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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549





Form 10-K/A







(Amendment No. 1)





ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended June 30,
2003

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


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)                         

Registrants telephone number, including
area code:

(714) 427-3000


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $0.0001 par value per
share

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     þ          No     o




Indicate by check
mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K/A or any amendment to this
Form 10-K/A




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

As of
December 31, 2002, the aggregate market value of voting and
non-voting common equity held by non-affiliates of the
registrant was approximately $1.573 billion, based upon the
closing sales price of the Common Stock as reported on Nasdaq
National Stock Market on such date. For this computation, the
Company has excluded the market value of all common stock
beneficially owned by all executive officers and directors of
the Company and their associates as a group. This determination
of affiliate status for purposes of this computation is not
necessarily a conclusive determination for other purposes. As of
September 3, 2003, the number of outstanding shares of
voting and non-voting common equity of the registrant was
approximately 43,940,031.



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EXPLANATORY NOTE







The Registrant is filing this Amendment
No. 1 to its annual report on Form 10-K as filed with
the Securities and Exchange Commission (SEC) on
September 25, 2003 to correct printers EDGAR
formatting errors. In the original filing, the tables on
page 6 and on pages 15-16 had incorrect headings in
that they failed to distinguish correctly between
degree-granting and diploma-granting colleges. This report on
Form 10-K/A corrects those errors.






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TABLE OF CONTENTS



|                                                    |                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|INTRODUCTION AND NOTE ON FORWARD LOOKING STATEMENTS
|PART I                                             
|                                                    | Item 1. Business                                                                             
|RISKS RELATED TO OUR BUSINESS                      
|                                                    | Item 2. Properties                                                                           
|                                                    | Item 3. Legal Proceedings                                                                    
|                                                    | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                            
|                                                    | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|                                                    | Item 6. Selected Financial Data                                                              
|                                                    | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                    | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                    | Item 8. Financial Statements and Supplementary Data                                          
|                                                    | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|                                                    | Item 9A. Controls and Procedures                                                             
|PART III                                           
|                                                    | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                    | Item 11. Executive Compensation                                                              
|                                                    | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                    | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                            
|                                                    | Item 14. Principal Accountant Fees and Services                                              
|                                                    | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|INDEX TO EXHIBITS                                  
|SIGNATURES                                         
|INDEX TO EXHIBITS                                  
|EXHIBIT 21.1                                       
|EXHIBIT 23.1                                       
|EXHIBIT 23.2                                       
|EXHIBIT 31.1                                       
|EXHIBIT 31.2                                       
|EXHIBIT 32.1                                       
|EXHIBIT 32.2                                       



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CORINTHIAN COLLEGES, INC.




INDEX TO ANNUAL REPORT ON FORM
10-K/A




FOR THE FISCAL YEAR ENDED JUNE 30,
2003




|           |  |                                                                                           |    |      |    | 
|---------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                           |    | Page
|           |  |                                                                                           |    | No. 
|           |  |                                                                                           |    |     
|           |  | INTRODUCTION AND NOTE ON FORWARD LOOKING
    STATEMENTS                                   |    |      | 1  | 
|PART I    
|ITEM 1.    |  | BUSINESS                                                                                  |    |      | 2  | 
|           |  | EXECUTIVE OFFICERS OF THE REGISTRANT                                                      |    |      | 11 | 
|           |  | GOVERNMENTAL REGULATIONS AND FINANCIAL AID                                                |    |      | 13 | 
|           |  | RISKS RELATED TO OUR BUSINESS                                                             |    |      | 25 | 
|ITEM 2.    |  | PROPERTIES                                                                                |    |      | 31 | 
|ITEM 3.    |  | LEGAL PROCEEDINGS                                                                         |    |      | 33 | 
|ITEM 4.    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS                                   |    |      | 33 | 
|PART II   
|ITEM 5.    |  | MARKET FOR REGISTRANTS COMMON EQUITY AND
    RELATED STOCKHOLDER MATTERS                 |    |      | 34 | 
|ITEM 6.    |  | SELECTED FINANCIAL DATA                                                                   |    |      | 34 | 
|ITEM 7.    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS |    |      | 37 | 
|ITEM 7A.   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK                            |    |      | 48 | 
|ITEM 8.    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                               |    |      | 49 | 
|ITEM 9.    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE  |    |      | 78 | 
|ITEM 9A.   |  | CONTROLS AND PROCEDURES                                                                   |    |      | 78 | 
|PART III  
|ITEM 10.   |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                        |    |      | 79 | 
|ITEM 11.   |  | EXECUTIVE COMPENSATION                                                                    |    |      | 79 | 
|ITEM 12.   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
    AND MANAGEMENT                        |    |      | 79 | 
|ITEM 13.   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                            |    |      | 79 | 
|PART IV   
|ITEM 14.   |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                    |    |      | 79 | 
|ITEM 15.   |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
    REPORTS ON FORM 8-K                      |    |      | 79 | 
|SIGNATURES |  |                                                                                           | 83 |     




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INTRODUCTION AND NOTE ON FORWARD LOOKING
STATEMENTS

Corinthian Colleges, Inc. (hereinafter the
Company or Corinthian) is a Delaware
corporation; its principal executive offices are located at
6 Hutton Centre Drive, Suite 400, Santa Ana
California, 92707.




You should keep in mind the following points as
you read this Report on Form 10-K/A:






| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the terms we, us or the
    Company refer to Corinthian Colleges, Inc. and its
    subsidiaries;                                                                                         
|
| |  | the terms school,
    college, campus or training
    center refer to a single location of any school;                                                                                 
|
| |  | the term institution means a main
    campus and its additional locations, as such are defined under
    the regulations of the U.S. Department of Education or the
    DOE; and           
|
| |  | our fiscal year ends on June 30; references
    to fiscal 2003, fiscal 2002 and fiscal 2001 and similar
    constructions refer to the fiscal year ended on June 30 of
    the applicable year.




This Annual Report on Form 10-K/A contains
statements which, to the extent they do not recite historical
fact, constitute forward looking statements within
the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. Forward looking statements are used under
the captions Business, Governmental Regulation
and Financial Aid, Risks Related to Our
Business, Managements Discussion and Analysis
of Financial Condition and Results of Operations, and
elsewhere in this Annual Report on Form 10-K/A. You can
identify these statements by the use of words like
may, will, could,
should, project, believe,
anticipate, expect, plan,
estimate, forecast,
potential, intend, continue,
and variations of these words or comparable words. Forward
looking statements do not guarantee future performance and
involve risks and uncertainties. Actual results may differ
substantially from the results that the forward looking
statements suggest for various reasons, including those
discussed under the caption Risks Related to Our
Business. These forward looking statements are made only
as of the date of this Annual Report on Form 10-K/A. We do
not undertake to update or revise the forward looking
statements, whether as a result of new information, future
events or otherwise.




DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Companys definitive Proxy
Statement for the 2003 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission not
later than 120 days after June 30, 2003, are
incorporated by reference into Part III of this report.

