frank J.
McCord, Dennis L. Devereux and Lloyd W. Holland........ (a)
10.13+ First Amendment to the Amended and Restated
Registration Agreement dated as of November 24, 1997,
by and between the Company, Primus Capital Fund III
Limited Partnership, BOCP II Limited Liability Company,
BancOne Capital Partners II, LLC, David G. Moore, Paul
St. Pierre, Frank J. McCord, Dennis L. Devereux, Lloyd
W. Holland and The Prudential Insurance Company of
America................................................ (a)
10.14+ Amended and Restated Executive Stock Agreement, dated
November 24, 1997, between Corinthian Schools, Inc. and
Dennis L. Devereux..................................... (c)
10.15+ Amended and Restated Executive Stock Agreement, dated
November 24, 1997, between Corinthian Schools, Inc. and
Lloyd W. Holland....................................... (c)
10.16+ Amended and Restated Executive Stock Agreement, dated
November 24, 1997, between Corinthian Schools, Inc. and
Frank J. McCord........................................ (c)
10.17+ Amended and Restated Executive Stock Agreement, dated
November 24, 1997, between Corinthian Schools, Inc. and
David G. Moore......................................... (c)
10.18+ Amended and Restated Executive Stock Agreement, dated
November 24, 1997, between Corinthian Schools, Inc. and
Paul St. Pierre........................................ (c)
10.35+ Rights Agreement dated October 17, 1996, between the
Company, Corinthian Schools, Inc., Primus Capital Fund
III Limited Partnership, BOCP II, Limited Liability
Company, BancOne Capital Partners II, Limited
Partnership and David G. Moore, Paul St. Pierre, Frank
J. McCord, Dennis L. Devereux and Lloyd W. Holland..... (a)
10.36+ Amendment to the Rights Agreement, dated November 24,
1997, by and between the Company, Primus Capital Fund
III Limited Partnership, BOCP II Limited Liability
Company, BancOne Capital Partners II, LLC, David G.
Moore, Paul St. Pierre, Frank J. McCord, Dennis L.
Devereux and Lloyd W. Holland.......................... (a)
10.52+ 1998 Performance Award Plan of the Company............. (a)
10.53+ Agreement Regarding Registration Rights and Amendment
to Warrant dated as of January 7, 1999, by and among
the Company, Primus Capital Fund III Limited
Partnership, BancOne Capital Partners II, LLC and BOCP
II, Limited Liability Company, The Prudential Insurance
Company of America, David G. Moore, Paul St. Pierre,
Frank J. McCord, Dennis L. Devereux and Lloyd W.
Holland................................................ (c)
10.54+ Amended and Restated Loan Agreement, dated February 1,
2000 by and between Union Bank of California, N.A. and
the Company............................................ (g)
10.55+ Promissory Note dated August 31, 1999, by David G.
Moore in favor of the Company.......................... (e)
10.56+ Pledge Agreement dated August 31, 1999, by and between
David G. Moore and the Company......................... (e)
10.57 Asset Purchase Agreement, dated as of September 4,
2000, by and among Corinthian Schools, Inc., Educorp,
Inc. and Dr. Rashed B. Elyas and Ken Boyle
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation
Number Description of Exhibit Reference
------- ---------------------- -------------
<C> <S> <C>
21.1 + List of Subsidiaries.................................... (f)
23.1 Consent of Arthur Andersen LLP
23.3 ++ Consent of O'Melveny & Myers LLP
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
---------------------
+ Previously filed with the Securities and Exchange Commission as set forth
in the following table:
(a) Incorporated by reference to the like-numbered exhibit of the Company's
Registration Statement on Form S-1 (Registration No. 333-59505), as filed
with the Securities and Exchange Commission on July 21, 1998.
(b) Incorporated by reference to the like-numbered exhibit of the Company's
Amendment No. 3 to Registration Statement on Form S-1 (Registration No.
333-59505), as filed with the Securities and Exchange Commission on January
11, 1999.
(c) Incorporated by reference to the like-numbered exhibit of the Company's
Amendment No. 4 to Registration Statement on Form S-1 (Registration No.
333-59505), as filed with the Securities and Exchange Commission on
February 1, 1999.
(d) Incorporated by reference to Exhibit 99.1 of the Company's report on Form
8-K, as filed with the Securities and Exchange Commission on March 4, 1999.
