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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period
fromto Commission file number 0-25283 CORINTHIAN COLLEGES, INC.  Delaware
(State or other jurisdiction of
Incorporation or organization)
    
    33-0717312
(I.R.S. Employer
Identification No.)
 6 Hutton Centre Drive, Suite 400, Santa Ana, California
(Address of principal executive offices) 92707
(Zip Code) (714) 427-3000
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YesX No Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) YesX No At April 30, 2004, there were 90,188,968 shares of Common Stock of the
Registrant outstanding.




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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q
For the Third Quarter Ended March 31, 2004  
 Page No.PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed
Consolidated Balance Sheets at June 30, 2003 and March 31, 2004 (Unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the
three and nine months ended March 31, 2003 and 2004 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 2003 and 2004 (Unaudited)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    20Item 2.
    
    Changes in Securities and Use of Proceeds
    
    
    20Item 3.
    
    Defaults Upon Senior Securities.
    
    
    20Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20Item 5.
    
    Other Information
    
    
    20Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    21SIGNATURES
    
    
    
    
    22EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES 
  June 30,
    
    March 31,2003
    
    2004(In thousands)(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    35,901
    
    
    $
    58,985Restricted cash
    
    
    10
    
    
    
    10Marketable securities
    
    
    3,897
    
    
    
    Accounts receivable, net of allowance for doubtful accounts of $10,362 and
$18,787 at June 30, 2003 and March 31, 2004, respectively
    
    
    36,145
    
    
    
    54,786Student notes receivable, net of allowance for doubtful accounts of
$313 and $377 at June 30, 2003 and March 31, 2004, respectively
    
    
    848
    
    
    
    891Deferred income taxes
    
    
    10,538
    
    
    
    15,125Prepaid expenses and other current assets
    
    
    21,356
    
    
    
    24,149Total current assets
    
    
    108,695
    
    
    
    153,946PROPERTY AND EQUIPMENT, net
    
    
    77,887
    
    
    
    119,281OTHER ASSETS:Goodwill, net
    
    
    102,565
    
    
    
    210,951Other intangibles, net
    
    
    33,885
    
    
    
    31,134Student notes receivable, net of allowance for doubtful accounts of $608 and $862
at June 30, 2003 and March 31, 2004, respectively
    
    
    2,001
    
    
    
    2,566Deposits and other assets
    
    
    4,365
    
    
    
    6,382TOTAL ASSETS
    
    $
    329,398
    
    
    $
    524,260LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    12,592
    
    
    $
    18,418Accrued compensation and related liabilities
    
    
    26,182
    
    
    
    35,832Accrued expenses
    
    
    6,426
    
    
    
    11,732Income tax payable
    
    
    
    
    
    
    1,148Prepaid tuition
    
    
    21,161
    
    
    
    43,106Current portion of capital lease obligations
    
    
    186
    
    
    
    961Current portion of long-term debt
    
    
    110
    
    
    
    202Total current liabilities
    
    
    66,657
    
    
    
    111,399LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current portion
    
    
    12,586
    
    
    
    12,453LONG-TERM DEBT, net of current portion
    
    
    1,384
    
    
    
    47,508DEFERRED INCOME TAXES
    
    
    14,185
    
    
    
    14,185OTHER LIABILITIES
    
    
    245
    
    
    
    2,409COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    STOCKHOLDERS EQUITY:Common Stock, $0.0001 par value:Common
Stock, 120,000 shares authorized and 87,644 and 90,110 shares issued
and outstanding at June 30, 2003 and March 31, 2004, respectively
    
    
    9
    
    
    
    9Additional paid-in capital
    
    
    84,368
    
    
    
    123,811Retained earnings
    
    
    149,964
    
    
    
    212,531Accumulated other comprehensive income (loss)
    
    
    
    
    
    
    (45
    )TOTAL STOCKHOLDERS EQUITY
    
    
    234,341
    
    
    
    336,306TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    329,398
    
    
    $
    524,260
 The accompanying notes are an integral part of these condensed consolidated financial statements. 3




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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES 
  Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2003
    
    2004
    
    2003
    
    2004(In thousands, except per share data)(Unaudited)NET REVENUES
    
    $
    135,548
    
    
    $
    217,331
    
    
    $
    378,364
    
    
    $
    587,142OPERATING EXPENSES:Educational services
    
    
    63,665
    
    
    
    110,346
    
    
    
    181,844
    
    
    
    298,862General and administrative
    
    
    13,093
    
    
    
    19,328
    
    
    
    37,913
    
    
    
    50,938Marketing and advertising
    
    
    28,642
    
    
    
    48,945
    
    
    
    78,273
    
    
    
    128,868Impairment charge
    
    
    
    
    
    
    3,154
    
    
    
    
    
    
    
    3,154Total operating expenses
    
    
    105,400
    
    
    
    181,773
    
    
    
    298,030
    
    
    
    481,822INCOME FROM OPERATIONS
    
    
    30,148
    
    
    
    35,558
    
    
    
    80,334
    
    
    
    105,320Interest (income)
    
    
    (349
    )
    
    
    (383
    )
    
    
    (893
    )
    
    
    (1,005
    )Interest expense
    
    
    338
    
    
    
    852
    
    
    
    1,089
    
    
    
    2,221Other (income) expense
    
    
    (8
    )
    
    
    (105
    )
    
    
    (8
    )
    
    
    (143
    )Minority interest in income (loss) of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43
    )INCOME BEFORE PROVISION FOR INCOME TAXES
    
    
    30,167
    
    
    
    35,194
    
    
    
    80,146
    
    
    
    104,290Provision for income taxes
    
    
    12,127
    
    
    
    13,947
    
    
    
    32,219
    
    
    
    41,723NET INCOME
    
    $
    18,040
    
    
    $
    21,247
    
    
    $
    47,927
    
    
    $
    62,567Income per common share:Basic
    
    $
    0.21
    
    
    $
    0.24
    
    
    $
    0.55
    
    
    $
    0.70Diluted
    
    $
    0.20
    
    
    $
    0.23
    
    
    $
    0.52
    
    
    $
    0.67Weighted average number of common shares outstanding:Basic
    
    
    87,306
    
    
    
    89,883
    
    
    
    86,704
    
    
    
    88,868Diluted
    
    
    92,032
    
    
    
    94,321
    
    
    
    91,752
    
    
    
    93,935
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES 
  Nine Months EndedMarch 31,2003
    
    2004(In thousands)(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    47,927
    
    
    $
    62,567Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    9,343
    
    
    
    16,071Loss (gain) on disposal of assets
    
    
    (8
    )
    
    
    Impairment charge
    
    
    
    
    
    
    3,154Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    (3,700
    )
    
    
    (3,671
    )Student notes receivable
    
    
    (383
    )
    
    
    (606
    )Prepaid expenses and other assets
    
    
    (1,076
    )
    
    
    (2,861
    )Accounts payable
    
    
    (1,913
    )
    
    
    (232
    )Accrued expenses
    
    
    13,080
    
    
    
    8,748Income taxes payable
    
    
    (1,111
    )
    
    
    2,328Prepaid tuition
    
    
    6,237
    
    
    
    1,637Other long-term liabilities
    
    
    (69
    )
    
    
    (1,734
    )Net cash provided by operating activities
    
    
    68,327
    
    
    
    85,401CASH FLOWS FROM INVESTING ACTIVITIES:Acquisitions of schools, colleges, and training centers, net of cash acquired
    
    
    (83,785
    )
    
    
    (101,392
    )Change in restricted cash
    
    
    257
    
    
    
    Capital expenditures, net of disposals
    
    
    (20,544
    )
    
    
    (46,543
    )Proceeds from sale of assets
    
    
    8
    
    
    
    Sales of (investments in) marketable securities, net
    
    
    17,865
    
    
    
    3,897Net cash (used in) investing activities
    
    
    (86,199
    )
    