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PART I




Item 1.     Business

Overview

Our company is one of the largest for-profit,
post-secondary education companies in the United States, with
more than 43,200 students enrolled as of June 30,
2003. As of June 30, 2003, we operated 69 colleges and
two training centers in 21 states, including 18 in
California and 12 in Florida, and serve the large and growing
segment of the population seeking to acquire career-oriented
education. Our schools generally enjoy long operating histories
and strong franchise value in their local markets.

We offer a variety of masters,
bachelors and associates degrees and diploma
programs through three principle operating divisions. As of
June 30, 2003, the Corinthian Schools division
(CSI) operated 40 primarily diploma-granting
schools with curricula primarily in the healthcare, business,
electronics and information technology fields and seeks to
provide its students a solid base of training for a variety of
entry-level positions. The Rhodes Colleges division
(RCI) operated 27 primarily degree-granting
colleges and offers curricula principally in the healthcare,
business, criminal justice, and information technology and
electronics. The Titan School division (TSI)
operated two campuses which offer diploma and degree programs in
the technology and automotive repair and diesel technician
fields. Our colleges receive strategic direction and operational
support from division and regional management and corporate
staff. Additionally, our Learning Tree University
(LTU) training centers offer continuing professional
education, short duration certificate programs, comprehensive
corporate training and customized learning solutions.

Additionally, subsequent to our fiscal
2003 year end, in August 2003, we completed the
acquisitions of East Coast Aero Tech, LLC (ECAT),
Career Choices, Inc. (Career), and in August and
September 2003, we acquired over 90% of the common share of CDI
Education Corporation (CDI), which added
56 colleges and 15 training centers. The purchase
price of the three acquisitions was approximately
$91 million and was funded by cash on hand and borrowings
of approximately $45 million from the Companys three
year, $235 million credit facility. ECAT operates one
college in Massachusetts, with a student population of
approximately 180 at June 30, 2003, offering accredited
diploma programs in airframe and power plant maintenance. Career
operates nine colleges in the pacific northwest and one college
in northern California, with a student population of
approximately 2,900 at June 30, 2003, offering accredited
programs in automotive technology and heating, ventilation and
air conditioning at its Sequoia campus, and allied health
programs at its nine Ashmead and Eton campuses. CDI operates
45 colleges, with a student population of approximately
6,000 as of June 30, 2003, and 15 training centers in
Canada and is our first international operation. The CDI
colleges offer programs in information technology, business and
allied health and the 15 training centers provide training
in skills development to both corporations and governmental
departments.

We have grown our business through acquisitions
as well as through organic growth. Organic growth consists of
opening new branch campuses, remodeling, expanding or relocating
existing campuses and adopting curricula into existing colleges.
Since 1999 and through June 30, 2003, we have opened
18 branch campuses and acquired 18 colleges and two
training centers. Since the Companys formation in 1995,
and including the August 2003 acquisitions of ECAT, Career and
CDI, we have acquired 107 colleges and 17 training
centers and we have opened 18 branch campuses.

Our company is led by David G. Moore, our
Chairman of the Board and Chief Executive Officer, and an
experienced executive management team. Our team of
13 executives, including Mr. Moore, have an average of
approximately 15 years experience in various fields of
education and an average of approximately 13 years in the
for-profit, post-secondary education industry. Our operational
structure consists of three divisions, led by division
presidents with oversight responsibility of our diploma-granting
schools division, our degree-granting schools division, and our
technical schools division. Below the division level are nine
regions, each lead by a regional vice president of operations
and a regional vice president of admissions, which report to
their respective division presidents. Our operations structure
is supported by our management information system, which links
all of our schools, colleges and training centers to a
centralized administrative database and provides management with
real-time access to marketing reports, lead tracking, academic
records, grades,

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transcripts and placement information. We expect
to provide operational oversight at CDI through two divisions in
Canada; post secondary colleges and corporate education training
centers.


Operating Strategy

We have increased our student enrollment and
improved profitability through the successful implementation of
our operating strategy. Key elements of our operating strategy
include the following components:

Emphasize Student
Outcomes.We believe that positive
student outcomes are a critical component of our long-term
success. Accordingly, we devote substantial resources to
maintaining and improving our retention and placement rates.
Modest increases in student retention can have a significant
impact on our profitability and high graduation and placement
rates enhance a schools reputation and marketability,
increases referrals and improves cohort default rates. We have
implemented a variety of programs, including extended
orientation and tutoring, academic and personal advising,
ride-sharing and referral programs, all of which are designed to
improve student retention. We utilize a curriculum development
team which is assisted by advisory boards comprised of local
business professionals to help insure that our curricula provide
our students with the skills required by local employers. We
also maintain dedicated, full-time placement personnel at our
schools that undertake extensive placement efforts, including
recruiting prospective employers, helping students prepare
resumes, conducting practice interviews, establishing internship
programs and tracking students placement success on a
monthly basis. As a result of our efforts in this area,
approximately 82% of our graduates in calendar year 2002 who
were available for placement, as defined by
accreditation standards, were placed in a job for which they
were trained within six months after graduation.

Create a Supportive and Friendly Learning
Environment.We view our students as
customers and seek to provide a supportive and convenient
learning environment where student satisfaction is achieved. We
offer a flexible schedule of classes, providing our students
with the opportunity to attend classes throughout the day, as
well as nights and weekends. Schools operate year-round,
permitting students to complete their course of study more
quickly. We limit class sizes and focus the efforts of our
faculty on teaching students rather than research. Personal
interaction between students and faculty is encouraged and we
offer several support programs, such as on-campus advising and
tutoring, which are designed to help students successfully
complete their course of study. We also maintain a toll-free
student hotline to address and help resolve student concerns.

Focus on Attractive Markets.We design our educational programs to
benefit from favorable demographic trends. Our diploma-granting
colleges provide programs in healthcare and technology related
fields, allowing us to capitalize on the growth in job
opportunities in these industries. Our degree-granting colleges,
with their business focus, and modern facilities and equipment
and excellent faculty, seek to provide students with specific
knowledge and skills necessary to advance in business and
industry. Our training centers focus on skills development
training which is attractive to corporate and governmental
employers. Our geographic strategy is to build a strong
competitive position in attractive and growing local markets
where we can take advantage of operating efficiencies and
benefit from favorable demographic trends. We are well
positioned, with 80 colleges and two training centers in the
USA, including, 16 schools and two training centers in
California, 12 schools in Florida, and 45 schools and
15 training centers in Canada.

Centralize Key Functions.In order to capitalize on the
experience of our senior management team and to encourage best
practices, we have established a regional management
organization consisting of local school administrators, regional
vice presidents of operations and admissions and divisional
presidents, which are supported by centralized functions
supervised by senior management at our corporate headquarters.

Local school administrators retain control of,
and accountability for, the day-to-day academic, operational and
financial performance of their individual schools and receive
appropriate financial incentives. The corporate management team
controls centralized key operational functions such as
accounting, IT, financial aid management, marketing, curriculum
development, staff training, human resources and purchasing,
which we believe enables us to achieve significant operating
efficiencies. For example, our corporate management team
controls the advertising function and utilizes our information
technology system to analyze the effectiveness of our marketing
efforts and to make timely and efficient decisions regarding the
allocation of marketing resources at individual colleges.

