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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 DECEMBER 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 0-25283



CORINTHIAN COLLEGES, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0717312                          
|(State or other jurisdiction of Incorporation or organization) |  | (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.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act.)     Yes  x    No ̈



At January 27, 2005, there were 90,742,927
shares of Common Stock of the Registrant outstanding.



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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES



INDEX TO FORM 10-Q

For the Second Quarter Ended December 31, 2004



|                               |  |                                                                                                                           |  |         
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------- |  | --------
|                               |  |                                                                                                                           |  | Page No.
|PART I - FINANCIAL INFORMATION |  |                                                                                                                          
|                               |  |                                                                                                                          
|Item 1.                        |  | Financial Statements                                                                                                      |  |         
|                               |  |                                                                                                                          
|                               |  | Condensed Consolidated Balance Sheets at June 30, 2004 and December 31, 2004 (Unaudited)                                  |  | 3       
|                               |  |                                                                                                                          
|                               |  | Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2003 and 2004 (Unaudited) |  | 4       
|                               |  |                                                                                                                          
|                               |  | Condensed Consolidated Statements of Cash Flows for the six months endedDecember 31, 2003 and 2004 (Unaudited)            |  | 5       
|                               |  |                                                                                                                          
|                               |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                            |  | 6       
|                               |  |                                                                                                                          
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results ofOperations                                      |  | 13      
|                               |  |                                                                                                                          
|Item 3.                        |  | Quantitative and Qualitative Disclosure About Market Risk                                                                 |  | 22      
|                               |  |                                                                                                                          
|Item 4.                        |  | Controls and Procedures                                                                                                   |  | 22      
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                                                          
|                               |  |                                                                                                                          
|Item 1.                        |  | Legal Proceedings                                                                                                         |  | 22      
|                               |  |                                                                                                                          
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                               |  | 22      
|                               |  |                                                                                                                          
|Item 3.                        |  | Defaults upon Senior Securities.                                                                                          |  | 22      
|                               |  |                                                                                                                          
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                                       |  | 23      
|                               |  |                                                                                                                          
|Item 5.                        |  | Other Information                                                                                                         |  | 23      
|                               |  |                                                                                                                          
|Item 6.                        |  | Exhibits                                                                                                                  |  | 23      
|                               | 
|SIGNATURES                     |  | 24                                                                                                                       



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                     |  |                |         |                   |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | ------- | -
|                                                                                                                                                                     |  | June 30, 2004  |         | December 31, 2004 |  
|                                                                                                                                                                     |  |                |         | (Unaudited)       |  
|                                                                                                                                                                     |  | (In thousands) |        
|ASSETS                                                                                                                                                               |  |                |         |                   |   |         |  
|CURRENT ASSETS:                                                                                                                                                      |  |                |         |                   |   |         |  
|Cash and cash equivalents                                                                                                                                            |  | $              | 46,699  |                   | $ | 30,855  |  
|Restricted cash                                                                                                                                                      |  |                | 10      |                   |   | 10      |  
|Short-term investments                                                                                                                                               |  |                |        |                   |   | 41,800  |  
|Accounts receivable, net of allowance for doubtful accounts of $19,308 and $22,544 atJune 30, 2004 and December 31, 2004,
respectively                               |  |                | 66,232  |                   |   | 73,345  |  
|Student notes receivable, net of allowance for doubtful accounts of $769 and $830 at June 30, 2004 and December 31, 2004,
respectively                               |  |                | 1,853   |                   |   | 2,167   |  
|Deferred income taxes                                                                                                                                                |  |                | 14,874  |                   |   | 14,874  |  
|Prepaid expenses and other current assets                                                                                                                            |  |                | 34,671  |                   |   | 34,078  |  
|                                                                                                                                                                     |  |                |         |                   |   |         |  
|Total current assets                                                                                                                                                 |  |                | 164,339 |                   |   | 197,129 |  
|PROPERTY AND EQUIPMENT, net                                                                                                                                          |  |                | 130,965 |                   |   | 153,268 |  
|OTHER ASSETS:                                                                                                                                                        |  |                |         |                   |   |         |  
|Goodwill, net                                                                                                                                                        |  |                | 197,547 |                   |   | 207,120 |  
|Other intangibles, net                                                                                                                                               |  |                | 52,761  |                   |   | 55,171  |  
|Student notes receivable, net of allowance for doubtful accounts of $742 and $1,178 at June 30, 2004 and December 31, 2004,
respectively                             |  |                | 1,934   |                   |   | 2,724   |  
|Deposits and other assets                                                                                                                                            |  |                | 5,447   |                   |   | 6,438   |  
|                                                                                                                                                                     |  |                |         |                   |   |         |  
|TOTAL ASSETS                                                                                                                                                         |  | $              | 552,993 |                   | $ | 621,850 |  
|                                                                                                                                                                     |  |                |         |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                 |  |                |         |                   |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                 |  |                |         |                   |   |         |  
|Accounts payable                                                                                                                                                     |  | $              | 22,830  |                   | $ | 28,029  |  
|Accrued compensation and related liabilities                                                                                                                         |  |                | 28,462  |                   |   | 37,178  |  
|Accrued expenses                                                                                                                                                     |  |                | 12,579  |                   |   | 18,550  |  
|Prepaid tuition                                                                                                                                                      |  |                | 37,614  |                   |   | 43,840  |  
|Current portion of capital lease obligations                                                                                                                         |  |                | 614     |                   |   | 244     |  
|Current portion of long-term debt                                                                                                                                    |  |                | 146     |                   |   | 153     |  
|                                                                                                                                                                     |  |                |         |                   |   |         |  
|Total current liabilities                                                                                                                                            |  |                | 102,245 |                   |   | 127,994 |  
|LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current portion                                                                                                          |  |                | 12,406  |                   |   | 12,313  |  
|LONG-TERM DEBT, net of current portion                                                                                                                               |  |                | 46,366  |                   |   | 47,281  |  
|DEFERRED INCOME TAXES                                                                                                                                                |  |                | 27,150  |                   |   | 27,150  |  
|OTHER LIABILITIES                                                                                                                                                    |  |                | 6,871   |                   |   | 6,323   |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                        |  |                |        |                   |   |        |  
|STOCKHOLDERS EQUITY:                                                                                                                                                |  |                |         |                   |   |         |  
|Common Stock, $0.0001 par value:                                                                                                                                     |  |                |         |                   |   |         |  
|Common Stock, 120,000 shares authorized and 90,305 shares and 90,611 shares issued and outstanding at June 30, 2004 and December 31, 2004,
respectively respectively |  |                | 9       |                   |   | 9       |  
|Additional paid-in capital                                                                                                                                           |  |                | 126,339 |                   |   | 132,658 |  
|Deferred compensation                                                                                                                                                |  |                |        |                   |   | (2,444  | )
|Retained earnings                                                                                                                                                    |  |                | 231,603 |                   |   | 270,532 |  
|Accumulated other comprehensive income (loss)                                                                                                                        |  |                | 4       |                   |   | 34      |  
|                                                                                                                                                                     |  |                |         |                   |   |         |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                           |  |                | 357,955 |                   |   | 400,789 |  
|                                                                                                                                                                     |  |                |         |                   |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                           |  | $              | 552,993 |                   | $ | 621,850 |  
|                                                                                                                                                                     |  |                |         |                   |   |         |  



The accompanying notes
are an integral part of these condensed consolidated financial statements.