    
    (144,038
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from borrowings
    
    
    58,600
    
    
    
    51,631Principal repayments on capital lease obligations and long-term debt
    
    
    (59,251
    )
    
    
    (9,404
    )Proceeds from exercise of stock options and Employee Stock Purchase Plan,
including tax benefit
    
    
    13,726
    
    
    
    39,443Net cash provided by financing activities
    
    
    13,075
    
    
    
    81,670EFFECTS OF EXCHANGE RATE CHANGES ON CASH
    
    
    
    
    
    
    51NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (4,797
    )
    
    
    23,084CASH AND CASH EQUIVALENTS, beginning of period
    
    
    40,761
    
    
    
    35,901CASH AND CASH EQUIVALENTS, end of period
    
    $
    35,964
    
    
    $
    58,985SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for:Income taxes
    
    $
    28,233
    
    
    $
    18,886Interest expense
    
    $
    1,088
    
    
    $
    2,221SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Acquisitions of various schools, colleges, and training centersFair value of assets acquired
    
    $
    100,181
    
    
    $
    140,171Net cash used in acquisitions
    
    
    (83,785
    )
    
    
    (101,392
    )Liabilities assumed or incurred
    
    $
    16,396
    
    
    $
    38,779
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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CORINTHIAN COLLEGES,
INC. AND SUBSIDIARIES 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
 Note 1  The Company and Basis of Presentation As of March 31, 2004, Corinthian Colleges, Inc. (the Company) operated
87 schools and colleges in the for profit, post-secondary education industry in
the United States, and 45 colleges and 15 training centers in seven Canadian
provinces excluding the anticipated closure of two LTU training
centers and one CDI
satellite campus
consolidation. All of the Companys schools grant either degrees (Associate,
Bachelor and Master) or diplomas and offer educational opportunities from an
extensive and diverse curricula library with an emphasis on four primary
concentrations: allied health, business, technology, and criminal justice.
Additionally, the Company has an online learning alternative available to
students pursuing education exclusively online and is approved to offer nine
accredited degrees to exclusively online students. Effective August 1, 2003, the Company acquired all of the outstanding
stock of Career Choices, Inc. (Career Choices). Career Choices operates ten
campuses that offer both degree and diploma programs. Effective August 6,
2003, the Company acquired substantially all of the assets of East Coast Aero
Tech., LLC. (ECAT). ECAT operates one campus that offers programs in
aviation maintenance technology. Effective August 19, 2003, the Company
acquired approximately 89% of the outstanding shares of common stock of CDI
Education Corporation (CDI) and completed the acquisition of the remaining
outstanding shares of common stock as of October 7, 2003. CDI currently
operates 45 colleges and 15 training centers in Canada. The acquisitions of
Career Choices, ECAT and CDI were accounted for using the purchase method of
accounting and their respective results of operations are included in the
Companys consolidated results of operations since their respective acquisition
dates. The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with accounting principles
generally accepted in the United States. Certain information and footnote
disclosures normally included in annual financial statements have been omitted
or condensed pursuant to such regulations. The Company believes the
disclosures included in the unaudited condensed consolidated financial
statements, when read in conjunction with the June 30, 2003 consolidated
financial statements of the Company included in the Companys 2003 Annual
Report on Form 10-K/A and notes thereto, are adequate to make the information
presented not misleading. In managements opinion, the condensed consolidated
financial statements reflect all adjustments, consisting solely of normal
recurring adjustments, necessary to summarize fairly the consolidated financial
position, results of operations, and cash flows for such periods. The results
of operations for the three months and nine months ended March 31, 2004 are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 2004. The condensed consolidated financial statements as of March 31, 2004 and
June 30, 2003 and for the three months and nine months ended March 31, 2004 and
2003 are consolidated and include the accounts of the Company and its
subsidiaries that it directly or indirectly controls through majority
ownership. All significant intercompany balances and transactions have been
eliminated in consolidation. The
financial position and results of operations of the Companys
direct and indirect Canadian
subsidiaries are measured using the local currency as the functional currency.
Assets and liabilities of the Canadian subsidiaries are translated to U.S.
dollars using exchange rates in effect at the balance sheet dates. Income and
expense items are translated at monthly average rates of exchange. The
resultant translation adjustments are included as a component of Stockholders
Equity designated as Accumulated other comprehensive income (loss). Exchange
gains and losses arising from transactions denominated in a currency other than
the functional currency are immediately included in earnings. Certain amounts for the prior periods have been reclassified to conform to
fiscal 2004 financial statement presentation. 6




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Note 2 Stock Split On February 18, 2004, the Company authorized a two-for-one stock split of
its common stock effected in the form of a stock dividend. The additional
shares were distributed on March 23, 2004 to shareholders of record on March 4,
2004. All share and per share information have been retroactively restated to
reflect the stock split. Note 3  Stock Options On November 20, 2003, the Companys stockholders approved the Companys
2003 Performance Award Plan (the 2003 Plan), which authorized the issuance by
the Company of up to 5,400,000 (post stock split) additional shares of the
Companys Common Stock. In addition, the Company currently maintains the
Corinthian Colleges, Inc. 1998 Performance Award Plan (as amended, the 1998
Plan). Upon approval of the 2003 Plan, the Companys ability to grant new
awards under the 1998 Plan terminated. The termination of the grant authority
under the 1998 Plan did not, however, affect awards then outstanding under the
plan. As of March 31, 2004, the number of stock options, stock appreciation
rights or other common stock-based securities available for future grant to
directors, officers, employees and other eligible persons were 4,202,500 under
the 2003 Plan. The expiration dates are not longer than 10 years and options
granted to employees generally vest over a period of four years. The Company accounts for stock-based compensation using the intrinsic
value method of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, related to options issued to employees and SFAS No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure. No
stock-based employee compensation cost is reflected in net income, as all
options, stock appreciation rights or other common stock-based securities
granted had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect
on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee compensation. Three Months EndedMarch 31,
    
    Nine Months EndedMarch 31,2003
    
    2004
    
    2003
    
    2004(In thousands, except per share data)(Unaudited)Net income, as reported
    
    $
    18,040
    
    
    $
    21,247
    
    
    $
    47,927
    
    
    $
    62,567Stock-based compensation included above
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deduct: Total stock-based employee
compensation cost determined under
fair value method for all awards, net
of related tax effects
    
    
    (2,423
    )
    
    
    (3,752
    )
    
    
    (6,545
    )
    
    
    (9,810
    )Pro forma net income
    
    $
    15,617
    
    
    $
    17,495
    
    
    $
    41,382
    
    
    $
    52,757Basic earnings per share:As reported
    
    $
    0.21
    
    
    $
    0.24
    
    
    $
    0.55
    
    
    $
    0.70Pro forma
    
    $
    0.18
    
    
    $
    0.19
    
    
    $
    0.48
    
    
    $
    0.59Diluted earnings per share:As reported
    
    $
    0.20
    
    
    $
    0.23
    
    
    $
    0.52
    
    
    $
    0.67Pro forma
    
    $
    0.17
    
    
    $
    0.19
    
    
    $
    0.45
    
    
    $
    0.56
 The effects of applying SFAS No. 123 in the above pro forma disclosures
are not necessarily indicative of future amounts. The fair value of each
option, stock appreciation rights, and other common stock-based securities was
estimated on the date of grant using the Black-Scholes method with the
following weighted-average assumptions: Three Months EndedMarch 31,
    
    Nine Months EndedMarch 31,2003
    
    2004
    
    2003

    
    2004Risk-free rate
    
    
    4.97
    %
    
    
   3.73
    %
    
    
    5.11
    %
    
    
    3.75
    %Expected years
until exercise
    
    7 years
    
    7 years
    
    7 years
    
    7 yearsExpected stock
volatility
    
    
    35
    %
    
    
    35
    %
    
    
    62
    %
    
    
    38
    %Expected
dividends
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 7