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Growth Strategy

We intend to achieve continued growth in revenues
and profitability by pursuing our growth strategy:



| |                                        
| | ---------------------------------------
| | Enhance Growth at Existing
    Campuses



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Curriculum Expansion and
    Development.We have acquired,
    developed, and refined curricula based on market research and
    recommendations from our faculty, advisory board members and our
    curriculum development team. We believe considerable
    opportunities exist for curriculum adoption and we expect to
    continue to acquire and develop new curricula and selectively
    adopting existing curricula into both existing and new
    locations. In fiscal 2003, we successfully adopted
    50 programs into existing schools. We expect to adopt
    between 50 and 70 programs into existing schools in fiscal
    2004.                
|
| | Integrated and Centralized Marketing Program.We have increased student enrollment
    by employing an integrated marketing program that utilizes an
    extensive direct response advertising campaign delivered through
    television, newspaper, direct mail and the Internet. A
    professional marketing staff at our headquarters coordinates
    marketing efforts with advertising agencies through an in-bound
    call center and our sophisticated real-time leads tracking
    capability.                                                                                                                                                           
|
| | Facilities Enhancement and Expansion.In order to expand facility capacity
    to meet our expected enrollment demand, as well as to improve
    the location and appearance of our facilities, we remodel,
    expand, and relocate existing colleges. We expect to continue to
    systematically remodel, expand, and relocate, selected colleges
    within their respective markets into larger, enhanced
    facilities. Since 1999, 19 colleges have been relocated and
    an additional 39 campuses have been either remodeled or
    enlarged. As of June 30, 2003, the total square footage of
    our campuses was approximately 2,506,000 square feet.

Establish Additional Locations.Since our initial public offering in
February 1999, we have opened and successfully integrated
18 branch campuses into our operations. Of the
18 branch campuses, two were opened in each of fiscal 2000
and fiscal 1999, four were opened in each of fiscal 2001 and
fiscal 2002, and six were opened in fiscal 2003. A key advantage
of this strategy is that students attending new campuses
branched from existing campuses have immediate access to
federally funded student financial aid. We believe that opening
new branch campuses will allow us to enter new geographic
markets, create additional capacity in existing markets and
effectively leverage our infrastructure and our extensive
investment in curricula. We expect to open between six and eight
branch campuses during fiscal 2004.

Make Strategic Acquisitions.Since our founding in 1995,
acquisitions have been an important part of our growth strategy.
Of the 69 campuses and two training centers operated as of
June 30, 2003, 53 have been acquired and successfully
integrated into our operations. During fiscal 2003, we acquired
and successfully integrated two Wyo-Tech Acquisition Corporation
(Wyo-Tech) campuses and two LTU training centers.
Additionally, subsequent to our fiscal 2003 year end, we
completed the acquisitions of ECAT and Career, and substantially
completed the acquisition of CDI, thereby adding
56 colleges and 15 training centers to the Corinthian
family of colleges. To evaluate acquisition opportunities, we
have established several criteria, such as demographics,
curricula, geographic proximity to our existing campuses and
selected financial measurements.

Expand Distance Learning and Delivery Models.We continue to expand our distance
learning and contract training initiatives.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Distance Learning.Online education, or education
    delivered via the internet, has become an increasingly important
    component of the higher education market. During fiscal 2003, we
    experienced a significant increase in the number of students
    taking our online courses through the Internet. Our online
    learning increased by 82% to 27,273 course registrations in
    fiscal 2003. As of June 30, 2003, we offered
    136 online courses through 25 campuses. All of the
    courses necessary to complete an associates and
    bachelors degrees in business, accounting, and criminal
    justice are now available online. Additionally, we offer all the
    courses necessary to complete masters degrees in business
    administration and in criminal justice entirely online. With the
    recent approval to offer an associates degree in legal
    assisting, we now offer nine accredited degrees to students
    enrolled in exclusively online studies. We believe that online

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | learning will continue to expand. In fiscal 2004,
    we expect to continue to grow our online education by increasing
    the number of courses offered, adding to the number of campuses
    offering online courses, and expanding the type of degrees
    offered online. Although the majority of our students
    participating in online learning also attend one of our
    degree-granting colleges, in fiscal 2002, we began enrolling
    exclusively online students through our nine Florida
    Metropolitan University (FMU) colleges and during
    fiscal 2004 we expect to allocate the resources required to grow
    this exciting aspect of our business.
|
| | Corporate Training.Although we do not derive a
    significant portion of our revenues from contract training, we
    believe the corporate and governmental training arena is an
    attractive market and that our curricula meet the needs of a
    variety of employers. The acquisition of CDI and its
    15 training centers in Canada will, we believe, provide a
    growth platform that will fuel future growth in corporate
    training in North America.                                                                                                                                                                                                          

Programs of Study

Our diploma programs are intended to provide
students with the requisite knowledge and job skills for
entry-level positions in their chosen career. Our degree
programs are primarily designed for career-oriented adults and
to assist them in enhancing their skills. Our curriculum
development team has the responsibility of maintaining high
quality, market driven curricula. Our colleges also utilize
advisory boards to help evaluate and improve the curriculum for
each program offered. These advisory boards are requested to
meet at least twice a year and are comprised of local industry
and business professionals. Advisory board members provide
valuable input regarding changes in the program and suggest new
technologies and other factors that may enhance curriculum.

Among the diploma-granting colleges, the
curricula principally includes medical assisting, dental
assisting, medical office management, information technology,
business operation, medical administrative assisting, surgery
technology, dialysis technology, respiratory therapy technology,
automotive and diesel technology, HVAC, and electronics and
computer technology. The curriculum at our degree-granting
colleges includes accounting, business administration, computer
information systems, hospitality management, marketing, criminal
justice, medical assisting, paralegal, court reporting, and film
and video. Most programs lead to an associates degree,
except at our FMU campuses, where most programs may also lead to
a bachelors degree. Masters degrees are also offered
at FMU in business administration and criminal justice.

Diploma programs generally have a duration of
6-19 months, depending on the course of study.
Associates degree programs have a duration of
18-24 months, bachelors degree programs last
36-48 months and masters degree programs have a
duration of 21 months. As of June 30, 2003, we had
17,104 (39%) students enrolled in associates programs,
2,630 (6%) enrolled in bachelors programs, 680 (2%)
enrolled in masters programs, and 22,815 (53%) enrolled in
diploma programs.