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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                      |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------------------- |  | ------------------------------------------------- | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                      |  | Three Months Ended December 31,                   |         |   | Six Months Ended December 31, |  
|                                                      |  | 2003                                              |         |   | 2004                          |   |         | 2003 |  |   | 2004    |  
|                                                      |  | (In thousands, except per share data) (Unaudited) |        
|NET REVENUES                                          |  | $                                                 | 200,648 |   |                               | $ | 248,141 |      |  | $ | 369,811 |   |  | $ | 477,837 |  
|OPERATING EXPENSES:                                   |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Educational services                                  |  |                                                   | 103,594 |   |                               |   | 133,158 |      |  |   | 188,516 |   |  |   | 256,736 |  
|General and administrative                            |  |                                                   | 16,936  |   |                               |   | 23,018  |      |  |   | 31,610  |   |  |   | 42,842  |  
|Marketing and advertising                             |  |                                                   | 43,034  |   |                               |   | 57,650  |      |  |   | 79,923  |   |  |   | 113,526 |  
|                                                      |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses                              |  |                                                   | 163,564 |   |                               |   | 213,826 |      |  |   | 300,049 |   |  |   | 413,104 |  
|                                                      |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|INCOME FROM OPERATIONS                                |  |                                                   | 37,084  |   |                               |   | 34,315  |      |  |   | 69,762  |   |  |   | 64,733  |  
|Interest (income)                                     |  |                                                   | (360    | ) |                               |   | (717    | )    |  |   | (622    | ) |  |   | (1,194  | )
|Interest expense                                      |  |                                                   | 763     |   |                               |   | 982     |      |  |   | 1,369   |   |  |   | 1,912   |  
|Other (income) expense, net                           |  |                                                   | (12     | ) |                               |   | (155    | )    |  |   | (81     | ) |  |   | (332    | )
|                                                      |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|INCOME BEFORE PROVISION FOR INCOME TAXES              |  |                                                   | 36,693  |   |                               |   | 34,205  |      |  |   | 69,096  |   |  |   | 64,347  |  
|Provision for income taxes                            |  |                                                   | 14,751  |   |                               |   | 13,512  |      |  |   | 27,776  |   |  |   | 25,418  |  
|                                                      |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|NET INCOME                                            |  | $                                                 | 21,942  |   |                               | $ | 20,693  |      |  | $ | 41,320  |   |  | $ | 38,929  |  
|                                                      |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Income per common share:                              |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Basic                                                 |  | $                                                 | 0.25    |   |                               | $ | 0.23    |      |  | $ | 0.47    |   |  | $ | 0.43    |  
|                                                      |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Diluted                                               |  | $                                                 | 0.23    |   |                               | $ | 0.22    |      |  | $ | 0.44    |   |  | $ | 0.42    |  
|                                                      |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Weighted average number of common shares outstanding: |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Basic                                                 |  |                                                   | 88,926  |   |                               |   | 90,500  |      |  |   | 88,366  |   |  |   | 90,426  |  
|                                                      |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Diluted                                               |  |                                                   | 93,950  |   |                               |   | 92,798  |      |  |   | 93,730  |   |  |   | 92,509  |  
|                                                      |  |                                                   |         |   |                               |   |         |      |  |   |         |   |  |   |         |  



The accompanying notes
are an integral part of these condensed consolidated financial statements.



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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                  |  |                               |          |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ----------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                  |  | Six Months Ended December 31, |         
|                                                                                  |  | 2003                          |          |   | 2004 |  
|                                                                                  |  | (In thousands) (Unaudited)    |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                               |          |   |      |   |         |  
|Net income                                                                        |  | $                             | 41,320   |   |      | $ | 38,929  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                               |          |   |      |   |         |  
|Depreciation and amortization                                                     |  |                               | 9,973    |   |      |   | 15,365  |  
|Tax benefit of stock options exercised                                            |  |                               | 16,067   |   |      |   | 867     |  
|Stock-based compensation                                                          |  |                               |         |   |      |   | 145     |  
|Changes in assets and liabilities, net of effects from acquisitions:              |  |                               |          |   |      |   |         |  
|Accounts receivable, net                                                          |  |                               | (1,693   | ) |      |   | (3,560  | )
|Student notes receivable, net                                                     |  |                               | (345     | ) |      |   | (1,104  | )
|Prepaid expenses and other assets                                                 |  |                               | (8,019   | ) |      |   | (470    | )
|Accounts payable                                                                  |  |                               | (1,356   | ) |      |   | 4,597   |  
|Accrued expenses, compensation and related benefits                               |  |                               | 466      |   |      |   | 11,807  |  
|Prepaid tuition                                                                   |  |                               | 610      |   |      |   | 4,309   |  
|Other long-term liabilities                                                       |  |                               | (1,585   | ) |      |   | (647    | )
|                                                                                  |  |                               |          |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                               | 55,438   |   |      |   | 70,238  |  
|                                                                                  |  |                               |          |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                               |          |   |      |   |         |  
|Acquisitions of schools, colleges, and training centers, net of cash acquired     |  |                               | (101,318 | ) |      |   | (9,082  | )
|Capital expenditures, net of disposals                                            |  |                               | (27,481  | ) |      |   | (33,514 | )
|Sales of (investments in) marketable securities, net                              |  |                               | 3,897    |   |      |   | (41,800 | )
|                                                                                  |  |                               |          |   |      |   |         |  
|Net cash (used in) investing activities                                           |  |                               | (124,902 | ) |      |   | (84,396 | )
|                                                                                  |  |                               |          |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                               |          |   |      |   |         |  
|Proceeds from borrowings                                                          |  |                               | 50,961   |   |      |   |        |  
|Principal repayments on capital lease obligations and long-term debt              |  |                               | (7,631   | ) |      |   | (4,934  | )
|Proceeds from exercise of stock options and Employee Stock Purchase Plan          |  |                               | 13,252   |   |      |   | 2,863   |  
|                                                                                  |  |                               |          |   |      |   |         |  
|Net cash (used in) provided by financing activities                               |  |                               | 56,582   |   |      |   | (2,071  | )
|                                                                                  |  |                               |          |   |      |   |         |  
|EFFECTS OF EXCHANGE RATE CHANGES ON CASH                                          |  |                               | 79       |   |      |   | 385     |  
|                                                                                  |  |                               |          |   |      |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              |  |                               | (12,803  | ) |      |   | (15,844 | )
|CASH AND CASH EQUIVALENTS, beginning of period                                    |  |                               | 35,901   |   |      |   | 46,699  |  
|                                                                                  |  |                               |          |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $                             | 23,098   |   |      | $ | 30,855  |  
|                                                                                  |  |                               |          |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                 |  |                               |          |   |      |   |         |  
|Cash paid during the period for:                                                  |  |                               |          |   |      |   |         |  
|Income taxes                                                                      |  | $                             | 12,855   |   |      | $ | 20,455  |  
|                                                                                  |  |                               |          |   |      |   |         |  
|Interest expense                                                                  |  | $                             | 1,241    |   |      | $ | 1,909   |  
|                                                                                  |  |                               |          |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:           |  |                               |          |   |      |   |         |  
|Acquisitions of various schools, colleges, and training centers                   |  |                               |          |   |      |   |         |  
|Fair value of assets acquired                                                     |  | $                             | 140,160  |   |      | $ | 11,704  |  
|Net cash used in acquisitions                                                     |  |                               | (101,318 | ) |      |   | (9,082  | )
|                                                                                  |  |                               |          |   |      |   |         |  
|Liabilities assumed or incurred                                                   |  | $                             | 38,842   |   |      | $ | 2,622   |  
|                                                                                  |  |                               |          |   |      |   |         |  



The accompanying notes
are an integral part of these condensed consolidated financial statements.



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CORINTHIAN COLLEGES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004



Note 1  The Company and Basis of Presentation



As of December 31, 2004, Corinthian Colleges, Inc. (the Company) operated 91 schools and colleges in the for profit, post-secondary education
industry in the United States, and 45 colleges (including 10 colleges scheduled to close in fiscal 2005) and 15 training centers in 7 Canadian provinces. All of the Companys schools grant either degrees (associates, bachelors and
masters) 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 14 accredited degrees to exclusively online students.



Effective August 2, 2004, the Company acquired substantially all of the assets of A.M.I., Inc. (AMI). AMI
operates one campus in Daytona Beach, Florida that offers programs in the motorcycle, marine, and personal watercraft technician fields. The acquisition of AMI was accounted for using the purchase method of accounting and its results of operations
are included in the Companys consolidated results of operations since its acquisition date.