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Note 4 Marketable Securities Marketable securities include primarily interest bearing
available-for-sale securities with a maturity date of less than one year. 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 from 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. At March
31, 2004, there were no material unrealized gains or losses from
available-for-sale securities. Note 5 Weighted Average Number of Common Shares Outstanding Basic net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted
net income per share reflects the assumed conversion of all dilutive
securities, consisting of stock options. The table below reflects the calculation of the weighted average number of
common shares outstanding used in computing basic and diluted net income per
common share (in thousands): Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2003
    
    2004
    
    2003
    
    2004Basic common shares outstanding
    
    
    87,306
    
    
    
    89,883
    
    
    
    86,704
    
    
    
    88,868Effects of dilutive securities:Stock options
    
    
    4,726
    
    
    
    4,438
    
    
    
    5,048
    
    
    
    5,067Diluted common shares outstanding
    
    
    92,032
    
    
    
    94,321
    
    
    
    91,752
    
    
    
    93,935
 Note 6 Common Stock Effective November 20, 2003, the Company amended and restated its
certificate of incorporation to increase the number of authorized shares of
common stock with a par value of $0.0001 per share to a total of 120,000,000
shares. Note 7Impairment Charge On January 2, 2003, the Company acquired substantially all of the assets
of Learning Tree University, Inc. (LTU). LTU offers continuing professional
education, short duration certificate programs, comprehensive corporate
training and customized learning solutions at two training centers in Southern
California. LTU also conducts seminars in cities nationwide and offers both
instructor-led and online training. 8




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The Company began assessing its long-term strategy and, as a result of
that assessment, plans to close two LTU continuing education centers in
California and cease personal enrichment programs offered at those centers.
LTU will continue to offer its continuing professional education courses for
nurses, as well as online continuing education and personal enrichment courses via the Internet. As a result of the decision to close the two campuses, the Company
reviewed the long-lived assets and goodwill of LTU for possible impairment in
accordance with SFAS 142 and SFAS 144. Based on the results of the review, the
Company has recognized a non-cash impairment loss and related charge of $3.2
million (pre-tax) in the quarter ended March 31, 2004. The charges included
$2.8 million of intangible asset impairment and $389,000 of fixed asset
write-offs. The fair value of the goodwill was based on the Companys estimate
of discounted future cash flows. Upon the expected closure of the facilities in the fourth quarter of
fiscal 2004, the Company expects to take an additional charge to earnings of
approximately $2.0 million (pre-tax), consisting primarily of continuing lease
obligations and severance payments. Note 8 New Accounting Pronouncements In January 2003, the FASB issued the Interpretation No. 46, Consolidation
of Variable Interest Entities (Interpretation No. 46). Interpretation No.
46 requires a company to consolidate a variable interest entity if the company
is subject to a majority of the risk of loss from the variable interest
entitys activities or is entitled to receive a majority of the entitys
residual returns. The interpretation also requires disclosures about variable
interest entities that the company is not required to consolidate but in which
it has a significant variable interest. Interpretation No. 46 is immediately
effective for variable interest entities created after January 31, 2003 and to
variable interest entities in which an enterprise obtains an interest after
that date. It applies in the first fiscal year or interim period beginning
after December 15, 2003, with respect to variable interest entities in which an
enterprise holds a variable interest that is acquired before February 1, 2003.
The Company does not have variable interest entities, or special purpose
entities (SPEs) and the adoption of Interpretation No. 46 will not have an
impact on the Companys consolidated financial position or results of
operations. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 except for contracts
which exist in fiscal quarters that began prior to June 15, 2003 and for
hedging relationships designated after June 30, 2003. For existing contracts
for fiscal quarters that began prior to June 15, 2003, the provisions of this
Statement that relate to Statement 133 Implementation Issues should continue to
be applied in accordance with their respective dates. SFAS No. 149 requires
that contracts with comparable characteristics be accounted for similarly. The
adoption of SFAS No. 149 will not have an adverse material impact on the
Companys consolidated financial position or results of operations. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This Statement establishes standards for classification and measurement of
certain financial instruments with characteristics of both liabilities and
equity. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003. The adoption of SFAS No. 150 will not have an
adverse material impact on the Companys consolidated financial position or
results of operations. Note 9 Acquisitions Effective August 1, 2003, the Company acquired all of the outstanding
stock of Career Choices, Inc. (Career Choices). Career Choices operates ten
campuses in California, Washington, and Oregon, which grant diplomas and
degrees in the applied science, automotive technology, HVAC technology and
allied health fields. The cash purchase price was approximately $56.0 million,
subject to certain balance sheet adjustments. The Company purchased Career
Choices to expand its presence and strength in the Pacific Northwest and
expects to benefit from increased marketing power and operational leverage. The
ten schools operate under the Sequoia Institute, Ashmead College, and Eton
Technical Institute trade names. Sequoia focuses on programs in the growing automotive technology field that
will expand 9




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##### Table of Contents



Corinthians presence in the high demand technology programs.
Sequoia also introduces heating/ventilation/air conditioning (HVAC) training to
the Companys technology programs. The Ashmead and Eton schools include the
fields of massage therapy, dental and medical assisting. The acquisition is a
strategic fit to the Companys allied health program and the Company expects to
gain outstanding automotive curricula that complements the Companys WyoTech
curricula. The acquisition was accounted for using the purchase method of
accounting and Career Choices results of operations are included in the
consolidated results of operations of the Company since its
acquisition date. In April 2004, the Company changed the name of
the Eton schools to Bryman College. Effective August 6, 2003, the Company acquired substantially all of the
assets of East Coast Aero Tech, LLC (ECAT). ECAT operates one campus in
Massachusetts, which offers programs in the aviation maintenance technology
field. The cash purchase price was approximately $3.0 million, subject to
certain balance sheet adjustments. ECAT marks the Companys entry into the
growing field of aviation maintenance technology training, providing Corinthian
with an additional platform for growth and enhancement of its technology
programs. It offers accredited programs in airframe and powerplant, which
prepare students to become Federal Aviation Administration (FAA) certified
Aviation Maintenance Technicians. The acquisition was accounted for using the
purchase method of accounting and ECATs results of operations are included in
the consolidated results of operations of the Company since its acquisition
date. On August 19, 2003, the Company acquired approximately 89% of the
outstanding shares of common stock of CDI Education Corporation (CDI) through
a tender offer to acquire all of the outstanding shares of common stock. As of
October 7, 2003, the Company had acquired all shares of CDI for approximately
$42.0 million and the assumption of approximately $10 million of debt and other
liabilities. CDI is a wholly-owned subsidiary of Corinthian Colleges, Inc. The
cash purchase price was funded with available cash and borrowings from the
Companys amended credit facility. With the acquisition of the additional CMA
Careers Inc. college located in Kitchener (Ontario), Canada and the
consolidation of the Victoria satellite campus into its main campus, CDI operates 45 post-secondary colleges
offering diploma-granting programs in the allied health, business and
information technology fields. CDIs corporate education division, which has 15
training centers, serves as both an outsourced and e-learning provider focused
on skills development specialties such as leadership, innovation and business
analysis. This acquisition expands the Company into the international arena
with a significant presence in the Canadian post-secondary and corporate
education markets, adding new programs that either extend or enhance the
Companys portfolio. The acquisition was accounted for using the purchase
method of accounting and CDIs results of operations are included in the
consolidated results of operations of the Company since its acquisition date. The Company is conducting studies for Career Choices, ECAT and CDI to
determine the amount that is assignable to other intangible assets, if any,
such as curriculum, tradenames, and accreditation under SFAS No. 141. Although
the Company believes that its intangible assets are fairly stated, changes in
strategy or market conditions could significantly impact these judgments and
require adjustments to asset balances. The following table provides unaudited pro forma financial data for the
Company reflecting the completion of the acquisitions as if they had occurred
July 1, 2002. These unaudited pro forma results have been prepared for
comparative purposes only and include certain pro forma adjustments. Such pro
forma amounts are not necessarily indicative of what actual results of
operations might have been or will be in the future. Pro forma results of
operations for the prior period reflect an increase in interest expense related
to debt used to fund the acquisitions. Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,(In thousands, except per share data)(Unaudited)2003
    