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The following table reflects our schools, their
locations and principal curricula as of June 30, 2003. In
the table below, programs offered are designated as follows:
healthcare (HC), business (B), information technology and
electronics (IT), criminal justice (CJ), automotive and diesel
technology (AT) and other miscellaneous programs (OTH) (2).

|                                                      |  |                   
|----------------------------------------------------- |  | ------------------
|                                                      |  | Principal         
|Degree-Granting Colleges(1)                           |  | Curricula         
|                                                      |  |                   
|Blair College, Colorado Springs, CO(2)                |  | HC, B, IT, CJ, OTH
|Duffs Business Institute, Pittsburgh, PA             |  | HC, B, IT, CJ     
|FMU, Brandon, FL                                      |  | HC, B, IT, CJ     
|FMU, Ft. Lauderdale, FL                               |  | HC,B, IT, CJ, OTH 
|FMU, Jacksonville, FL                                 |  | HC, B, IT, CJ     
|FMU, Lakeland, FL                                     |  | HC, B, IT, CJ     
|FMU, Melbourne, FL                                    |  | HC, B, IT, CJ, OTH
|FMU, Orlando (North), FL                              |  | HC, B, IT, CJ, OTH
|FMU, Orlando (South), FL                              |  | HC, B, IT, CJ     
|FMU, Pinellas, FL                                     |  | HC, B, IT, CJ     
|FMU, Tampa, FL                                        |  | HC, B, IT, CJ, OTH
|Las Vegas College, Las Vegas, NV                      |  | HC, B, IT, CJ     
|Mountain West College, Salt Lake City, UT             |  | HC, B, IT, CJ, OTH
|Parks College, Thornton, CO                           |  | HC, B, IT, CJ, OTH
|Parks College, Aurora, CO                             |  | HC, B, IT, CJ, OTH
|Parks College, Arlington, VA                          |  | B, IT, CJ         
|Rochester Business Institute, Rochester, NY           |  | B, IT, CJ         
|Everest College, Phoenix, AZ                          |  | B, IT, CJ         
|Everest College, Rancho Cucamonga, CA                 |  | B, IT, CJ         
|Everest Institute, Mid Cities, TX                     |  | B, IT, CJ         
|Everest Institute, Dallas, TX                         |  | B, IT, CJ         
|Springfield College, Springfield, MO                  |  | HC, B, IT, CJ     
|Western Business College, Vancouver, WA               |  | HC, B, IT, CJ     
|Western Business College, Portland, OR                |  | HC, B, IT, CJ, OTH
|National School of Technology, N. Miami
    Beach, FL |  | HC                
|National School of Technology, Hialeah, FL            |  | HC                
|National School of Technology, Kendall, FL            |  | HC                
|Wyo-Tech, Blairsville, PA                             |  | AT                
|Wyo-Tech, Laramie, WY                                 |  | AT                




|                                                                |  |               
|--------------------------------------------------------------- |  | --------------
|                                                                |  | Principal     
|Diploma-Granting Colleges(1)                                    |  | Curricula     
|                                                                |  |               
|Bryman Institute, Brighton, MA                                  |  | HC            
|Bryman College, El Monte, CA                                    |  | HC, B         
|Bryman College, Gardena, CA                                     |  | HC            
|Bryman College, Los Angeles, CA                                 |  | HC            
|Bryman College, New Orleans, LA                                 |  | HC            
|Bryman College, Anaheim, CA                                     |  | HC            
|Bryman College, San Francisco, CA                               |  | HC            
|Bryman College, San Jose, CA                                    |  | HC            
|Bryman College, Hayward, CA                                     |  | HC, B         
|Bryman College, Reseda, CA                                      |  | HC            
|Bryman College, Renton, WA                                      |  | HC            
|Bryman College, Lynnwood, WA                                    |  | HC            
|Bryman College, Ontario, CA                                     |  | HC, B         
|Bryman College, West Los Angeles, CA                            |  | HC, B, OTH    
|Bryman College, Whittier, CA                                    |  | HC, B         
|Bryman College, Torrance, CA                                    |  | HC            
|Bryman College, San Bernardino, CA                              |  | HC, B         
|Georgia Medical Institute, Atlanta, GA                          |  | HC            
|Georgia Medical Institute, Jonesboro, GA                        |  | HC            
|Georgia Medical Institute, Marietta, GA                         |  | HC            
|Georgia Medical Institute, Norcross, GA                         |  | HC            
|Georgia Medical Institute, Dekalb, GA                           |  | HC, B         
|Kee Business College, Newport News, VA                          |  | HC, B         
|Kee Business College, Chesapeake, VA                            |  | HC, B         
|National Institute of Technology, Austin, TX                    |  | HC, B, IT     
|National Institute of Technology, Cross Lanes, WV               |  | HC, B, IT     
|National Institute of Technology, Dearborn, MI                  |  | HC, IT        
|National Institute of Technology, Houston
    (Greenspoint), TX |  | HC, B         
|National Institute of Technology, Houston
    (Hobby), TX       |  | HC, B         
|National Institute of Technology, Houston
    (Galleria), TX    |  | HC, B, IT     
|National Institute of Technology, Long Beach, CA                |  | HC, B, IT, OTH
|National Institute of Technology, San Antonio, TX               |  | HC, B, IT     
|National Institute of Technology, San Jose, CA                  |  | B, IT, OTH    
|National Institute of Technology, Southfield, MI                |  | HC, B, IT     
|Olympia Career Training Institute, Grand Rapids,
    MI         |  | HC, IT        
|Olympia Career Training Institute, Kalamazoo, MI                |  | HC            
|Olympia College, Merrillville, MI                               |  | HC            
|Olympia College, Skokie, IL                                     |  | HC            
|Olympia College, Burr Ridge, IL                                 |  | HC            
|Olympia College, Chicago, IL                                    |  | HC            




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---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Additionally, in August 2003, we completed (or,
    in the case of CDI, substantially completed) the following
    acquisitions: ECAT, which offers diploma programs in airframe
    and power plant maintenance at its one campus in Massachusetts;
    Career Choices, which offers diploma programs primarily on
    allied health at its nine campuses in the Pacific Northwest and
    diploma and degree programs in automotive technology and HVAC at
    a single campus in northern California; and CDI, which operates
    45 campuses in Canada and offering diploma programs in business,
    information technology and allied health.
|   
|(2) | OTH means Other and includes programs
    such as hotel and restaurant management, travel and hospitality,
    and video/film production as well as other miscellaneous
    programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Marketing and Recruitment

We employ a variety of methods to attract
qualified applicants who will benefit from our programs and
achieve success in their chosen careers. We believe that one of
the principal attractions for prospective students is the
excellent reputation our schools enjoy in their respective
communities. Nine of our campuses have been operating for more
than 80 years. We believe the long history of operations of
our schools enhances their marketability within their respective
communities. This value, along with the quality of the programs
offered, has enabled us to generate significant new student
enrollments from referrals. For the year ended June 30,
2003, approximately 30% of our new student enrollments came from
referrals.

We also employ a variety of direct response
advertising techniques to generate leads of potential applicants
for our schools. Our advertising department generated more than
726,000 leads in fiscal 2003 primarily through television,
direct mail, newspaper, internet and yellow pages. The
effectiveness of this advertising campaign is dependent upon
timely and accurate lead tracking. To that end, we operate a
call center at our headquarters, staffed by a team of operators
who receive incoming calls from interested students attracted to
our programs through television and newspaper advertisement.
These trained operators enter relevant data on each prospect
into our management information system during the call and
immediately transmit the information to the appropriate college.
The college admissions representative promptly contacts the
prospect and begins the admissions process. Additionally, the
call center places out-bound calls and schedules meetings with
prospective students and trained admissions representatives.