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 U.S. generally accepted accounting principles. 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, 2004 consolidated financial statements of the Company included in the Companys
2004 Annual Report on Form 10-K and notes thereto, are adequate to make the information presented not materially misleading. In managements opinion, the unaudited 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 and six months ended December 31, 2004 are not
necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2005.



The unaudited condensed consolidated financial statements as of December 31, 2004 and June 30, 2004 and for the three and six months ended December 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. 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 2005 financial statement presentation.



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 has been retroactively restated to reflect the stock
split.



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##### Table of Contents

Note 3  Stock Based Compensation



Restricted Stock



In November 2003, the Companys stockholders approved the Companys 2003 Performance Award Plan (the 2003 Plan), which authorized
the issuance of restricted stock awards to executive officers and other employees of the Company. The restricted stock awards vest over a period of four years. The Company has awarded a total of 189,728 restricted shares to employees in accordance
with provisions of the 2003 plan. The shares were valued based on the market price on the date of grant. The Company recognized compensation expense for the plan of $145,000 during the six month period ended December 31, 2004. The deferred portion
of the awards is reflected as a component of Stockholders Equity entitled Deferred Compensation.



Stock Options



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. 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 EndedDecember 31,                    |        |   | Six Months EndedDecember 31, |  
|                                                                                                                                   |  | 2003                                              |        |   | 2004                         |   |        | 2003 |  |   | 2004   |  
|                                                                                                                                   |  | (In thousands, except per share data) (Unaudited) |       
|Net income, as reported                                                                                                            |  | $                                                 | 21,942 |   |                              | $ | 20,693 |      |  | $ | 41,320 |   |  | $ | 38,929 |  
|Stock-based compensation included in net income above                                                                              |  |                                                   |       |   |                              |   | 29     |      |  |   |       |   |  |   | 145    |  
|Deduct: Total stock-based employee compensation cost determined under fair value method for all awards, net of related tax
effects |  |                                                   | (3,471 | ) |                              |   | (4,423 | )    |  |   | (6,210 | ) |  |   | (8,540 | )
|                                                                                                                                   |  |                                                   |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Pro forma net income                                                                                                               |  | $                                                 | 18,471 |   |                              | $ | 16,299 |      |  | $ | 35,110 |   |  | $ | 30,534 |  
|                                                                                                                                   |  |                                                   |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings per share:                                                                                                          |  |                                                   |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                        |  | $                                                 | 0.25   |   |                              | $ | 0.23   |      |  | $ | 0.47   |   |  | $ | 0.43   |  
|Pro forma                                                                                                                          |  | $                                                 | 0.21   |   |                              | $ | 0.18   |      |  | $ | 0.40   |   |  | $ | 0.34   |  
|Diluted earnings per share:                                                                                                        |  |                                                   |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                        |  | $                                                 | 0.23   |   |                              | $ | 0.22   |      |  | $ | 0.44   |   |  | $ | 0.42   |  
|Pro forma                                                                                                                          |  | $                                                 | 0.20   |   |                              | $ | 0.18   |      |  | $ | 0.37   |   |  | $ | 0.33   |  



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 and other common stock-based securities were estimated on the date of grant using the Black-Scholes method with
the following weighted-average assumptions:



|                              |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|----------------------------- |  | ------------------------------- | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                              |  | Three Months Ended December 31, |         |   | Six Months Ended December 31, |  
|                              |  | 2003                            |         |   | 2004                          |   |         | 2003 |  |   | 2004    |  
|Risk-free rate.               |  |                                 | 5.15    | % |                               |   | 3.86    | %    |  |   | 5.16    | % |  |   | 3.89    | %
|Expected years until exercise |  |                                 | 7 years |   |                               |   | 7 years |      |  |   | 7 years |   |  |   | 7 years |  
|Expected stock volatility     |  |                                 | 35      | % |                               |   | 113     | %    |  |   | 38      | % |  |   | 110     | %
|Expected dividends            |  | $                               |        |   |                               | $ |        |      |  | $ |        |   |  | $ |        |  



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Note 4  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 and restricted shares.



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 December 31, |  | Six Months Ended December 31,
|                                         |  | 2003                            |  | 2004                          |  | 2003   |  | 2004  
|Basic common shares outstanding          |  | 88,926                          |  | 90,500                        |  | 88,366 |  | 90,426
|Effects of dilutive securities:          |  |                                 |  |                               |  |        |  |       
|Stock options and restricted stock units |  | 5,024                           |  | 2,298                         |  | 5,364  |  | 2,083 
|                                         |  |                                 |  |                               |  |        |  |       
|Diluted common shares outstanding        |  | 93,950                          |  | 92,798                        |  | 93,730 |  | 92,509
|                                         |  |                                 |  |                               |  |        |  |       



Note 5  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 6  Marketable Securities



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 December 31 and June 30, 2004, the unrealized loss on available-for-sale securities was immaterial.



Note 7  Acquisitions



Fiscal 2004



During the fiscal year ended June 30, 2004, the Company acquired all of the outstanding stock of Career Choices, Inc. (Career Choices). Career
Choices operated 10 campuses in California, Washington, and Oregon, which offer diplomas and degrees in the applied science, automotive technology, HVAC technology and allied health fields. The cash purchase price was approximately $56.3 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 10 schools operated
under the Sequoia Institute (Sequoia), Ashmead College, and Eton Technical Institute (Eton) trade names. Sequoia focuses on programs in the growing automotive technology field that will expand 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



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program and the Company expects to gain outstanding automotive curriculum that complements the Companys Wyo-Tech 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 August 1, 2003, its acquisition date.



During the fiscal year ended June 30, 2004, the Company acquired
substantially all of the assets of East Coast Aero Tech, LLC (ECAT). ECAT operated one campus in Massachusetts, which offers programs in the aviation maintenance technology field. The cash purchase price was approximately $3.2 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 technology, 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 August 6, 2003, its acquisition date.



During the fiscal year ended June 30, 2004, 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 $42.1 million and the assumption of
approximately $10 million of debt and other liabilities. CDI is a wholly-owned subsidiary of Corinthian Colleges, Inc. In October 2003, the Company completed the acquisition of CMA Careers, Inc. located in Kitchener, Ontario, Canada. The intent to
acquire this campus by CDI had been agreed to prior to the Companys acquisition of CDI. The cash purchase price was funded with available cash and borrowings from the Companys amended credit facility. CDI operated 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 August 19, 2003, its acquisition date.



The
following table provides unaudited pro forma financial data for the Company reflecting the completion of the fiscal year 2004 acquisitions as if they had occurred July 1, 2003. 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 December 31,                   |         | Six Months Ended December 31,
|                             |  | 2003                                              |         | 2004                          |   | 2003    |  | 2004
|                             |  | (In thousands, except per share data) (Unaudited)
|Net revenue                  |  | $                                                 | 200,648 |                               | $ | 248,141 |  | $    | 381,931 |  | $ | 477,837
|Net income                   |  | $                                                 | 21,942  |                               | $ | 20,693  |  | $    | 39,359  |  | $ | 38,929 
|Earnings per share - basic   |  | $                                                 | 0.25    |                               | $ | 0.23    |  | $    | 0.45    |  | $ | 0.43   
|Earnings per share - diluted |  | $                                                 | 0.23    |                               | $ | 0.22    |  | $    | 0.42    |  | $ | 0.42   



Fiscal 2005



Effective August 2, 2004, the Company acquired substantially all of the
assets of AMI Inc. (AMI). AMI operates one campus in Daytona Beach, Florida, which offers accredited diploma programs in the motorcycle, marine and personal watercraft technician fields. The purchase price was approximately $11.7
million. The



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Company has assigned value to other intangible assets, such as accreditation, trade names, curriculum and other under SFAS No. 141. The Company purchased AMI
to enter into the growing field of motorcycle, marine and personal watercraft technician fields and adds to the Companys growing transportation-related technical curricula, providing the Company with an additional platform for growth and
enhancement of its technology programs. AMI also offers specialized motorcycle technician and dealership management programs. The acquisition was accounted for using the purchase method of accounting and AMIs results of operations are included
in the consolidated results of operations of the Company since August 2, 2004, its acquisition date.