    2004
    
    2003
    
    2004Net revenue
    
    $
    164,976
    
    
    $
    217,331
    
    
    $
    459,955
    
    
    $
    599,262Net income
    
    $
    18,959
    
    
    $
    21,247
    
    
    $
    47,685
    
    
    $
    60,406Earnings per share  basic
    
    $
    0.22
    
    
    $
    0.24
    
    
    $
    0.55
    
    
    $
    0.68Earnings per share  diluted
    
    $
    0.21
    
    
    $
    0.23
    
    
    $
    0.52
    
    
    $
    0.64
 10




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Note 10  Comprehensive Income (Loss) Comprehensive income (loss) is defined as the total of net income (loss)
and all changes that impact stockholders equity other than transactions
involving stockholders ownership interests. The following table details the
components of comprehensive income (loss) for the three and nine month periods
ended March 31, 2003 and 2004 (in thousands): Three Months Ended March 31
    
    Nine Months Ended March 312003
    
    2004
    
    2003
    
    2004Net income
    
    $
    18,040
    
    
    $
    21,247
    
    
    $
    47,927
    
    
    $
    62,567Foreign currency translation adjustments
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    (45
    )Comprehensive income
    
    $
    18,040
    
    
    $
    21,286
    
    
    $
    47,927
    
    
    $
    62,522
 Note 11  Commitments and Contingencies In the ordinary conduct of the business, the Company and its colleges are
subject to occasional lawsuits, investigations and claims, including, but not
limited to, claims involving students and graduates, routine employment
matters and inquiries and investigations by regulatory authorities. Although the Company cannot predict with certainty the ultimate
resolution of lawsuits, investigations and claims asserted against the Company,
the Company does not believe that any currently pending legal proceedings to
which the Company is a party will have a material adverse effect on the
Companys business, results of operations or financial condition. One of the legal actions currently pending against the Company is Aldape,
et al. v. Corinthian Schools, Inc., et al.,originally reported in the Report
on Form 10-K/A for the fiscal year ended June 30, 2002. Since the date of that
report, the Court has granted the Companys motion to compel arbitration with
respect to the claims of all individual plaintiffs who are former students of
the Companys Bryman College Campus in Los Angeles, California. Accordingly,
the plaintiffs claims will be adjudicated in binding arbitration. The Company
believes the plaintiffs claims are without merit and it intends to vigorously
defend itself against them. Another of the actions currently pending is entitled Socorra Estrada v.
Corinthian Schools, Inc., et al.,originally reported in the Report on Form
10-K/A for the fiscal year ended June 30, 2003. Plaintiff is a former student
in the Companys Bryman College campus in Whittier who enrolled in that campus
prior to its acquisition by the Company from Educorp, Inc. (Educorp) in
October 2000. Plaintiffs First Amended Complaint seeks injunctive relief
against the Company under California Business and Professions Code Section
17200 plus attorneys fees incurred in the action. Plaintiff has
also sued Educorp and two individuals affiliated with Educorp as defendants in the
matter. The Company believes the plaintiffs claims are without merit and it
intends to vigorously defend itself against them. Another action currently pending against the Company is a purported class
action complaint entitled Montoya v. Corinthian Schools, Inc., et al.,first
reported in the Companys Report on Form 10-K/A for the fiscal year ended June
30, 2003. Plaintiff, a former instructor with the Companys Bryman College
campus in El Monte, California, alleges that she and other instructors employed
by the Companys Corinthian Schools, Inc. subsidiary in the State of California
for the previous four years were improperly classified as exempt from
Californias overtime compensation laws. Plaintiff states causes of action
under California wage orders, Californias Labor Code, and Californias
Business and Professions Code. Plaintiff seeks certification as a class,
monetary damages in unspecified amounts, penalties, interest, attorneys fees,
exemplary damages, and injunctive relief. The Company believes its
classification of employees for overtime purposes has been consistent with
applicable law and that the plaintiffs claims are without merit. The Company
intends to vigorously defend itself in this matter. On
March 8, 2004, the Company was served with two virtually
identical putative class action complaints entitled Travis
v. Rhodes Colleges, Inc., Corinthian Colleges, Inc., and Florida
Metropolitan University, and Satz v. Rhodes Colleges,
Inc., Corinthian Colleges, Inc., and Florida Metropolitan
University. Additionally, on May 7, 2004, the Company was
served with another putative class action complaint entitled
Jennifer Baker et al. v. Corinthian Colleges, Inc. and
Florida Metropolitan University, Inc. The named plaintiffs in
these lawsuits are current and former students in the Companys
Florida Metropolitan University (FMU ) campuses in
Florida. The plaintiffs allege that FMU concealed the fact that it is
not accredited by the Commission on Colleges of the Southern
Association of Colleges and Schools (SACS) and that FMU
credits are not transferable to other institutions. Plaintiffs seek
certification of the lawsuits as a class action and recovery of
compensatory damages and attorneys fees under Floridas
Deceptive and Unfair Trade Practices Act for themselves and all
similarly situated people. The Company believes the complaints are
entirely without merit and will vigorously defend itself, Rhodes
Colleges, Inc., and FMU against these allegations. The Company has
filed a motion to compel arbitration in the Travis and
Satz cases, and currently anticipates doing the same in the
Baker case. Additionally, due to improper activities by
Plaintiff Satz and by his attorney, Peter Price, the Company has
filed a complaint in arbitration against Satz before the American
Arbitration Association alleging defamation and breach of contract
and has filed a lawsuit against Price captioned Corinthian
Colleges, Inc., Rhodes Colleges, Inc., and Florida Metropolitan
University, Inc., v. Peter N. Price, Orange County California
Superior Court, Case Number 04CC04336, alleging defamation, tortious
interference with contractual and economic relationships, and
tortious interference with prospective contractual and economic
relationships. 11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains statements that may constitute
forward-looking statements as defined by the U.S. Private Securities
Litigation Reform Act of 1995. Such forward-looking statements can be
identified by the use of forward-looking terminology such as believes,
estimates, anticipates, continues, contemplates, expects, may,
will, could, should or would, or the negatives thereof. Those
statements are based on the intent, belief or expectation of the Company as of
the date of this Quarterly Report. Any such forward-looking statements are not
guarantees of future performance and may involve risks and uncertainties that
are outside the control of the Company. Results may differ materially from the
forward-looking statements contained herein as a result of changes in
governmental regulations, including those governing student financial aid, the
effect of competitive pressures on the Companys tuition pricing, integration
risks associated with acquired campuses and other factors, including those
discussed under the headings entitled Governmental Regulation and Financial
Aid and Risks Related to Our Business in the Companys Annual Report on Form
10-K/A (File No. 0-25283) and other documents periodically filed with the
Securities and Exchange Commission. The Company expressly disclaims any
obligation to release publicly any updates or revisions to any forward-looking
statement contained herein to reflect any change in the Companys expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based. The following discussion of the Companys
results of operations and financial condition should be read in conjunction
with the interim unaudited condensed consolidated financial statements of the
Company and the notes thereto included herein and in conjunction with the
information contained in the Annual Report on Form 10-K/A.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts on
those financial statements. On an on-going basis, we evaluate our estimates,
including, but not limited to, those related to our allowance for doubtful
accounts, intangible assets, deferred income taxes and litigation. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates under different conditions or if our assumptions change.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our condensed
consolidated financial statements:

Revenue Recognition. We maintain a revenue recognition policy.
Revenues consist primarily of tuition and fees derived from courses
taught in our colleges, schools, and training centers. Revenue from
tuition and fees are recognized pro-rata (on a straight-line basis) over
the relevant period attended by the student of the applicable course or
program. 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 condensed consolidated balance sheets as
this amount is expected to be earned within the next twelve months.