Our lead tracking capability allows us to
identify leads generated by specific commercials and spot times.
Our seven advertising agencies are networked into our management
information database and are provided with real time information
on the effectiveness of individual commercials as well as the
effectiveness of the media buy. The agencies consult
with our advertising department to adjust schedules for
advertisements depending on our needs and the effectiveness of
the particular advertisements. Since more than 72% of our
advertising budget is spent on television and newspaper
advertisements, the availability of timely and accurate lead
information is critical to the leads generation process. For the
year ended June 30, 2003, approximately 41% of our new
student enrollments were generated through television, newspaper
and yellow pages advertising, 30% were generated through
referrals, 6% were generated through direct mail, 10% were
generated from the Internet, and 13% were generated through a
variety of other methods.

Admissions

As of June 30, 2003, we employed
approximately 610 admissions representatives who work
directly with prospective students to facilitate the enrollment
process. These representatives interview and advise students
interested in specific careers and are a key component of our
effort to generate interest in our educational services. We
conduct quarterly student satisfaction surveys in which students
have consistently given high marks to our admissions personnel
for helpfulness, courtesy and accuracy of information. Because
our success is highly dependent on the efficiency and
effectiveness of our admissions process, we invest considerable
resources to training our admissions representatives in product
knowledge, regulatory compliance, and customer service. We also
employ various admissions supervisory and monitoring programs,
and conduct student surveys which, we believe, helps us ensure
compliance with both government regulations and our corporate
policies.

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One of our objectives in the admissions process
is to identify students who have appropriate qualifications to
succeed in our schools. Candidates for admission into most of
our degree-granting colleges must have either a high school
diploma or a GED and all prospective students must pass a
standardized admissions test. In addition, most of our
diploma-granting colleges may accept non-high school graduates
who can demonstrate an ability to benefit (ATB
students) from the program by passing certain tests which
are required by the U.S. Department of Education. We believe
that ATB students can successfully complete many of our diploma
programs and our colleges have demonstrated success in
graduating and placing these students over the years. As of
June 30, 2003, ATB students accounted for approximately
6.4% of total enrollments in our schools.

Placement

Our placement success is critical to our
colleges reputations and their ability to continue to
successfully recruit new students. We maintain a placement
department at each college and, as of June 30, 2003,
employed approximately 186 professionals in this capacity.
In many cases, our placement staff work with students from the
time they begin their courses of study until they are
successfully placed in a job for which they are trained. We
believe our placement departments are a key component of our
success and we view them as essentially in-house employment
agencies, assisting students with resumes, conducting practice
interview sessions, and recruiting prospective employers for the
colleges graduates.

We believe the efforts we devote to place our
graduates have achieved excellent results. Based on information
received from graduating students and employers for calendar
year 2002, approximately 82% of our graduates who were
available for placement were placed in a job for
which they were trained within six months after graduation. In
accordance with accrediting standards, the term available
for placement includes all graduates except those who are
continuing their education, are in active military service or
are deceased or disabled, and foreign students who are
ineligible to work in the United States after graduation.

Tuition

Typical tuition for our diploma programs range
from $6,000 to $27,700, depending upon the nature and length of
the program. Tuition for degree programs is charged on a credit
hour basis and varies by college, typically ranging from $193 to
$270 per undergraduate credit hour, depending upon the program
of study. Tuition for graduate programs ranges from $297 to $312
per credit hour. On average, an undergraduate degree candidate
can expect tuition of approximately $7,800 per academic year,
while a masters degree candidate can expect tuition of
approximately $9,500 per academic year. In addition to tuition,
students at our schools must also typically purchase textbooks
and other supplies as part of their educational programs. We
anticipate increasing tuition based on the market conditions
prevailing at our individual colleges. Our tuition ranges are
competitive with similar institutions, but like many proprietary
institutions, are somewhat higher than public institutions such
as community colleges and state universities.

If a student fails to complete the period of
enrollment such as a quarter, trimester, semester, academic
year, or program, the institution may be required to refund
tuition previously collected to the originating or disbursing
agency. Refunds are calculated in accordance with the applicable
state, federal or institutional refund policy.

Campus Administration

We establish policy, implement these policies,
and monitor the performance of our schools through the
coordination of the executive vice president of operations, the
division presidents, our regional vice presidents of operations,
the regional vice presidents of admissions and through our
internal audit department. The college presidents, in
consultation with their respective management teams, have the
responsibility for the day-to-day operation of the schools. Each
college employs the following management personnel which report
to the college president:



| |   |                                        
| | - | ---------------------------------------
| |  | an academic dean or education director;
|
| |  | an admissions director;                

8



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| |   |                          
| | - | -------------------------
| |  | a placement director, and
|
| |  | a finance director.      

Corporate, or headquarters, personnel manage
several key functions, including financial aid, information
technology, treasury, accounting, marketing and advertising,
purchasing, human resources, payroll, curriculum development,
leads management, staff training and development, internal
audit, and provide academic and instructional support for online
learning. Among the principal oversight functions performed by
corporate personnel, in cooperation with our division, region
and college management, is the annual operating budget,
strategic planning and forecasting processes. These processes
establish goals for each college, assist in implementing
strategies and establish performance expectations and
corresponding incentives. Our senior management team monitors
operating performance and profitability of each college and has
access to operational data through our sophisticated information
systems and conducts weekly conference calls with the college
presidents to review key performance indicators such as lead
flow, starts, student population, and other operating results to
determine the proper course of action.

Faculty

The faculty members at our colleges are industry
professionals and hold appropriate credentials in their
respective disciplines. We choose faculty carefully and
encourage them to pursue professional development activities. We
believe the skill and dedication of our faculty have a
significant impact on the placement and success of our students
following their graduation. As of June 30, 2003, we
employed 3,139 faculty, 1,476 of whom were full-time
employees. Faculty represents approximately 51% of our employees.

Competition

The post-secondary education market, consisting
of approximately 6,800 accredited institutions, is highly
fragmented and competitive, with no institution having a
significant market share. Many of the programs offered by our
colleges are also offered by public and private non-profit
institutions, as well as by many of the approximately
2,500 private, for-profit colleges and schools. Typically,
the tuition charged by public institutions is less than tuition
we charge for comparable programs because public institutions
receive state subsidies, donations and government research and
other grants that are not available to our colleges. However,
tuition at private non-profit institutions is typically higher
than the tuition charged at our colleges.

We compete in most markets with other private,
for-profit institutions offering similar programs. We believe
that the long operating history of many of our colleges, the
qualifications of our faculty, our facilities, and our emphasis
on student services and placement allows us to compete
effectively. In addition, many of our colleges have been
operating in their markets for many years, which has led to a
substantial number of graduates who are working in the community
and validate the quality of the colleges programs. For
example, the Bryman Colleges have been well known in the
healthcare education field in California for over 37 years.
We believe that many physicians and dentists in California view
Bryman as their best source of qualified medical and dental
assistants.