Note 8  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 six month periods ended December 31, 2004 and 2003:



|                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |       
|---------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------
|                                         |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31,
|                                         |  | 2003                           |        |   | 2004                         |   |        | 2003 |  |   | 2004  
|                                         |  | (In thousands) (unaudited)    
|Net income                               |  | $                              | 21,942 |   |                              | $ | 20,693 |      |  | $ | 41,320 |   |  | $ | 38,929
|Foreign currency translation adjustments |  |                                | (67    | ) |                              |   | (12    | )    |  |   | (84    | ) |  |   | 30    
|                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |       
|Comprehensive income                     |  | $                              | 21,875 |   |                              | $ | 20,681 |      |  | $ | 41,236 |   |  | $ | 38,959
|                                         |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |       



Note 9  Impairment, Facility
Closing, and Severance Charges



During fiscal 2004, the
Company implemented a plan to streamline operations at several of its divisions, including the recently acquired CDI. The plan primarily included closing 2 LTU campuses and 10 CDI campuses. In addition, the Company reviewed the long-lived assets and
goodwill related to these closures for possible impairment in accordance with SFAS 142 and SFAS 144. Based on the results of the review, the Company recognized a pre-tax impairment, facility closing, and severance charge of $6.4 million in fiscal
2004 ($3.2 million in the quarter ended March 31, 2004 and $3.2 million in the quarter ended June 30, 2004). The fair value of the remaining goodwill was based on the Companys estimate of discounted future cash flows.



The table below summarizes the liability and activity for the six months
ended December 31, 2004, relating to the impairment, facility closing and severance charges:



|                             |  |                            |      |   |                        |   |      |                  |  |   |        |   |  |   |        |  
|---------------------------- |  | -------------------------- | ---- | - | ---------------------- | - | ---- | ---------------- |  | - | ------ | - |  | - | ------ | -
|                             |  | Fixed Asset Write- offs    |      |   | Severance and Benefits |   |      | Facility Related |  |   | Total  |  
|                             |  | (In thousands) (Unaudited) |     
|Balance at June 30, 2004     |  | $                          |     |   |                        | $ | 919  |                  |  | $ | 6,975  |   |  | $ | 7,894  |  
|Charges/adjustments          |  |                            | 482  |   |                        |   | 670  |                  |  |   | (1,672 | ) |  |   | (520   | )
|Cash payments                |  |                            |     |   |                        |   | (883 | )                |  |   | (985   | ) |  |   | (1,868 | )
|Asset writedowns             |  |                            | (482 | ) |                        |   |     |                  |  |   |       |   |  |   | (482   | )
|                             |  |                            |      |   |                        |   |      |                  |  |   |        |   |  |   |        |  
|Balance at December 31, 2004 |  | $                          |     |   |                        | $ | 706  |                  |  | $ | 4,318  |   |  | $ | 5,024  |  
|                             |  |                            |      |   |                        |   |      |                  |  |   |        |   |  |   |        |  



The adjustment to the
facility related liability resulted in a reduction to goodwill. The accrual for severance and benefits is reflected in accounts payable. The accrual for lease payments on vacated facilities is reflected in accounts payable and other long-term
liabilities and is expected to be paid out over the lease terms, the latest of which expires in 2012.



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Note 10  Segment Information



The Companys operations are aggregated into a single reportable operating segment based upon similar economic and
operating characteristics as well as similar markets. The Companys operations are also subject to similar regulatory environments. The Company conducts its operations in the U.S. and Canada. Revenues and long-lived assets by geographic area
are as follows:



|                                     |  |                                 |         |                               |   |                            |  |                  |         |  |   |        
|------------------------------------ |  | ------------------------------- | ------- | ----------------------------- | - | -------------------------- |  | ---------------- | ------- |  | - | -------
|                                     |  | Three Months Ended December 31, |         | Six Months Ended December 31,
|                                     |  | 2003                            |         | 2004                          |   | 2003                       |  | 2004            
|                                     |  | (In thousands) (Unaudited)     
|Revenues from unaffiliated customers |  |                                 |         |                               |   |                            |  |                  |         |  |   |        
|U.S. operations                      |  | $                               | 178,803 |                               | $ | 216,959                    |  | $                | 339,280 |  | $ | 421,046
|Canadian operations                  |  | $                               | 21,845  |                               | $ | 31,182                     |  | $                | 30,531  |  | $ | 56,791 
|                                     |  |                                 |         |                               |   |                            |  |                  |         |  |   |        
|Consolidated                         |  | $                               | 200,648 |                               | $ | 248,141                    |  | $                | 369,811 |  | $ | 477,837
|                                     |  |                                 |         |                               |   |                            |  |                  |         |  |   |        
|                                     |  |                                 |         |                              
|                                     |  |                                 |         |                               |   | June 30,2004               |  | December 31,2004
|                                     |  |                                 |         |                               |   | (In thousands) (Unaudited)
|Long-lived assets                    |  |                                 |         |                               |   |                            |  |                  |         |  |   |        
|U.S. operations                      |  |                                 |         |                               |   |                            |  | $                | 329,901 |  | $ | 361,166
|Canadian operations                  |  |                                 |         |                               |   |                            |  | $                | 58,753  |  | $ | 63,555 
|                                     |  |                                 |         |                               |   |                            |  |                  |         |  |   |        
|Consolidated                         |  |                                 |         |                               |   |                            |  | $                | 388,654 |  | $ | 424,721
|                                     |  |                                 |         |                               |   |                            |  |                  |         |  |   |        



No one customer
accounted for more than 10% of the Companys consolidated revenues. Revenues are attributed to regions based on the location of customers.



Note 11  New Accounting Pronouncements



In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)), which amends SFAS No. 123,
Accounting for Stock-Based Compensation, supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) requires companies to measure all
employee stock-based compensation awards using a fair value method and record such expense in its consolidated financial statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the income tax
and cash flow effects resulting from share-based payment arrangements. SFAS No. 123(R) is effective beginning as of the first interim or annual reporting period beginning after June 15, 2005. As permitted by Statement No. 123, the Company currently
accounts for share-based payments to employees using Opinion No. 25s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement No. 123(R)s fair value
method will have a significant impact on our result of operations, although it will have no impact on our overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of
share-based payments granted in the future. However, if we had adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and
earnings per share in Note 3 to our unaudited consolidated financial statements. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the
future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $16,067,000 and $867,000 for the six months ended December
31, 2003 and 2004, respectively.



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Note 12  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 and routine employment matters. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss
will result and the amount of the loss can be reasonably estimated, the Company records a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific
claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. There can be no assurance that the ultimate outcome of any of the matters disclosed below will not have a material adverse effect on the
Companys financial condition or results of operations.



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.,andFlorida 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 and online. 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 without
merit and will vigorously defend itself, Rhodes Colleges, Inc., and FMU against these allegations. The Company has filed motions to compel arbitration in all three cases, and the court has granted the Companys motion in the Satz case.
The motions in the other two cases are pending. 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 breach of contract and seeking declaration relief.