Students attending our institutions enroll in either (i) diploma
programs, which cover a specific area of training over a discrete length
of time (averaging nine months for such programs) or (ii) courses
leading to an associates, bachelors or masters degree. Costs of
programs or

12



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##### Table of Contents



credit hours for courses are clearly identified in the Companys
enrollment agreements. At the start of each students respective
program or course of study leading to a degree, the student executes
an enrollment agreement which specifies the field of study, the expected
length of study, and the cost of the program or course. We recognize
revenue from tuition and fees pro-rata over the relevant period attended
by the student of the applicable course or program of study. If a student
withdraws from an institution, we cease the recognition of revenue and
the paid but unearned portion of the student tuition is refunded.
Additionally, to ensure the delivery of education has occurred, either
attendance is taken or academic events are conducted at appropriate
intervals to ensure that the student is completing his or her respective
field of study within the acceptable time period. Marketing and Advertising Expense. We maintain an advertising
expense recognition policy. Marketing and advertising costs are
generally expensed as incurred. We have significant marketing and
advertising expenses consisting primarily of payroll and payroll related
expenses, direct-response and other advertising, promotional materials
and other related marketing costs. Allowance for Doubtful Accounts. We maintain an allowance for
doubtful accounts for estimated losses resulting from the inability,
failure or refusal of our students to make required payments. We
determine the adequacy of this allowance by regularly reviewing the
accounts receivable aging and applying various expected loss percentages
to certain student accounts receivable categories based upon historical
bad debt experience. We generally write-off accounts receivable balances
deemed uncollectible as they are sent to collection agencies. We offer a
variety of payment plans to help students pay that portion of their
education expense not covered by financial aid programs. These balances
are unsecured and not guaranteed. We believe our reserves are adequate;
however, losses related to unpaid student balances could exceed the
amounts we have reserved for bad debts. Many of our students in the United States participate in federally
guaranteed student loan programs. The federally guaranteed student loans
are authorized by the Higher Education Act (HEA) of 1965 and are
guaranteed by an agency of the federal government, not us. The guaranteed
loans are neither guaranteed by us, nor can the student guaranteed loans
become an obligation of ours. Accordingly, we do not record an obligation
to repay any of the guaranteed loans that are not repaid by our former
students and we do not record either a contingent obligation or an
allowance for future obligations as a result of student defaults of
federally guaranteed student loans. The guarantee of these student loans is provided by an agency of the
federal government, not by us. If an institutions former students
default rate on guaranteed loans (Cohort Default Rate) equals or exceeds
25% for three consecutive years, the institution may lose participation
eligibility in the guaranteed loan program and its students would be
denied access to the guaranteed loan program. Our institutions Cohort
Default Rates act as a gatekeeper to the institutions eligibility to
participate in the federal student financial aid programs. We have no
obligation to repay any of the federally guaranteed loans that our former
students default upon, even if the Cohort Default Rates of our students
exceed permitted levels. Rather, if the Cohort Default Rates at a
particular institution exceed 25% for three consecutive years, the
institutions students may lose eligibility to receive federal student
financial aid. Intangible Assets. We have significant intangible assets, including
goodwill. The determination of related estimated useful lives and whether
or not these assets are impaired involves significant judgments. We have
adopted Statement of Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other Intangible Assets and do not amortize goodwill. We
assign values to other intangible assets, such as curriculum, trade names
and accreditation. The Company is conducting studies to determine the
amount that is assignable to other intangible assets, if any, such as
curriculum, tradenames, and accreditation for our recent acquisitions.
Although we believe our intangible assets are fairly stated, changes in
strategy or market conditions could significantly impact the reported
values of intangible assets which could result in future reductions to
earnings and require adjustments to asset balances. 13




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Deferred Taxes.We currently have deferred income tax assets, which
are subject to periodic recoverability assessments. Realization of our
deferred income tax assets is principally dependent upon achievement of
projected future taxable income reduced by deferred income tax
liabilities. We evaluate the realizability of our deferred tax assets
periodically. Stock-based Compensation. We account for stock-based compensation
using the intrinsic value method of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and have adopted the disclosure-only
provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
related to options issued to employees and SFAS No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure. No stock-based
employee compensation cost is reflected in net income. All stock options,
stock appreciation rights or other common stock based securities granted
are accounted for under fixed accounting and have an exercise price equal
to the market value of the underlying common stock on the date of grant. Foreign Currency Translation.The financial position and results of
operations of the Companys Canadian subsidiary are measured using the
local currency as the functional currency. Assets and liabilities of the
Canadian subsidiary are translated to U.S. dollars using exchange rates
in effect at the balance sheet dates. Income and expense items are
translated at monthly average rates of exchange. The resultant
translation adjustments are included as a component of Stockholders
Equity designated as Accumulated other comprehensive income (loss).
Exchange gains and losses arising from transactions denominated in a
currency other than the functional currency are immediately included in
earnings. Results of Operations Comparisons of results of operations between the first nine months of
fiscal 2004 and the first nine months of fiscal 2003 are affected by the
acquisitions of Learning Tree University (LTU) and its two training centers
on January 1, 2003, Career Choices, Inc. (Career Choices) and its ten
campuses on August 1, 2003, East Coast Aero Tech (ECAT) and its campus on
August 6, 2003, and CDI Education, Inc. (CDI) and its 45 colleges and 15
training centers on August 19, 2003, as well as the opening of nine branch
campuses since the end of the third quarter of fiscal 2003. As of March 31,
2004, the Company operated 132 campuses and 15 training centers, excluding the
anticipated closure of two LTU training centers and one CDI satellite
campus consolidation, compared to 67
campuses and two training centers at March 31, 2003. The following table
summarizes our operating results as a percentage of net revenue for the periods
indicated: Three Months Ended
    
    Nine MonthsEndedMarch 31,
    
    March 31,2003
    
    2004
    
    2003
    
    2004Statement of Operations Data (Unaudited):Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Educational services
    
    
    47.0
    
    
    
    50.7
    
    
    
    48.1
    
    
    
    50.9General and
administrative
    
    
    9.7
    
    
    
    8.9
    
    
    
    10.0
    
    
    
    8.7Marketing and advertising
    
    
    21.1
    
    
    
    22.5
    
    
    
    20.7
    
    
    
    22.0Impairment charge
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    0.5Total operating expenses
    
    
    77.8
    
    
    
    83.6
    
    
    
    78.8
    
    
    
    82.1Income from operations
    
    
    22.2
    
    
    
    16.4
    
    
    
    21.2
    
    
    
    17.9Interest (income)
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    (0.2
    )Interest expense
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.4Other (income) expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Minority interest in income (loss)
of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before provision for income taxes
    
    
    22.2
    
    
    
    16.2
    
    
    
    21.2
    
    
    
    17.8Provision for income taxes
    
    
    8.9
    
    
    
    6.4
    
    
    
    8.5
    
    
    