Facilities

Our corporate office is located in Santa Ana,
California. The 69 campuses and two training centers that
we operated as of June 30, 2003 are located in
21 states. Each campus provides our students with lecture
rooms, instructional labs, libraries, internet access and an
administrative staff led by a college president.

We actively monitor the capacity at our
facilities and the expected future facilities capacity required
to accommodate campus growth initiatives. We provide for
expansion and future growth at each campus through relocations
to larger facilities and by expanding or remodeling existing
facilities. From the beginning of fiscal 1999 through fiscal
2003, approximately 27% of the campuses have been relocated and
an additional 55% of total campuses have been either expanded or
remodeled. The following table reflects the number of campuses
added or closed during each of the last five fiscal years, the
number of campuses operated at the end of each of

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the last five fiscal years and the number of
campuses that have been relocated, enlarged or remodeled during
each of the last five fiscal years.


|                                            |          |                      |    |      |  |      |    |      |  |         |    |   |  |  |    |   |  |  |    |   | 
|------------------------------------------- | -------- | -------------------- | -- | ---- |  | ---- | -- | ---- |  | ------- | -- | - |  |  | -- | - |  |  | -- | - | 
|                                            |          |                     
|                                            |          | Years Ended June 30,
|                                            |          |                     
|                                            |          | 1999                 |    | 2000 |  | 2001 |    | 2002 |  | 2003(1)
|                                            |          |                      |    |      |  |      |    |      |  |        
|Opened                                      |          |                      |    |      |  |      |    |      |  |         |    |   |  |  |    |   |  |  |    |  
|                                            | Acquired |                      |    | 0    |  |      |    | 5    |  |         |    | 9 |  |  |    | 3 |  |  |    | 4 | 
|                                            | Branched |                      |    | 2    |  |      |    | 2    |  |         |    | 4 |  |  |    | 4 |  |  |    | 6 | 
|Closed                                      |          |                      | 0  |      |  |      | 0  |      |  |         | 1  |   |  |  | 1  |   |  |  | 0  |  
|Combined with another campus                |          |                      | 0  |      |  |      | 0  |      |  |         | 0  |   |  |  | 1  |   |  |  | 0  |  
|Total campuses/training centers at year end |          |                      | 37 |      |  |      | 44 |      |  |         | 56 |   |  |  | 61 |   |  |  | 71 |  
|Relocated                                   |          |                      | 5  |      |  |      | 2  |      |  |         | 3  |   |  |  | 6  |   |  |  | 3  |  
|Enlarged or remodeled                       |          |                      | 1  |      |  |      | 2  |      |  |         | 9  |   |  |  | 10 |   |  |  | 17 |  



---



|    |                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------
|(1) | Excludes the 56 colleges and 15 training
    centers acquired in August 2003 subsequent to our fiscal year
    end.

All but three of our campuses, and two buildings
at Wyo-Tech, are leased. In addition, we lease our headquarters
offices. Most of our leases have primary terms between five and
ten years with options, at our election, to extend the lease.

Management and Employees

Our company is led by David G. Moore,
Chairman of the Board and Chief Executive Officer. He is
assisted by his senior management team of Anthony Digiovanni,
our President and Chief Operating Officer, Dennis L.
Devereux, Dennis N. Beal, Beth A. Wilson, Mary H.
Barry, Mark L. Pelesh, Nolan A. Miura, Stan A.
Mortensen and Paul T. Dimeo. Beyond the senior management
level, our management structure includes presidents of our
operating divisions, regional vice presidents of operations and
regional vice presidents of admissions. As of June 30,
2003, we had approximately 6,102 employees, of whom
approximately 2,260 were part-time and approximately 411 were
employed at or assigned to our corporate headquarters and
regional offices.

Available Information

Free copies of our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and any amendments to those reports
filed with the Securities and Exchange Commission
(SEC) may be obtained through our website at
www.cci.edu, or by contacting our investor relations department.
Our website address is provided solely for informational
purposes. We do not intend, by this reference, that our website
or any of the information contained therein should be deemed to
be part of, or incorporated into, this Annual Report.

10



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EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the name, ages, titles and
present and past positions of the persons serving as executive
officers of the Company as of September 3, 2003:

|                      |  |     |    |          |  |                                                                       
|--------------------- |  | --- | -- | -------- |  | ----------------------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|David G. Moore        |  |     | 64 |          |  | Chairman of the Board, President, and Chief
    Executive Officer     
|Anthony F. Digiovanni |  |     | 53 |          |  | President and Chief Operating Officer                                 
|Dennis L. Devereux    |  |     | 56 |          |  | Executive Vice President, Administrative Services                     
|Dennis N. Beal        |  |     | 52 |          |  | Executive Vice President and Chief Financial
    Officer              
|Beth A. Wilson        |  |     | 51 |          |  | Executive Vice President, Operations                                  
|Mary H. Barry         |  |     | 54 |          |  | Executive Vice President, Academic Affairs                            
|Mark L. Pelesh        |  |     | 49 |          |  | Executive Vice President, Legislative and
    Regulatory Affairs      
|Nolan A. Miura        |  |     | 48 |          |  | Senior Vice President, Strategic Planning and
    Business Development
|Stan A. Mortensen     |  |     | 36 |          |  | Senior Vice President, General Counsel and
    Corporate Secretary    
|Paul T. Dimeo         |  |     | 53 |          |  | Senior Vice President, Real Estate                                    

David G. Mooreis
one of the founders of our company and has served as our Chief
Executive Officer, as well as a member of our board of
directors, since our inception in July 1995 and as our President
through November 2002. He was elected the Chairman of the Board
in August of 2001. Immediately prior to forming our company, he
was President of National Education Centers, Inc.
(NECI), a subsidiary of National Education
Corporation. From 1992 to 1994, Mr. Moore served as
President of DeVry Institute of Technology in Los Angeles, where
he developed DeVrys West Coast growth strategy. From 1980
to 1992, he was employed by Mott Community College in Flint,
Michigan, where he was President from 1984 to 1992. From 1960 to
1980, Mr. Moore served a distinguished career in the
U.S. Army, retiring at the rank of Colonel. Mr. Moore
received a Bachelor of Arts in Political Science from Seattle
University and Master of Business Administration from the
University of Puget Sound. He has also completed the Management
of Higher Education Program at Harvard University, post graduate
studies in Higher Education Management at the University of
Michigan and graduate study and research in Computer Science at
Kansas State University.

Anthony F. Digiovannijoined Corinthian as President and
Chief Operating Officer in November 2002. Prior to joining
Corinthian, he served as Executive Vice President of Apollo
Group, Inc., a for-profit, publicly traded higher education
provider. Prior to his position as Executive Vice President of
Apollo, he was CEO of Apollos University of Phoenix
Online. From 1998 to 2000, he served as Executive Vice President
for University of Phoenix, Inc. From 1992 to 1998, he served as
Regional Vice President for University of Phoenixs Western
campuses and as Vice President/ Campus Director in Southern
California from 1989 to 1992. Mr. Digiovanni earned his
Bachelor of Business Administration from Loyola Marymount
University, Los Angeles and his MBA from the University of
Southern California.