(e) Incorporated by reference to the like-numbered exhibit of the Company's
Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission on September 27, 1999.
(f) Incorporated by reference to Exhibit 1.1 of the Company's Amendment No. 4
to Registration Statement on Form S-1 (Registration No. 333-59505), as
filed with the Securities and Exchange Commission on February 1, 1999.
(g) Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-Q, for the quarter ended March 31, 2000, as filed with the
Securities and Exchange Commission on May 12, 2000.
++ To be filed by amendment.
Item 17. Undertakings
We hereby undertake that, for purposes of determining any liability under
the Securities Act, each filing of our annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bonafide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons pursuant to the
Delaware General Corporation Law, our Restated Certificate of Incorporation and
our Bylaws, the Underwriting Agreement, or otherwise, we have been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, we will, unless in the opinion of our
II-3
<PAGE>
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by us
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Ana, State of California, on the 8th day of
September, 2000.
CORINTHIAN COLLEGES, INC.
/s/ David G. Moore
By: _________________________________
DAVID G. MOORE
President and Chief Executive
Officer
(Principal Executive Officer)
/s/ Dennis N. Beal
By: _________________________________
DENNIS N. BEAL
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint, jointly and severally, David G.
Moore, Dennis L. Devereux, Dennis N. Beal and Stan A. Mortensen, or any of
them, as his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign the registration
statement filed herewith and any and all amendments to said registration
statement (including post-effective amendments and registration statements
filed pursuant to Rule 462 and otherwise), and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Exchange Act of 1933, as
amended, this registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David G. Moore President, Chief Executive September 8, 2000
____________________________________ Officer and Director
David G. Moore
/s/ Paul R. St. Pierre Executive Vice President and September 8, 2000
____________________________________ Director
Paul R. St. Pierre
/s/ Loyal Wilson Director September 8, 2000
____________________________________
Loyal Wilson
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jack D. Massimino Director September 8, 2000
____________________________________
Jack D. Massimino
/s/ Dr. Carol D'Amico Director September 8, 2000
____________________________________
Dr. Carol D'Amico
/s/ Linda Arey Skladany Director September 8, 2000
____________________________________
Linda Arey Skladany
</TABLE>
II-6
<PAGE>
CORINTHIAN COLLEGES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and End of
Year Expenses Deductions Year
------------ ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Accounts receivable:
Year ended June 30, 1998..... $2,763 $4,255 $(3,499) $3,519
Year ended June 30, 1999..... 3,519 7,013 (7,274) 3,258
Year ended June 30, 2000..... 3,258 7,874 (6,769) 4,363
Student notes receivable:
Year ended June 30, 1998..... 861 1,708 (283) 2,286
Year ended June 30, 1999..... 2,286 660 (1,048) 1,898
Year ended June 30, 2000..... $1,898 $ 886 $(1,603) $1,181
</TABLE>
II-7
<PAGE>
CORINTHIAN COLLEGES, INC
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Incorporation
Number Description of Exhibit Reference
------- ---------------------- -------------
<C> <S> <C>
1.1 ++ Form of Underwriting Agreement
3.3 + Restated Certificate of Incorporation.................. (b)
3.4 + Bylaws of the Company incorporated by reference to
Exhibit 3.3 of the Company's Registration Statement on
Form S-1 (Registration No. 33-59505) as filed with the
Securities and Exchange Commission on July 21, 1998
4.9 + Specimen Common Stock Certificate of the Company....... (b)
5.1 ++ Opinion of O'Melveny & Myers LLP
10.12+ Amended and Restated Registration Agreement dated
October 17, 1996, by and between the Company, Primus
Capital Fund III Limited Partnership, The Prudential
Insurance Company of America, BancOne Capital Partners
II, LLC, BancOne Capital Partners II, Limited
Partnership, David G. Moore, Paul St. Pierre, Frank J.