    7.1Net income
    
    
    13.3
    %
    
    
    9.8
    %
    
    
    12.7
    %
    
    
    10.7
    %
 14




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##### Table of Contents



Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003 Net Revenues.Net revenues increased $81.8 million, or 60.3%, from $135.5
million in the third quarter of fiscal 2003 to $217.3 million in the third
quarter of fiscal 2004, due primarily to a 52.7% increase in total student
population and a 3.2% increase in the average tuition rate per student. At
March 31, 2004, student population was 66,239 compared with 43,387 at March 31,
2003. Revenues in same schools increased 26.0% for the third quarter of fiscal
2004 and reflects a 16.6% increase in same school student population and a 7.3%
increase in the average tuition rate per student in same schools. The Company
defines same schools as those colleges, schools, and training centers that have
been owned and operated by the Company for four full quarters. Core growth in
revenues increased 31.0% in our third quarter of fiscal 2004. The Company
defines core growth in revenues as the increase in revenues, including revenues
from branches opened during the last four full quarters, but excluding revenues
attributable to colleges, schools, and training centers acquired within the
last four full quarters. Same school student starts increased 21.8% when
compared to third quarter of fiscal 2003. Net revenues also increased as a
result of opening nine new branch campuses and acquiring 56 campuses and 15
training centers since March 31, 2003. Educational Services.Educational services expenses include direct
operating expenses of the schools consisting primarily of payroll and payroll
related expenses, occupancy and supplies expenses, bad debt expense and other
educational related expenses. As a percentage of net revenues, educational
services expenses increased from 47.0% of revenues in the third quarter of
fiscal 2003 to 50.7% of revenues for the third quarter of fiscal 2004. The
increase, as a percent of revenues, was due primarily to higher educational
services expenses in our recently acquired campuses. Educational services
expenses increased $46.7 million, or 73.3%, from $63.7 million in the third
quarter of fiscal 2003 to $110.3 million in the third quarter of fiscal 2004.
The increase in educational services expenses was due primarily to additional
instructional wages, consumables and occupancy expenses relating to the 56
acquired campuses, 15 acquired training centers and nine new branch campuses
opened since March 31, 2003. Bad debt expense for the third quarter of fiscal
2004 amounted to $7.7 million and decreased to 3.5% of revenues, compared to
$5.1 million or 3.7% of revenues for the third quarter of fiscal 2003.
Additionally, during the third quarter, 26 new programs were adopted into
existing schools, including 14 program adoptions into our campuses in the
United States and 12 program adoptions into our campuses in Canada. General and Administrative.General and administrative expenses include
performance bonuses and corporate payroll related expenses, headquarters office
occupancy expenses, professional fees and other support related expenses. As a
percentage of net revenues, general and administrative expenses decreased from
9.7% of revenues in the third quarter of fiscal 2003 to 8.9% of revenues for
the third quarter of fiscal 2004. General and administrative expenses
increased $6.2 million, or 47.6%, from $13.1 million in the third quarter of
fiscal 2003 to $19.3 million in the third quarter of fiscal 2004. The increase
was primarily due to additional headquarters staff required to support the
60.3% increase in revenues, 52.7% increase in student population and to support
the 56 acquired campuses, 15 acquired training centers and nine new branch
campus openings since March 31, 2003. Marketing and Advertising.Marketing and advertising expenses consist
primarily of payroll and payroll related expenses, direct-response and other
advertising expenses, promotional materials and other related marketing costs.
As a percentage of net revenues, marketing and advertising expenses increased
from 21.1% of revenues in the third quarter of fiscal 2003 to 22.5% of revenues
for the third quarter of fiscal 2004. Marketing and advertising expenses
increased $20.3 million, or 70.9%, from $28.6 million in the third quarter of
fiscal 2003 to $48.9 million in the third quarter of fiscal 2004. The increase
resulted in a 67.6% increase in total student starts and a 21.8% increase in
same school starts during the third quarter of fiscal 2004. The increase was
due to additional staffing and increased volume of advertising required to
support the 56 acquired campuses, 15 acquired training centers and nine new
branch campus openings since March 31, 2003. Impairment Charge.As a result of the decision to close two LTU
campuses, the Company reviewed the long-lived assets and goodwill of LTU for
possible impairment in accordance with SFAS 142 and SFAS 144. Based on the
results of the review, the Company has recognized a non-cash impairment loss
and related charge of $3.2 million (pre-tax) in the quarter ended March 31,
2004. The charge 15




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included $2.8 million of intangible asset impairment and $389,000 of fixed asset
write-offs. The fair value of the goodwill was based on the Companys estimate
of discounted future cash flows. Income from Operations.Income from operations increased 17.9% from $30.1
million in the third quarter of fiscal 2003 to $35.6 million in the third
quarter of fiscal 2004. As a percentage of net revenues, income from
operations decreased from 22.2% of revenues in the third quarter of fiscal 2003
to 16.4% of revenues for the third quarter of fiscal 2004. The decrease in
income from operations, as a percent of revenues, relates primarily to the $3.2
million charge (pre-tax) for the expected closure of two campuses at LTU and the lower
operating margins reported for acquisitions completed in August 2003. Interest (Income) Expense, net.Interest expense (net of interest income
of $0.4 million) amounted to $0.5 million in the third quarter of fiscal 2004.
In the same period of the prior year, interest income amounted to $0.3 million
and interest expense amounted to $0.3 million. The increase in net interest
expense from the prior year is primarily due to an increase in interest expense
related to capital lease obligations and debt incurred to acquire Career
Choices, ECAT and CDI in August 2003. Provision for Income Taxes. The effective income tax rate was 39.6% of
income before taxes in third quarter of fiscal 2004 compared to 40.2% in the
third quarter of fiscal 2003. Net Income. Net income increased $3.2 million from $18.0 million in the
third quarter of fiscal 2003 to $21.2 million in the third quarter of fiscal
2004. As a percentage of net revenues, net income decreased from 13.3% of
revenues in the third quarter of fiscal 2003 to 9.8% of revenues for the third
quarter of fiscal 2004. Income per Share. Diluted earnings per common share for the third quarter
of fiscal 2004 increased 15.0% to $0.23 per diluted common share and reflects
the LTU impairment charge of approximately $0.02 per diluted share compared to
$0.20 per diluted common share for the third quarter of fiscal 2003. On
February 18, 2004, the Company authorized a two-for-one stock split of its
common stock effected in the form of a stock dividend. The additional shares
were distributed on March 23, 2004 to shareholders of record on March 4, 2004.
All share and per share information have been retroactively restated to reflect
the stock split. Nine Months Ended March 31, 2004 Compared to Nine Months Ended March 31, 2003 Net Revenues.Net revenues increased $208.8 million, or 55.2%, from
$378.4 million in the first nine months of fiscal 2003 to $587.1 million in the
first nine months of fiscal 2004, due primarily to a 52.7% increase in total
student population, a 16.6% increase in same school population and a 4.1%
increase in the average tuition rate per student. At March 31, 2004, student
population was 66,239, compared with 43,387 at March 31, 2003. Same school
student starts increased 18.0% as of March 31, 2004 when compared to the first
nine months of fiscal 2003. Net revenues also increased as a result of opening
nine new branch campuses and acquiring 56 campuses and 15 training centers since
March 31, 2003. Educational Services.Educational services expenses include direct
operating expenses of the schools consisting primarily of payroll and payroll
related expenses, occupancy and supplies expenses, bad debt expense and other
educational related expenses. As a percentage of net revenues, educational
services expenses increased from 48.1% of revenues in the first nine months of
fiscal 2003 to 50.9% of revenues for the first nine months of fiscal 2004.
Educational services expenses increased $117.0 million, or 64.4%, from $181.8
million in the first nine months of fiscal 2003 to $298.9 million in the first
nine months of fiscal 2004. The increase in educational services expenses was
due primarily to the additional staffing, depreciation and amortization, and
occupancy expenses required to support the 52.7% increase in student population
relating to the 56 acquired campuses, 15 acquired training centers and nine new
branch campuses opened since March 31, 2003. Bad debt expense for the first
nine months of fiscal 2004 amounted to $21.6 million and decreased to 3.7% of
revenues, compared to $15.1 million or 4.0% of revenues for the first nine
months of fiscal 2003. Additionally, during the first nine months of fiscal
2004, 101 new programs were adopted into existing schools, including 43 program
adoptions into our campuses in the United States and 58 program adoptions into
our campuses in Canada. General and Administrative.General and administrative expenses include
performance bonuses and corporate payroll related expenses, headquarters office
occupancy expenses, professional fees and 16