Dennis L. Devereuxis one of the founders of our company
and currently serves as Executive Vice President, Administrative
Services, a title he has held since August 2001. Previously, he
served as Vice President, Human Resources from the
Companys inception in July 1995 to April 1998, when he was
promoted to Executive Vice President, Human Resources. He was
employed by NECI as its Vice President, Human Resources from
1988 to 1995. From 1987 to 1988, he was Director, Human
Resources for Jacobs Engineering Group, Inc. He was employed by
American Diversified Companies, Inc. as its Director, Human
Resources from 1985 to 1987. From 1973 to 1984,
Mr. Devereux was employed by Bechtel Group, Inc. in a
variety of human resources management positions, including
Personnel Manager for a subsidiary company and Personnel
Supervisor for a major construction site and within a large
regional operation. Previously, he was employed in a
compensation assignment with Frito-Lay, Inc. and as Personnel
Manager with Anaconda Wire & Cable Company from 1969 to
1973. Mr. Devereux received a Bachelor of Science in
Business Administration (Personnel Management) from California
State University, Long Beach.

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Dennis N. Bealjoined us as our Executive Vice
President and Chief Financial Officer in May 2000. Prior to
joining our company, Mr. Beal was employed by Stater Bros.
Holdings Inc. (an operator of 155 supermarkets in
California) as its Vice President and Chief Financial Officer
from 1992 to 1998 and as its Senior Vice President and Chief
Financial Officer from 1998 to May 2000. From 1981 to 1992,
Mr. Beal was employed by American Stores Company (an
operator of approximately 1,500 supermarkets and drug
stores) and served in various financial capacities including
Vice President, Controller. From 1974 to 1981, Mr. Beal was
employed by the firm of Bushman, Daines, Rasmussan and Wisan
CPAs and was admitted as a Partner in 1980. Mr. Beal,
a Certified Public Accountant, graduated with a Bachelor of
Science degree in Accounting from the University of Utah and
received a Masters of Business Administration degree from
Westminster College, Salt Lake City, Utah.

Beth A. Wilsonhas
been employed by us since our inception in July 1995. She was
promoted to Executive Vice President in July 2001. Previously,
Ms. Wilson was Vice President of Operations from June 1998
to June 2001. Ms. Wilson was Regional Operations Director
for the College Region of Rhodes Colleges, Inc. from May 1997 to
June 1998. From July 1995 to May 1997 she was Operations
Director and Regional Operations Director for Corinthian
Schools, Inc. Ms. Wilson was employed by NECI from 1991 to
1995, initially as Executive Director of its Capital Hill
campus, then as Area Operations Manager. From 1990 to 1991, she
was Vice President, Branch Operations for National College. She
was employed by United Education and Software from 1984 to 1990,
initially as Executive Director of a business school, then as
Group Manager for four to fifteen locations and finally as Vice
President, Administration. She was Scholarship Administrator for
National University from 1982 to 1984 and Assistant Director of
American Business College from 1976 to 1981. Ms. Wilson
earned an MBA from National University and a Bachelor of Arts
degree from California State College, Sonoma.

Mary H. Barryserves
as our Executive Vice President of Academic Affairs since
September 2003, and has served as our Senior Vice President of
Academic Affairs from July 2002 until August 2003. Prior to that
time she served as our Vice President of Education from April
1998 through July 2002. She was previously employed by
University of Phoenix, Southern California Campus, from 1992
through April 1996, where her assignments included Director of
Academic Affairs and Director of Administration. She was the
Regional Director of the Center for Professional Education,
Western Region, from 1996 to 1998. Previously, Ms. Barry
was employed in the banking industry as Senior Vice President of
Marquette Banks, Director for Citibank, and Vice President of
First National Bank of Chicago. Ms. Barry served as a
Public Affairs Officer in the U.S. Marine Corps from 1971
to 1980, achieving the rank of Major. Ms. Barry earned a
Bachelor of Science in Speech/ Drama Education from Bowling
Green State University, a Masters of Management from the Kellogg
Graduate School of Management, Northwestern University and a
Juris Doctorate from Western State University.

Mark L. Peleshbecame our Executive Vice President
for Legislative and Regulatory Affairs in September 2003. Prior
to that time, he was a partner in the firm of Drinker
Biddle & Reath LLP in Washington, DC, where he was the
head of the Education Law Group. His practice focused on federal
and state laws and regulations and private accreditation
requirements affecting postsecondary educational institutions.
Prior to joining Drinker Biddle & Reath,
Mr. Pelesh was a partner and associate in the firm of Cohn
and Marks and an associate in the firm of Arnold &
Porter, both of which are in Washington, DC. Mr. Pelesh
received a Juris Doctorate degree from the Yale Law School in
1978 and a Bachelor of Arts degree with distinction and honors
in History from Stanford University in 1975.

Nolan A. Miurahas
been our Senior Vice President of Strategic Planning and
Business Development since August 2002. Prior to that time he
was our Vice President of Strategic Planning and Treasurer from
October 1999 to August 2002. Mr. Miura joined the company
as Director of Treasury and Business Analysis in November 1997
and was promoted to Treasurer in December 1998. He was employed
by Atlantic Richfield Company (ARCO) from 1979 to
1997 in various financial and marketing positions including
Planning Manager  ARCO Products Company, Marketing
Director  ARCO Pipe Line Company, Marketing Analysis
Manager  ARCO Products Company and Planning,
Evaluation and Business Development Manager  ARCO
Marine, Inc. Mr. Miura received an MBA (Corporate Finance)
from the University of

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Southern California and a Bachelor of Science in
Business Administration (Finance) from California State
University, Long Beach. Mr. Miura is also a Certified
Internal Auditor.


Stan A. Mortensenhas served as our Senior Vice
President, General Counsel and Corporate Secretary since August
2002. Prior to his appointment as Senior Vice President,
Mr. Mortensen served as Vice President, General Counsel and
Corporate Secretary since January 2000. Prior to that time,
Mr. Mortensen was an attorney at the law firm of
OMelveny & Myers LLP from March 1997 through
December 1999, where his practice focused on securities law,
corporate finance, mergers and acquisitions, and general
corporate matters. From August 1994 through February 1997,
Mr. Mortensen was an attorney at the law firm of Robins,
Kaplan, Miller & Ciresi, where his practice focused on
complex commercial litigation. Mr. Mortensen received a
Juris Doctorate and a Bachelor of Arts in Political Science from
Brigham Young University.

Paul T. Dimeojoined
the Company as Senior Vice President, Real Estate on
September 1, 2003. Prior to joining the Company,
Mr. Dimeo was Senior Vice President of The Staubach
Company, a national commercial brokerage firm specializing in
tenant representation, from 1998 through 2003. Prior to joining
The Staubach Company, Mr. Dimeo held several real estate
positions within the IBM corporation, both in New York and
California, for over 20-years. Mr. Dimeo earned his
Bachelor of Science degree from the State University of New York
(SUNY) at New Paltz, and received a Masters of Corporate Real
Estate certificate from CORNET, an Industry Trade Organization.