Since July 8, 2004, various putative class action lawsuits have been filed in the United States District Court for the Central District of California by certain alleged purchasers of our common stock against the Company and certain of its
current and former executive officers, David Moore, Dennis Beal, Paul St. Pierre and Anthony Digiovanni. The cases purportedly are brought on behalf of all persons who acquired shares of the Companys common stock during a specified class
period from August 27, 2003 through either June 23, 2004 or July 30, 2004, depending on the complaint. The complaints allege that, in violation of Section 10(b) of the Securities Exchange Act of 1934 (the Act) and Rule 10b-5 promulgated
thereunder by the SEC, the defendants made certain material misrepresentations and failed to disclose certain material facts about the condition of the Companys business and prospects during the putative class period, causing the respective
plaintiffs to purchase the Companys common stock at artificially inflated prices. The plaintiffs further claim that Messrs. Moore, Beal, St. Pierre and Digiovanni are liable under Section 20(a) of the Act. The plaintiffs seek unspecified
amounts in damages, interest, and costs, as well as other relief. On November 5, 2004, a lead plaintiff was chosen and these cases will now be consolidated into one action. A consolidated complaint is expected to be filed in February 2005. The
Company believes the complaints are without merit and intends to vigorously defend the Company and its current and former executive officers against them.



Between July 21, 2004 and July 23, 2004, two derivative actions captioned Collet, Derivatively on behalf of Corinthian Colleges, Inc., v. David Moore,
et al.andDavila, Derivatively on behalf of Corinthian Colleges, Inc., v. David Moore, et al. were filed in the Orange County California Superior Court against David Moore, Dennis Beal, Dennis Devereux, Beth Wilson, Mary Barry, Stan
Mortensen, Bruce Deyong, Loyal Wilson, Jack Massimino, Linda Skladany, Paul St. Pierre, Michael Berry, and Anthony Digiovanni and the Company as a nominal defendant. Each individual defendant is one of the Companys current or former officers
and/or directors. The lawsuits allege breach of fiduciary duty, abuse of control, gross mismanagement, waste of



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corporate assets, unjust enrichment, and violations of the California corporations code, essentially based on the same allegations of conduct
complained of in the foregoing securities class action complaints. The Collet andDavila cases have now been consolidated into one action, and a consolidated complaint has been filed. The Company believes the consolidated complaint is
without merit and intends to vigorously defend the Companys directors and current and former executive officers against it.



The California Attorney Generals Office has requested that the Company provide documentation regarding three of its California Bryman Colleges and
certain other general Company policies and procedures. The Attorney Generals office has not asserted any claims against the Company and the Company is cooperating with the inquiry.



The Company previously disclosed that the Securities and Exchange Commission (SEC) had initiated an informal
inquiry regarding the Company. On January 20, 2005, the Company was informed that the inquiry has been terminated and no enforcement action has been recommended.



On February 4, 2005, the Company was served with a lawsuit filed by twenty-four current or former medical assisting students
from the Companys National Institute of Technology (NIT) campus in Long Beach, California, alleging fraud in the inducement, breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of
California Business and Professions Code Section 17200, regarding alleged misrepresentations about the eligibility of such students to take the Certified Medical Assistant exam. The complaint does not seek certification as a class action. The
Company is still in the process of investigating the allegations in the complaint. Based on the period of enrollment for each of the plaintiffs, the Company believes that all, or virtually all, of the written enrollment agreements signed by the
plaintiffs require any dispute to be resolved through binding arbitration instead of litigation. On that basis, the Company currently expects to seek to compel this case to binding arbitration.



|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 (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 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.



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 U.S. generally accepted accounting principles. 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,



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deferred 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. 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 unaudited condensed consolidated balance sheets as this amount is expected to be earned within the next year. Revenue is recognized for the CDI Corporate Education division using the
percentage of completion method for long duration service contracts and as services are provided for short duration programs.



Students attending our post-secondary 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, bachelor or master degree. Costs of programs or credit hours for courses are clearly identified in our
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 on a straight-line basis 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 field of study within the acceptable time period.



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 U.S.
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 on federally guaranteed student loans.



The guarantee of 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 institutions Cohort Default Rates act as a gatekeeper to the institutions eligibility to participate in the federal student financial aid



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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.



Goodwill and Intangible Assets. We have significant
goodwill and intangible assets. Goodwill represents the excess of the cost over the fair market value of net assets acquired, including identified intangible assets. We consider a number of factors, including valuations and appraisals from
independent valuation firms in determining the amounts that are assignable to other intangible assets, such as curriculum, accreditation, and trade names. The Company, however, is ultimately responsible for the valuations. The fair value of
identified intangible assets is derived using accepted valuation methodologies, including cost, market, or income approaches, as appropriate, following consultations with valuation firms, and in accordance with SFAS No. 141 and requirements set
forth by the Uniform Standards of Professional Appraisal Practice (USPAP). Effective July 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). This standard changed the accounting for
goodwill and other indefinite-lived intangible assets from an amortization method to an impairment-only approach. As of July 1, 2002, we ceased amortization of goodwill recorded in conjunction with past business combinations. In addition, we
conducted a review of our other identifiable intangible assets and determined that accreditation and trade names met the indefinite life criteria outlined in SFAS No. 142. Our review considered analysis of all pertinent factors, including the
expected use of the asset, any legal, regulatory, or contractual provisions that may limit the useful life, the effects of obsolescence, demand, competition, and other economic factors, and the level of maintenance expenditures required to obtain
the expected future cash flows from the asset. Accordingly, we also ceased amortization of the accreditation and trade names as of July 1, 2002. Curricula continue to be amortized over their useful lives ranging generally from three to ten years and
the amortization is included in general and administrative expenses in the accompanying statements of operations.



Under SFAS No. 142, goodwill and indefinite-lived assets are tested annually or more frequently if circumstances indicate potential
impairment, by comparing their fair values to their carrying amounts. To the extent the fair value is less than the carrying amount of the asset, we record an impairment charge in the statements of operations. The determination of related estimated
useful lives of intangible assets and whether or not these intangible assets are impaired involves significant judgment. Although we believe our goodwill and intangible assets are fairly stated, changes in strategy or market conditions could
significantly impact these judgments and require adjustments to asset balances.



Additionally, we have received a comment letter from the SEC dated November 23, 2004 regarding our Report on Form 10-K for the fiscal year
ended June 30, 2004. In that comment letter, the SEC asked us to describe how we determined the amount of intangible assets allocated to trade names and how we determined that trade names and accreditation should have indefinite lives pursuant to
the guidance in SFAS 142. We responded to the SECs comment letter on December 15, 2004. On January 28, 2005, we received another letter from the SEC asking us additional questions regarding our initial response and the basis for our
conclusions that accreditation and trade names have indefinite useful lives. In its January 28 letter, the SEC asked us to clarify why we believe the useful life for accreditation exceeds the useful life of curricula (which we currently amortize
over 3-10 years) or the renewal period for accreditation (typically 5-10 years). The SEC also indicated its view that the useful life for trade names should be consistent with the useful life of accreditation. We expect to respond to the SECs
follow-up letter in the next several weeks, and continue to believe our determination that accreditation and trade names have indefinite lives is appropriate under SFAS 142. There can be no assurance, however, that the SEC will not ultimately
conclude that accreditation and trade names should not have indefinite lives and therefore require us to amortize the value ascribed to such assets over their useful lives.



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



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achievement of projected future taxable income offset by deferred income tax liabilities. We evaluate the realizability of our deferred income tax assets
annually.



Litigation. In the ordinary
conduct of business, we are subject to occasional lawsuits, investigations and claims, including, but not limited to, claims involving students and graduates and routine employment matters. When we are aware of a claim or potential claim, we assess
the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably
estimated, we disclose the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. There can be no assurance that the ultimate outcome of any of the matters disclosed will not
have a material adverse effect on our financial condition or results of operations.



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. Stock-based employee compensation cost reflected in net income relates to grants of restricted stock awards to certain officers and other executives. We recognize compensation cost on these
restricted stock awards over the vesting period of the award (generally four years). The compensation expense related to the deferred portion of the awards is reflected as Deferred Compensation and included as a component of
Stockholders Equity. All common stock options are accounted for using the fixed accounting method and have an exercise price equal to the market value of the underlying common stock on the date of grant.