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other
support related expenses. As a percentage of net revenues, general and
administrative expenses decreased from 10.0% of revenues in the first nine
months of fiscal 2003 to 8.7% of revenues for the first nine months of fiscal
2004. General and administrative expenses increased $13.0 million, or 34.4%,
from $37.9 million in the first nine months of fiscal 2003 to $50.9 million in
the first nine months of fiscal 2004. The increase was primarily due to
additional headquarters staff required to support the 55.2% increase in
revenues, 52.7% increase in student population and to support the 56 acquired
campuses, 15 acquired training centers and nine new branch campus openings
since March 31, 2003. Marketing and Advertising.Marketing and advertising expenses consist
primarily of payroll and payroll related expenses, direct-response and other
advertising expenses, promotional materials and other related marketing costs.
As a percentage of net revenues, marketing and advertising expenses increased
from 20.7% of revenues in the first nine months of fiscal 2003 to 22.0% of
revenues for the first nine months of fiscal 2004. Marketing and advertising
expenses increased $50.6 million, or 64.6%, from $78.3 million in the first
nine months of fiscal 2003 to $128.9 million in the first nine months of fiscal
2004. The increase resulted in a 56.9% increase in total student starts and
18.0% increase in same school starts during the first nine months of fiscal
2004. The increase was due to additional staffing and increased volume of
advertising required to support the 56 acquired campuses, 15 acquired training
centers and nine new branch campus openings since March 31, 2003. Impairment Charge.As a result of the decision to close two LTU campuses,
the Company reviewed the long-lived assets and goodwill of LTU for possible
impairment in accordance with SFAS 142 and SFAS 144. Based on the results of
the review, the Company has recognized a non-cash impairment loss and related
charge of $3.2 million (pre-tax) in the quarter ended March 31, 2004. The
charge included $2.8 million of intangible asset impairment and $389,000 of
fixed asset write-offs. The fair value of the goodwill was based on the
Companys estimate of discounted future cash flows. Income from Operations.Income from operations increased 31.1% from $80.3
million in the first nine months of fiscal 2003 to $105.3 million in the first
nine months of fiscal 2004. As a percentage of net revenues, income from
operations decreased from 21.2% of revenues in the first nine months of fiscal
2003 to 17.9% of revenues in the first nine months of fiscal 2004. The
decrease in income from operations, as a percent of revenues, relates primarily
to the $3.2 million charge (pre-tax) for the expected closure of two campuses at LTU and the
lower operating margins reported for acquisitions completed in August 2003. Interest (Income) Expense, net.Interest expense (net of interest income
of $1.0 million) amounted to $1.2 million in the first nine months of fiscal
2004. In the same period of the prior year, interest expense (net of interest
income of $0.9 million) amounted to $0.2 million. The increase in net interest
expense from the prior year is primarily due to an increase in interest expense
related to capital lease obligations and debt incurred to acquire Career
Choices, ECAT and CDI in August 2003. Minority Interest. The minority interest in income (loss) of subsidiary
of $43,000 represents the minority stockholders share of the loss of our
subsidiary, CDI until October 7, 2003 when we acquired all of the remaining
outstanding shares of common stock. Provision for Income Taxes. The effective income tax rate was 40.0% of
income before taxes in the first nine months of fiscal 2004 compared with 40.2%
in the first nine months of fiscal 2003. Net Income. Net income increased $14.6 million from $47.9 million in the
first nine months of fiscal 2003 to $62.6 million in the first nine months of
fiscal 2004. As a percentage of net revenues, net income decreased from 12.7%
of revenues in the first nine months of fiscal 2003 to 10.7% of revenues for
the first nine months of fiscal 2004. Income per Share. Diluted earnings per common share for the first nine
months of fiscal 2004 increased 28.9% to $0.67 per diluted common share and
reflects the LTU impairment charge of approximately $0.02 per diluted share
compared to $0.52 per diluted common share for the first nine months of fiscal
2003. On February 18, 2004, the Company authorized a two-for-one stock split
of its common stock effected in the form of a stock dividend. The additional
shares were distributed on March 23, 2004 to shareholders of record on March 4,
2004. All share and per share information have been retroactively restated to
reflect the stock split. 17




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Seasonality and Other Factors Affecting Quarterly Results Our net revenues normally fluctuate as a result of seasonal variations in
our business. Student population varies as a result of new student enrollments
and student attrition. Historically, our colleges, schools, and training
centers 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 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 branch
openings, new program adoptions and increased high school enrollments. The
operating results for any quarter are not necessarily indicative of the results
for any future period. Liquidity and Capital Resources On August 15, 2003, we amended our credit facility, and increased it to
$235 million, of which $185 million is a domestic facility and $50 million is a
Canadian facility. The Amended Credit Agreement expires August 31, 2006. The
Amended Credit Agreement has been established to provide available funds for
acquisitions, to fund general corporate purposes, and to provide for letters of
credit issuances of up to $25 million for domestic letters of credit and $10
million for Canadian letters of credit. Borrowings under the agreement bear
interest at several pricing alternatives available to the Company, including
Eurodollar and adjusted reference or base rates. The base rate is defined as
the higher of the Federal Funds rate plus 1/2 of 1% or the Bank of America
prime rate, plus a margin of 0% to 0.25% depending on the Companys
consolidated leverage ratio as defined in the agreement. The Agreement contains
customary affirmative and negative covenants including financial covenants
requiring the maintenance of consolidated net worth, fixed charge coverage
ratios, leverage ratios, Department of Education (DOE) financial
responsibility composite score ratio, and limitations on long-term student
notes receivable. As of March 31, 2004, we were in compliance with all of the
covenants. As of March 31, 2004, there were borrowings outstanding of $46.0
million and approximately $14.7 million to support performance bonds and
standby letters of credit under the credit facility. The Amended Credit
Agreement is secured by the stock of our significant operating subsidiaries and
it is guaranteed by our present and future significant operating subsidiaries. Working capital amounted to $42.5 million as of March 31, 2004 and $42.0
million as of June 30, 2003 and the current ratios were 1.4:1 and 1.6:1,
respectively. During the first quarter of fiscal 2004, we completed the
acquisitions of East Coast Aero Tech, Career Choices, and CDI. The combined
cash purchase price of the three acquisitions was approximately $101.4 million,
net of cash acquired, and was funded with cash on hand and borrowings of
approximately $50 million from the credit facility. During the first quarter
of fiscal 2003, we acquired Wyo-Tech for approximately $84.4 million and funded
the acquisition by using approximately $41.4 million in cash and borrowing
$43.0 million from the credit facility. Cash flows provided by operating activities amounted to $85.4 million in
the first nine months of fiscal 2004 compared to $68.3 million provided by
operating activities in the same period of fiscal 2003. The increase in cash
provided by operating activities for the first nine months of fiscal 2004
compared to the first nine months of fiscal 2003 was due to the increases in
earnings and depreciation and amortization. Cash flows used in investing activities amounted to $144.0 million in the
first nine months of fiscal 2004 compared to cash flows used in investing
activities of $86.2 million in the first nine months of fiscal 2003. The
increase in cash used in investing activities was primarily due to the
acquisition of ECAT, Career Choices, and CDI for approximately $101.4 million,
net of cash acquired in the acquisitions compared to acquisitions of $83.8
million in fiscal 2003, partially offset by sales of marketable securities, net of
$3.9 million in the first nine months of fiscal 2004 compared to
sales of marketable
securities, net of $17.9 million for the same period of fiscal 2003. Capital
expenditures, net of disposals, increased to approximately $46.5 million in the
first nine months of fiscal 2004 compared to $20.5 million in the same period
in fiscal 2003. Capital expenditures in fiscal 2004 were incurred, primarily,
for relocations, remodels and enlargements of existing campuses, to construct
new branch campuses, as well as to fund information systems expenditures. We
expect capital expenditures to be approximately $65.0 million for fiscal 2004. 18