McCord, Dennis L. Devereux and Lloyd W. Holland........ (a)
10.13+ First Amendment to the Amended and Restated
Registration Agreement dated as of November 24, 1997,
by and between the Company, Primus Capital Fund III
Limited Partnership, BOCP II Limited Liability Company,
BancOne Capital Partners II, LLC, David G. Moore, Paul
St. Pierre, Frank J. McCord, Dennis L. Devereux, Lloyd
W. Holland and The Prudential Insurance Company of
America................................................ (a)
10.14+ Amended and Restated Executive Stock Agreement, dated
November 24, 1997, between Corinthian Schools, Inc. and
Dennis L. Devereux..................................... (c)
10.15+ Amended and Restated Executive Stock Agreement, dated
November 24, 1997, between Corinthian Schools, Inc. and
Lloyd W. Holland....................................... (c)
10.16+ Amended and Restated Executive Stock Agreement, dated
November 24, 1997, between Corinthian Schools, Inc. and
Frank J. McCord........................................ (c)
10.17+ Amended and Restated Executive Stock Agreement, dated
November 24, 1997, between Corinthian Schools, Inc. and
David G. Moore......................................... (c)
10.18+ Amended and Restated Executive Stock Agreement, dated
November 24, 1997, between Corinthian Schools, Inc. and
Paul St. Pierre........................................ (c)
10.35+ Rights Agreement dated October 17, 1996, between the
Company, Corinthian Schools, Inc., Primus Capital Fund
III Limited Partnership, BOCP II, Limited Liability
Company, BancOne Capital Partners II, Limited
Partnership and David G. Moore, Paul St. Pierre, Frank
J. McCord, Dennis L. Devereux and Lloyd W. Holland..... (a)
10.36+ Amendment to the Rights Agreement, dated November 24,
1997, by and between the Company, Primus Capital Fund
III Limited Partnership, BOCP II Limited Liability
Company, BancOne Capital Partners II, LLC, David G.
Moore, Paul St. Pierre, Frank J. McCord, Dennis L.
Devereux and Lloyd W. Holland.......................... (a)
10.52+ 1998 Performance Award Plan of the Company............. (a)
10.53+ Agreement Regarding Registration Rights and Amendment
to Warrant dated as of January 7, 1999, by and among
the Company, Primus Capital Fund III Limited
Partnership, BancOne Capital Partners II, LLC and BOCP
II, Limited Liability Company, The Prudential Insurance
Company of America, David G. Moore, Paul St. Pierre,
Frank J. McCord, Dennis L. Devereux and Lloyd W.
Holland................................................ (c)
10.54+ Amended and Restated Loan Agreement, dated February 1,
2000 by and between Union Bank of California, N.A. and
the Company............................................ (g)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation
Number Description of Exhibit Reference
------- ---------------------- -------------
<C> <S> <C>
10.55+ Promissory Note dated August 31, 1999, by David G.
Moore in favor of the Company......................... (e)
10.56+ Pledge Agreement dated August 31, 1999, by and between
David G. Moore and the Company........................ (e)
10.57 Asset Purchase Agreement, dated as of September 4,
2000, by and among Corinthian Schools, Inc., Educorp,
Inc. and Dr. Rashed B. Elyas and Ken Boyle
21.1 + List of Subsidiaries.................................. (f)
23.1 Consent of Arthur Andersen LLP
23.3 ++ Consent of O'Melveny & Myers LLP
24.1 Power of Attorney (see signature page)
27.1 Financial Data Schedule
</TABLE>
---------------------
+ Previously filed with the Securities and Exchange Commission as set forth
in the following table:
(a) Incorporated by reference to the like-numbered exhibit of the Company's
Registration Statement on Form S-1 (Registration No. 333-59505), as filed
with the Securities and Exchange Commission on July 21, 1998.
(b) Incorporated by reference to the like-numbered exhibit of the Company's
Amendment No. 3 to Registration Statement on Form S-1 (Registration No.
333-59505), as filed with the Securities and Exchange Commission on January
11, 1999.
(c) Incorporated by reference to the like-numbered exhibit of the Company's
Amendment No. 4 to Registration Statement on Form S-1 (Registration No.
333-59505), as filed with the Securities and Exchange Commission on
February 1, 1999.
(d) Incorporated by reference to Exhibit 99.1 of the Company's report on Form
8-K, as filed with the Securities and Exchange Commission on March 4, 1999.
(e) Incorporated by reference to the like-numbered exhibit of the Company's
Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission on September 27, 1999.
(f) Incorporated by reference to Exhibit 1.1 of the Company's Amendment No. 4
to Registration Statement on Form S-1 (Registration No. 333-59505), as
filed with the Securities and Exchange Commission on February 1, 1999.
(g) Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-Q, for the quarter ended March 31, 2000, as filed with the
Securities and Exchange Commission on May 12, 2000.
++ To be filed by amendment.