Results of Operations



Comparisons of results of operations between the first six months of fiscal 2005 and the first six months of fiscal 2004 are
affected by the acquisition of AMI and its campus on August 2, 2004, as well as the opening of nine branch campuses since the end of the second quarter of fiscal 2004. Additionally, we acquired CDI and its 45 campuses and 15 training centers on
August 19, 2003, Career Choices and its 10 campuses on August 1, 2003 and ECAT and its 1 campus on August 6, 2003, and their results of operations are included in the consolidated results of operations since their respective acquisition dates. At
December 31, 2004, we operated 136 campuses (including 10 colleges scheduled to close in fiscal 2005) and 15 training centers, compared to 129 campuses and 17 training centers at December 31, 2003. The following table summarizes our operating
results as a percentage of net revenue for the periods indicated:



|                                          |  |                                 |   |  |                               |   |  |       |   |  |       |  
|----------------------------------------- |  | ------------------------------- | - |  | ----------------------------- | - |  | ----- | - |  | ----- | -
|                                          |  | Three Months Ended December 31, |   |  | Six Months Ended December 31, |  
|                                          |  | 2003                            |   |  | 2004                          |   |  | 2003  |   |  | 2004  |  
|Statement of Operations Data (Unaudited): |  |                                 |   |  |                               |   |  |       |   |  |       |  
|Net revenues                              |  | 100.0                           | % |  | 100.0                         | % |  | 100.0 | % |  | 100.0 | %
|                                          |  |                                 |   | 
|Operating expenses:                       |  |                                 |   |  |                               |   |  |       |   |  |       |  
|Educational services                      |  | 51.6                            |   |  | 53.7                          |   |  | 51.0  |   |  | 53.7  |  
|General and administrative                |  | 8.4                             |   |  | 9.3                           |   |  | 8.5   |   |  | 9.0   |  
|Marketing and advertising                 |  | 21.5                            |   |  | 23.2                          |   |  | 21.6  |   |  | 23.8  |  
|                                          |  |                                 |   |  |                               |   |  |       |   |  |       |  
|Total operating expenses                  |  | 81.5                            |   |  | 86.2                          |   |  | 81.1  |   |  | 86.5  |  
|                                          |  |                                 |   | 
|Income from operations                    |  | 18.5                            |   |  | 13.8                          |   |  | 18.9  |   |  | 13.5  |  
|Interest (income)                         |  | (0.2                            | ) |  | (0.3                          | ) |  | (0.2  | ) |  | (0.2  | )
|Interest expense                          |  | 0.4                             |   |  | 0.4                           |   |  | 0.4   |   |  | 0.4   |  
|Other (income) expense                    |  |                                |   |  | (0.1                          | ) |  |      |   |  | (0.1  | )
|                                          |  |                                 |   |  |                               |   |  |       |   |  |       |  
|Income before provision for income taxes  |  | 18.3                            |   |  | 13.8                          |   |  | 18.7  |   |  | 13.4  |  
|Provision for income taxes                |  | 7.4                             |   |  | 5.5                           |   |  | 7.5   |   |  | 5.3   |  
|                                          |  |                                 |   |  |                               |   |  |       |   |  |       |  
|Net income                                |  | 10.9                            | % |  | 8.3                           | % |  | 11.2  | % |  | 8.1   | %
|                                          |  |                                 |   |  |                               |   |  |       |   |  |       |  



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Three Months Ended December 31, 2004 Compared to Three Months Ended December 31, 2003



Net Revenues.Net revenues increased $47.5 million, or 23.7%, from
$200.6 million in the second quarter of fiscal 2004 to $248.1 million in the second quarter of fiscal 2005, due primarily to a 17.7% increase in total student population and a 4.1% increase in the average tuition rate per student. At December 31,
2004, student population was 70,022, compared with 59,502 at December 31, 2003. Revenues in same schools increased 17.9% for the second quarter of fiscal 2005 and reflect a 14.6% increase in same school student population and a 2.6% increase in the
average tuition rate per student in same schools. We define same schools as those colleges, schools, and training centers that have been owned and operated by us for four full quarters. Core growth in revenues increased 22.9% in the second quarter
of fiscal 2005 ended December 31, 2004. We define 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. Total student starts increased 15.4% to 21,967 for the second quarter of fiscal 2005 when compared to the second quarter of last year. Same school student starts increased 9.7% as of December 31,
2004 when compared to second quarter of fiscal 2004. Net revenues also increased as a result of opening 9 branch campuses and acquiring 1 campus since December 31, 2003.



Educational Services. Educational services expenses include direct operating expenses of the schools consisting
primarily of payroll and payroll related expenses, rents, occupancy costs, supply expenses, bad debt expense and other educational related expenses. As a percentage of net revenues, educational services expenses increased from 51.6% of revenues in
the second quarter of fiscal 2004 to 53.7% of revenues in the second quarter of fiscal 2005. The increase, as a percent of revenues, was due primarily to increases in facility leases and depreciation as we seek to absorb the increase in capacity we
added in fiscal 2004. Additionally, bad debt expense for the second quarter of fiscal 2005 amounted to $12.5 million or 5.0% of net revenues, compared to $7.6 million or 3.8% of net revenues for the second quarter of fiscal 2004. Educational
services expenses increased $29.6 million, or 28.5%, from $103.6 million in the second quarter of fiscal 2004 to $133.2 million in the second quarter of fiscal 2005. Overall, the increase in educational services expenses was primarily due to
expenses required to support the 23.7% increase in revenue and costs related to the 9 new branch campuses and 1 acquired campus opened since December 31, 2003. Additionally, during the second quarter, 24 new programs were adopted into existing
schools, including 16 program adoptions into our campuses in the U.S. and 8 program adoptions into our campuses in Canada.



General and Administrative.General and administrative expenses include incentive bonuses, corporate payroll related expenses, headquarters office
rents and occupancy expenses, professional fees and other support related expenses. As a percentage of net revenues, general and administrative expenses increased from 8.4% of revenues in the second quarter of fiscal 2004 to 9.3% of revenues in the
second quarter of fiscal 2005. The increase, as a percentage of revenues, was due primarily to the increase in public company compliance expenses and legal costs associated with previously disclosed matters. General and administrative expenses
increased $6.1 million, or 35.9%, from $16.9 million in the second quarter of fiscal 2004 to $23.0 million in the second quarter of fiscal 2005. The overall increase was also due to additional headquarters staff required to support the 23.7%
increase in revenues, 17.7% increase in student population and to support the 9 new branch campus openings and 1 acquired campus since December 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 21.5% of revenues in the second quarter of fiscal 2004 to 23.2% of revenues for the
second quarter of fiscal 2005 primarily as a result of increases in costs of television, radio, and Internet advertising and an increase in admissions staff. Marketing and advertising expenses increased $14.6 million, or 34.0%, from $43.0 million in
the second quarter of fiscal 2004 to $57.7 million in the second quarter of fiscal 2005. The increase in marketing and advertising expenses resulted in a 15.4% increase in total student starts and a 9.7% increase in same school student starts during
the second quarter of fiscal 2005.



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Income from Operations.Income from operations decreased 7.5% from $37.1 million in the second
quarter of fiscal 2004 to $34.3 million in the second quarter of fiscal 2005. As a percentage of net revenues, income from operations decreased from 18.5% of revenues in the second quarter of fiscal 2004 to 13.8% of revenues for the second quarter
of fiscal 2005.



Interest (Income) Expense, net.
Interest expense (net of interest income of $0.7 million) amounted to $0.3 million in the second quarter of fiscal 2005. In the same period of the prior year, interest expense (net of interest income of $0.4 million) amounted to $0.4 million. The
decrease in net interest expense compared to the prior year is primarily due to an increase in interest income due to an increase in interest earning investments. In the same period of the prior year, cash was used to fund the acquisitions of Career
Choices, ECAT and CDI in August 2003.



Provision for Income
Taxes. The effective income tax rate was 39.5% of income before taxes in the second quarter of fiscal 2005 compared to 40.2% in the second quarter of fiscal 2004.