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Cash flows provided by financing activities for the first nine months of
fiscal 2004 amounted to approximately $81.7 million compared to $13.1 million
for the first nine months of fiscal 2003. The increase in cash provided by
financing activities in the first nine months of fiscal 2004 when compared to
fiscal 2003 was due primarily to a decrease in principal payments on long-term
debt and capital lease obligations of approximately $49.9 million and increased
proceeds of approximately $25.7 million from stock option exercises, including
tax benefit, and employee stock purchases under the employee stock purchase
plan. Off-balance sheet arrangements As of March 31, 2004, future minimum cash payments due under contractual
obligations, including our credit agreement, mortgages, and non-cancelable operating and
capital lease agreements, are as follows: Payments due by period (in thousands)Contractual Obligations
    
    Total
    
    0-3 years
    
    4-5 years
    
    More than 5 yearsLong Term Debt
    
    $
    48,742
    
    
    $
    47,692
    
    
    $
    1,050
    
    
    $
    Capital Lease Obligations
    
    
    30,152
    
    
    
    5,390
    
    
    
    3,167
    
    
    
    21,595Operating Lease Obligations
    
    
    376,466
    
    
    
    151,279
    
    
    
    88,822
    
    
    
    136,365Total
    
    $
    455,360
    
    
    $
    204,361
    
    
    $
    93,039
    
    
    $
    157,960
 The United States DOE requires that Title IV Program funds collected in
advance of student billings be kept in a separate cash or cash equivalent
account until the students are billed for the program portion related to those
funds. In addition, all Title IV Program funds received by our schools through
electronic funds transfer are subject to certain holding period restrictions.
These funds are also deposited into a separate account until the restrictions
are satisfied. The restrictions on any cash held have not significantly
affected our ability to fund daily operations. 
 Item 3. Quantitative and Qualitative Disclosure about Market Risk We are exposed to the impact of interest rate changes and foreign currency
fluctuations. We do not utilize interest rate swaps, forward or option
contracts on foreign currencies or commodities, or other types of derivative
financial instruments to manage these risks. As of March 31, 2004, our only
assets or liabilities subject to risks from interest rate changes are (i)
mortgage debt and debt under the credit facility in the aggregate amount of
$47.7 million and capital lease obligations of $13.4 million, and (ii) student
notes receivable, net, in the aggregate amount of $3.5 million. Our mortgage
debt, capital lease obligations and student notes receivable 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. A portion of
the Companys operations consists of its investment in a foreign subsidiary.
As a result, the consolidated financial results have been and could continue to
be affected by changes in foreign currency exchange rates. 
 Item 4. Controls and Procedures The Company maintains certain disclosure controls and procedures designed
to ensure that the information required to be disclosed by the Company in its
periodic reports filed with the SEC is recorded, processed, summarized and
reported within the time periods specified by the SECs rules and forms, and
that the information is communicated to the Companys management, including its
Chief Executive Officer and Chief Financial Officer, on a timely basis to
permit decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, the Companys management recognizes that
any controls and procedures, no matter how well designed and implemented, can
provide only reasonable assurance of achieving the desired control objectives,
and managements duties require it to make its best judgment regarding the
design of such controls and procedures. 19




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The Company and its management, including the Chief Executive Officer and
Chief Financial Officer, evaluate the effectiveness of the design and
implementation of the Companys disclosure controls and procedures on an
ongoing basis. Based on these evaluations, the Companys Chief Executive
Officer and Chief Financial Officer have concluded that the Companys
disclosure controls and procedures were effective as of March 31, 2004. There has been no change in the Companys internal controls over financial
reporting during the Companys most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting. 
 PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings See Note 11 to the attached Financial Statements regarding Commitments and
Contingencies. 
 Item 2. Changes in Securities and Use of Proceeds None 
 Item 3. Defaults Upon Senior Securities None 
 Item 4. Submission of Matters to a Vote of Security Holders None 
 Item 5. Other Information On January 8, 2004, the Company announced plans to open a new Bryman
Institute branch campus in Minneapolis/St. Paul, Minnesota during the fourth
quarter of fiscal 2004. The new Bryman Institute campus will offer diploma
programs in medical assisting, medical insurance billing/coding, and massage
therapy. On January 16, 2004, the Company announced plans to open a new National
Institute of Technology (NIT) branch campus in Houston, Texas during the
fourth quarter of fiscal 2004. The new NIT campus will be the fourth campus in
Houston and will offer diploma programs in medical assisting, medical insurance
billing/coding and pharmacy technician. On January 27, 2004, the Company announced the opening of a new Wyo-Tech
branch campus in Sacramento, California. The new Wyo-Tech campus will offer a
diploma program in Chassis Fabrication and High Performance Engines with
Automotive Technology, and an Associate in Specialized Technology Degree in
Automotive Technology and Management. On February 19, 2004, the Company announced plans to open a new Bryman
Institute branch campus in Columbus, Ohio during the first fiscal quarter of
fiscal 2005. The new Bryman Institute campus will offer diploma programs in
medical assisting, massage therapy and pharmacy technician. On March 3, 2004, the Company announced the opening of a Florida
Metropolitan University (FMU) branch campus near Jacksonville, Florida. The
new FMU Jacksonville campus will offer accredited Associate in Science degrees
in business administration, criminal justice and medical assisting; a Bachelor
of Science degree in criminal justice; and a Bachelor of Business
Administration degree. On March 18, 2004, the Company announced the opening of a Sequoia
Institute-Sierra branch campus in Oakland, California. The new Sequoia Oakland
campus will offer programs in aviation maintenance. 20




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On March 30, 2004, the Company announced the opening of a new Bryman
Institute branch campus near Boston, Massachusetts. The new Bryman Boston
campus will offer diploma programs in medical assisting, massage therapy, and
pharmacy technician. On April 14, 2004, the Company announced the name change of the four Eton
Technical Institutes located in the Pacific Northwest to Bryman College. On April 28, 2004, the Company announced that Anthony Digiovanni,
president and chief operating officer, has elected to leave the company. David
G. Moore, Corinthians chairman and chief executive officer, will assume the
duties of the office of the president. 
 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 31.1
    
    Chief Executive Officer Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2
    
    Chief Financial Officer Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 (b) Reports on Form 8-K: On January 28, 2004, the Company filed a Report on Form 8-K, as required
by Item 12 Disclosure of Results of Operations and Financial Condition of
such form, in which it announced that the Company had issued a press release
announcing financial results for its second quarter ended December 31, 2003 of
its current fiscal year ending June 30, 2004. The press release was included
as an exhibit to the Report on Form 8-K. On March 2, 2004, the Company filed a Report on Form 8-K, as required by
Item 9 Regulation FD Disclosure of such form, in which it announced that the
Company had received a copy of a punitive class action complaint entitled
Adrienne L. Travis v. Rhodes Colleges, Inc., Corinthian Colleges, Inc., and
Florida Metropolitan University, filed in the Circuit Court of the Thirteenth
Judicial Circuit of the State of Florida. On April 20, 2004, the Company filed a Report on Form 8-K, as required by
Item 5 Other Events and Required FD Disclosure of such form, in which it
announced its plans to streamline its LTU division by closing two LTU
continuing education centers. On April 28, 2004, the Company filed a Report on Form 8-K, as required by
Item 12 Disclosure of Results of Operations and Financial Condition of such
form, in which it announced that the Company had issued a press release
announcing financial results for its third quarter ended March 31, 2004 of its
current fiscal year ending June 30, 2004. The press release was included as an
exhibit to the Report on Form 8-K. 21




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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized. CORINTHIAN COLLEGES, INC.May 12, 2004
    
    /s/ DAVID G. MOOREDavid G. MooreChairman of the Board,Chief Executive Officer, and President(Principal Executive Officer)May 12, 2004
    
    /s/ DENNIS N. BEALDennis N. BealExecutive Vice President andChief Financial Officer(Principal Financial and Accounting Officer)
 22




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EXHIBIT INDEX Exhibits:
    
    DescriptionExhibit 31.1
    
    Chief Executive Officer Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2
    
    Chief Financial Officer Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002