Net Income. Net income decreased $1.2 million from $21.9 million in the second quarter of fiscal 2004 to $20.7
million in the second quarter of fiscal 2005. As a percentage of net revenues, net income decreased from 10.9% of revenues in the second quarter of fiscal 2004 to 8.3% of revenues for the second quarter of fiscal 2005.



Income per Share. Diluted earnings per common share for the second
quarter of fiscal 2005 decreased 4.3% to $0.22 per diluted common share compared to $0.23 per diluted common share for the second quarter of fiscal 2004. On February 18, 2004, we authorized a two-for-one stock split of our 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 has been retroactively restated to reflect the stock split.



Six Months Ended December 31, 2004 Compared to Six Months Ended December 31, 2003



Net Revenues.Net revenues increased $108.0
million, or 29.2%, from $369.8 million in the first six months of fiscal 2004 to $477.8 million in the first six months of fiscal 2005, due primarily to a 17.7% increase in total student population and a 2.9% increase in the average tuition rate per
student. At December 31, 2004, student population was 70,022, compared with 59,502 at December 31, 2003. Revenues in same schools increased 18.1% for the first six months of fiscal 2005 and reflect a 14.6% increase in same school student population
and a 3.3% increase in the average tuition rate per student in same schools. We define same schools as those colleges, schools, and training centers that have been owned and operated by us for four full quarters. Core growth in revenues increased
23.1% in the first six months of fiscal 2005 ended December 31, 2004. We define 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. Total student starts increased 19.4% to 50,078 for the first six months of fiscal 2005 when compared to the first six months of last year. Same school student
starts increased 8.6% as of December 31, 2004 when compared to the first six months of fiscal 2004. Net revenues also increased as a result of opening 9 branch campuses and acquiring 1 campus since December 31, 2003, as well as the acquisitions of
71 campuses and training centers in August 2003.



Educational Services. Educational services expenses include direct operating expenses of the schools consisting primarily of payroll and payroll related expenses, rents, occupancy costs, supply expenses, bad debt expense and other
educational related expenses. As a percentage of net revenues, educational services expenses increased from 51.0% of revenues in the first six months of fiscal 2004 to 53.7% of revenues in the first six months of fiscal 2005. The increase, as a
percent of revenues, was due primarily to increases in facility leases and depreciation as we seek to absorb the increase in capacity we added in fiscal 2004. Additionally, bad debt expense for the first six months of fiscal 2005 amounted to $23.7
million or 5.0% of net revenues, compared to $13.9 million or 3.8% of net revenues for the first six months of fiscal 2004. Educational services expenses increased $68.2 million, or 36.2%, from $188.5 million in the first six months of fiscal 2004
to $256.7 million in the first six months of fiscal 2005. Additionally, the increase in educational services expenses was attributable, in



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part, to the acquisitions made in August 2003. Accordingly, the results of operations for the first six months of fiscal 2004 included these campuses since
their respective dates of acquisition. Overall, educational services expenses increased primarily due to expenses required to support the 29.2% increase in revenue and costs related to the 9 new branch campuses and 1 acquired campus opened since
December 31, 2003. Additionally, during the first six months of fiscal 2005, 58 new programs were adopted into existing schools, including 43 program adoptions into our campuses in the U.S. and 15 program adoptions into our campuses in Canada.



General and Administrative.General and administrative
expenses include incentive bonuses, corporate payroll related expenses, headquarters office rents and occupancy expenses, professional fees and other support related expenses. As a percentage of net revenues, general and administrative expenses
increased from 8.5% of revenues in the first six months of fiscal 2004 to 9.0% of revenues in the first six months of fiscal 2005. The increase, as a percentage of revenues, was due primarily to the increase in public company compliance expenses and
legal costs associated with previously disclosed matters. General and administrative expenses increased $11.2 million, or 35.5%, from $31.6 million in the first six months of fiscal 2004 to $42.8 million in the first six months of fiscal 2005. The
overall increase was primarily due to additional headquarters staff required to support the 29.2% increase in revenues, 17.7% increase in student population and to support the 9 new branch campus openings and 1 acquired campus since December 31,
2003. In addition, the increase was due to higher public company compliance expenses, including accounting, legal and other professional fees.



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 21.6% of revenues in the first six months of fiscal 2004 to 23.8% of revenues for the
first six months of fiscal 2005 primarily as a result of increases in costs of television, radio and Internet advertising and an increase in admissions staff, as well as acquisitions made in the first six months of fiscal 2004. Marketing and
advertising expenses increased $33.6 million, or 42.0%, from $79.9 million in the first six months of fiscal 2004 to $113.5 million in the first six months of fiscal 2005. The increase in marketing and advertising expenses resulted in a 19.4%
increase in total student starts and an 8.6% increase in same school student starts during the first six months of fiscal 2005.



Income from Operations.Income from operations decreased 7.2% from $69.8 million in the first six months of fiscal 2004 to $64.7 million in the
first six months of fiscal 2005. As a percentage of net revenues, income from operations decreased from 18.9% of revenues in the first six months of fiscal 2004 to 13.5% of revenues for the first six months of fiscal 2005.



Interest (Income) Expense, net. Interest expense (net of interest
income of $1.2 million) amounted to $0.7 million in the first six months of fiscal 2005. In the same period of the prior year, interest expense (net of interest income of $0.6 million) amounted to $0.7 million.



Minority Interest. The minority interest in income (loss) of
subsidiary of $43,000 for the first six months of fiscal 2004 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 39.5% of income before taxes in the first six months of fiscal 2005 compared to 40.2% in the first six months of fiscal 2004.



Net Income. Net income decreased $2.4 million from $41.3 million in the first six months of fiscal 2004 to $38.9 million in the first six months of
fiscal 2005. As a percentage of net revenues, net income decreased from 11.2% of revenues in the first six months of fiscal 2004 to 8.1% of revenues for the first six months of fiscal 2005.



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Income per Share. Diluted earnings per common share for the first six months of fiscal 2005
decreased 4.5% to $0.42 per diluted common share compared to $0.44 per diluted common share for the first six months of fiscal 2004. On February 18, 2004, we authorized a two-for-one stock split of our 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 has been retroactively restated to reflect the stock split.



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 revenues 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. More importantly, quarterly results may be
impacted based on the timing and extent of new acquisitions, new branch openings, relocations and remodels, 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 in August 2006. The amended credit agreement has been established to provide available funds for
acquisitions, to fund general corporate purposes, and to provide for letter 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 us, 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 our 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 financial responsibility composite score ratio, and limitations on long-term student notes receivable. As of December 31, 2004, we were in compliance with all of the covenants. As of December 31,
2004, the credit facility had borrowings outstanding of $46.0 million and approximately $26.7 million was used to support performance bonds and standby letters of credit. 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 $69.1 million as of December 31, 2004 and $62.1 million as of June 30, 2004 and the current ratios were 1.5:1 and 1.6:1,
respectively. During the first quarter of fiscal 2005, we completed the acquisition of AMI. The purchase price was approximately $11.0 million, net of cash acquired, and was funded with cash on hand. In August 2003, during the first quarter of
fiscal 2004, we completed the acquisitions of 71 campuses and training centers in three separate transactions with East Coast Aero Tech, Career Choices, and CDI. The combined cash purchase price of the three acquisitions was funded with cash on hand
and borrowings of approximately $50 million from the credit facility.



Cash flows provided by operating activities amounted to $70.2 million in the first six months of fiscal 2005 compared to $55.4 million provided by operating activities in the same period of fiscal 2004. The increase in cash provided by
operating activities for the first six months of fiscal 2005 compared to the first six months of fiscal 2004 was primarily due to timing differences of cash receipts and payments related to operating assets and liabilities.



Cash flows used in investing activities amounted to $84.4 million in the
first six months of fiscal 2005 compared to cash flows used in investing activities of $124.9 million in the first six months of fiscal 2004. Cash was used in the first six months of fiscal 2005 to acquire AMI for $9.3 million, net of cash received
and to invest



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in short term investments for $41.8 million. Cash used in investing activities in the first six months of fiscal 2004 was primarily due to the acquisitions
of ECAT, Career Choices, and CDI. Capital expenditures increased to approximately $33.5 million in the first six months of fiscal 2005 compared to $27.5 million in the same period in fiscal 2004. Capital expenditures in fiscal 2005 were incurred,
primarily, for relocations, remodels and enlargements of existing campuses, to construct new branch campuses, and to fund information systems expenditures. We expect capital expenditures to be approximately $70 million for fiscal 2005.



Cash flows used in financing activities for the first six months of fiscal
2005 amounted to approximately $2.1 million compared to cash flows provided by financing activities of $56.6 million for the first six months of fiscal 2004. The decrease in cash provided by financing activities in the first six months of fiscal
2005 compared to the same period last year, was due primarily to a reduction in our borrowings on our line of credit and fewer stock option exercises. We funded our cash needs through cash flow provided from operations.



Off-Balance Sheet Arrangements



As of December 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
|Contractual Obligations     |  | Total                  |         | 0-3 years |   | 4-5 years |  | More than 5 years
|                            |  | (In thousands)        
|Long-Term Debt              |  | $                      | 48,523  |           | $ | 48,523    |  | $                 |        |  | $ |       
|Capital Lease Obligations   |  |                        | 28,274  |           |   | 4,686     |  |                   | 3,189   |  |   | 20,399 
|Operating Lease Obligations |  |                        | 438,106 |           |   | 186,498   |  |                   | 100,847 |  |   | 150,761
|                            |  |                        |         |           |   |           |  |                   |         |  |   |        
|Total                       |  | $                      | 514,903 |           | $ | 239,707   |  | $                 | 104,036 |  | $ | 171,160
|                            |  |                        |         |           |   |           |  |                   |         |  |   |        



The United States
Department of Education (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, certain 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. As of December 31, 2004, we held nominal amounts of such funds in separate accounts. The restrictions on any cash held have not significantly affected our ability to fund daily operations.



Update Regarding Regulatory and Accreditation Matters



DOE Program Review. As previously disclosed, the U.S. DOE conducted a
program review at our Bryman College in San Jose, California in December 2003. Shortly thereafter, that school was placed on reimbursement status by the DOE. On September 22, 2004, the Company announced that the DOE had returned the campus to the
advance system of funding. As required by the DOE, we delivered a written response to the program review on December 14, 2004. We believe the costs associated with the review will not have a material adverse impact on our results of operations or
financial condition. We expect to receive a final determination letter from the DOE regarding the program review, the timing of which is undetermined. Although we have had a cooperative working relationship with the DOE during the program review, we
will have the right to an administrative appeal of the DOEs determination, if we determine that is appropriate.



Accreditation Actions. Three of our schools have received institutional show cause orders from their respective accrediting agencies. A show cause
order is issued based upon an accrediting agencys concerns that an accredited institution may be out of compliance with one or more accrediting standards. It affords the institution the opportunity to respond before any adverse action is
taken. The institution may demonstrate that the concern is unfounded or that it has taken corrective action to resolve the concern. The accrediting agency may



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then vacate the show cause order, continue the show cause order or seek additional information through reports required of the institution. If the
agencys concerns are not resolved, it may act to withdraw accreditation from the institution.



The Accrediting Commission of Career Schools and Colleges of Technology (ACCSCT) issued show cause orders to Georgia Medical Institute,
DeKalb, Georgia and Bryman College, West Los Angeles, California, based upon concerns over the schools compliance with certain accrediting standards. We have responded to ACCSCTs concerns with respect to Bryman College, and we intend to
respond to ACCSCT with respect to Georgia Medical Institute in a timely manner. We will continue to work with ACCSCT to address and resolve any concerns on which these show cause orders are based.



The Accrediting Council of Independent Colleges and Schools
(ACICS) issued a show cause order to Mountain West College, Salt Lake City, Utah, based upon concerns over the schools compliance with certain accrediting standards. We intend to respond to ACICS concerns in a timely manner.



We believe we will be able to satisfactorily respond to the
show cause orders and work with the accrediting agencies to resolve their concerns. Accordingly, we believe the show cause orders will not have a material adverse impact on our results of operations or financial condition.



|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 December 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 $47.4 million and capital lease obligations of $12.6 million, and (ii) student notes receivable, net, in the aggregate amount of $4.9 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 our operations consists of an 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.



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 December 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.



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PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



See Note 12 to the attached condensed consolidated financial statements regarding Commitments and Contingencies.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



None



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------



None



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



On November 18, 2004, the Company held its Annual Meeting of Stockholders in Santa Ana, California. Stockholders approved all of the
initiatives put forth by the Companys Board of Directors and elected all nominees for Directors of the Company. The initiatives were (i) to elect three individuals as Class III members of the Companys Board of Directors and (ii) to
ratify the selection of Ernst & Young LLP as the Companys independent registered public accounting firm for its fiscal year ending June 30, 2005. No other business or actions were proposed at the Annual Meeting of the Stockholders. A total
of 84,736,487 shares were represented, in person or by proxy, and entitled to vote at the Annual Meeting of Stockholders. Such shares represented 93.75% of the total number of shares entitled to vote at such meeting. The following reflects the
tabulation of votes for each initiative placed before the stockholders of the Company:



| | 1) | Nominees for a three year term as Class III members of the Companys Board of Directors:
| | -- | ----------------------------------------------------------------------------------------



|                  |  |          |  |             
|----------------- |  | -------- |  | ------------
|Nominee           |  |          |  | No. of Votes
|David G. Moore    |  | For      |  | 80,435,430  
|                  |  | Withheld |  | 4,301,057   
|                  |  |         
|Jack D. Massimino |  | For      |  | 82,254,841  
|                  |  | Withheld |  | 2,481,646   
|                  |  |         
|Hank Adler        |  | For      |  | 83,600,007  
|                  |  | Withheld |  | 1,136,480   



| |  | No other persons were nominated or received votes to be Class III Directors of the Company.
| |  | -------------------------------------------------------------------------------------------



| | 2) | To ratify the appointment of Ernst & Young LLP as the Companys independent registered public accounting firm for its fiscal year ending June 30, 2005:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |         |  |             
| |  | ------- |  | ------------
| |  |         |  | No. of Votes
| |  | For     |  | 83,160,678  
| |  | Against |  | 1,526,545   
| |  | Abstain |  | 49,264      



|Item 5. | Other Information
|------- | -----------------



None



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|Item 6. | Exhibits
|------- | --------



(a) Exhibits:



|             |  |                                                                                                                                   
|------------ |  | ----------------------------------------------------------------------------------------------------------------------------------
|             | 
|Exhibit 10.1 |  | Form of Stock Option Award Agreement for Stock Options issued to Executive Officers under the 2004 New Hire Plan.                 
|             | 
|Exhibit 10.2 |  | Form of Restricted Stock Unit Award Agreement for Executive Officers under the Corinthian Colleges, Inc. 2004 New-Hire Award Plan.
|             | 
|Exhibit 31.1 |  | Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                   
|             | 
|Exhibit 31.2 |  | Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                   
|             | 
|Exhibit 32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002            
|             | 
|Exhibit 32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002            



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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.                                                            
|                 |  | 
|February 9, 2004 |  |  |  | /s/    JACK D.
MASSIMINO                                                             
|                 |  |  |  | Jack D. Massimino President and Chief Executive Officer (Principal Executive Officer)



|                 |  |  |  |                                                                                                                          
|---------------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------
|February 9, 2004 |  |  |  | /s/    ROBERT C.
OWEN                                                                                                    
|                 |  |  |  | Robert C. Owen Vice President, Controller and Acting Chief Financial Officer (Principal Financial and Accounting
Officer)



25