GOVERNMENTAL REGULATIONS AND FINANCIAL
AID

Students attending the Companys schools in
the United States finance their education through a combination
of family contributions, individual resources (including
earnings from full or part-time employment) and federal
financial aid programs. We estimate that during fiscal 2003
approximately 80.0% of our students received some federal
Title IV financial aid. For fiscal 2003, approximately
81.9% of our revenues (on a cash basis) were derived from
federal Title IV programs (as defined herein).

If any of the Companys institutions were to
lose its eligibility to participate in federal student financial
aid programs, the students at that institution would lose access
to funds derived from those programs and would have to seek
alternative sources of funds to pay their tuition and fees.
Students obtain access to federal student financial aid through
a U.S. Department of Education (DOE) prescribed
application and eligibility certification process. Student
financial aid funds are generally made available to students at
prescribed intervals throughout their predetermined expected
length of study. Students typically use the funds received from
the federal financial aid programs to pay their tuition and
fees. The transfer of funds from the financial aid programs are
to the student, who then applies those funds to the cost of
their education. The receipt of funds from federal financial aid
programs reduce the students amount due to the institution
and does not impact revenue recognition.

In connection with the receipt by its students of
federal financial aid, the Company is subject to extensive
regulation by governmental agencies and licensing and
accrediting bodies. In particular, the Higher Education Act of
1965, as amended (the HEA), and the regulations
issued thereunder by the DOE, subject the Company to significant
regulatory scrutiny in the form of numerous standards that
schools must satisfy in order to participate in the various
federal student financial aid programs under Title IV of the HEA
(the Title IV Programs). Under the HEA,
regulatory authority is divided among each of the following
three components: (i) the federal government, which acts
through the DOE; (ii) the accrediting agencies recognized
by the DOE; and (iii) state higher education regulatory
bodies. Among other things, the HEA and implementation
regulations require the Companys institutions to:
(i) maintain a rate of default by its students on federally
guaranteed loans that are below a specified rate;
(ii) limit the proportion of its revenue derived from the
Title IV Programs; (iii) comply with certain financial
responsibility and administrative capability standards;
(iv) prohibit the payment of certain incentives to
personnel engaged in student recruiting, admissions activities
or the award of financial aid; and (v) achieve prescribed
completion and placement outcomes for short-term programs. The
regulations, standards and policies of the regulatory agencies
frequently change, and changes in, or new interpretations of,
applicable laws, regulations or standards could

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have material consequences for the Companys
accreditation, authorization to operate in various states,
permissible activities, receipt of funds under Title IV Programs
and costs of doing business.


The federally guaranteed loans referred to by the
Company are authorized by the HEA and are guaranteed by an
agency of the federal government. The guaranteed loans are
neither guaranteed by the Company, nor can such guaranteed loans
become an obligation of the Company. Accordingly, the Company
does not record an obligation to repay any of the guaranteed
loans that are not repaid by its former students and the Company
does not record either a contingent obligation or an allowance
for future obligations as a result of student defaults of
federally guaranteed loans.

Rather, the DOE regulations require that the
Company maintain a rate of default by its students on federally
guaranteed, or funded student loans, that is below a specified
rate, pertains solely to the Companys eligibility to
participate in federal student financial aid programs. If an
institution fails to maintain a Cohort Default Rate of 25% or
less for three consecutive years, the institution could lose
eligibility to participate in federal student financial aid
programs and its students would lose access to the federally
guaranteed loan programs.

The DOE regulations define an institution as a
main campus and its additional locations, if any. Under this
definition, each of the Companys campuses is a separate
institution with the following exceptions: Bryman College in New
Orleans, Louisiana is an additional location of Bryman College
in Hayward, California; the Florida Metropolitan University
(FMU) campuses in Melbourne and Orlando(South),
Florida are additional locations of FMU, Orlando (North); FMU in
Brandon, Florida is an additional location of FMU in Tampa,
Florida; the FMU campuses in Lakeland and Jacksonville, Florida
are additional locations of FMU in Pinellas, Florida; Parks
College in Thornton, Colorado and in Arlington, Virginia are
additional locations of Parks College in Aurora, Colorado; three
campuses of the National Institute of Technology
(NIT) in Houston, Texas are additional locations of
NIT in San Antonio, Texas; Kee Business College in Chesapeake,
Virginia is an additional location of Kee Business College in
Newport News, Virginia; Western Business College in Vancouver,
Washington and Everest College in Dallas, Texas are additional
locations of Western Business College in Portland, Oregon;
Olympia Career Training Institute in Kalamazoo, Michigan and
Olympia College in Merrillville, Indiana are additional
locations of Olympia Career Training Institute in Grand Rapids,
Michigan; Everest College in Rancho Cucamonga, California is an
additional location of Springfield College in Springfield,
Missouri; the Bryman College campuses in West Los Angeles and
Whittier, California are additional locations of NIT in Long
Beach, California; Georgia Medical Institute (GMI)
campuses in Jonesboro and Marietta, Georgia are additional
locations of GMI in Atlanta, Georgia; the NIT campus in
Dearborn, Michigan and Austin, Texas are additional locations of
the NIT campus in Southfield, Michigan; the National School of
Technology (NST) campus in Hialeah, Florida is an
additional location of the NST campus in North Miami Beach,
Florida; the GMI campus in Dekalb, Georgia is an additional
location of NIT in Cross Lanes, West Virginia; and the Bryman
College campus in Lynnwood, Washington is an additional location
of Bryman College in Renton, Washington; Everest College in
Arlington, Texas is an additional location of Rochester Business
Institute in Rochester, New York; Olympia College in Burr Ridge,
Illinois is an additional location of Olympia College in Skokie,
Illinois; Georgia Medical Institute in Norcross, Georgia is an
additional location of Bryman College in Gardena, California;
Olympia College in Chicago, Illinois is an additional location
of the Bryman College in San Francisco, California.

Accreditation

Accreditation is a voluntary non-governmental
process by which institutions submit themselves to qualitative
review by an organization of peer institutions. There are three
types of accrediting agencies: (i) national accrediting
agencies, which accredit institutions without regard to
geographical location; (ii) regional accrediting agencies,
which accredit institutions within their geographic areas; and
(iii) programmatic accrediting agencies, which accredit
specific educational programs offered by institutions.
Accrediting agencies primarily examine the academic quality of
the instructional programs offered at the institution, including
retention and placement rates, and also review the
administrative and financial operations of the institution to
ensure that it has the academic and financial resources to
achieve its educational mission. A grant of accreditation is
generally viewed as certification that an institution and its
programs meet generally accepted academic standards.

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Pursuant to provisions of the HEA, the DOE relies
on accrediting agencies to determine whether an institution and
its educational programs are of sufficient quality to permit it
to participate in Title IV Programs. The HEA specifies
certain standards that all recognized accrediting agencies must
adopt in connection with their review of post-secondary
institutions and requires accrediting agencies to submit to a
periodic review by the DOE as a condition of their continued
recognition. All of our colleges and two training centers
located within the United States are accredited by an
accrediting agency recognized by the DOE. Twenty-six of the
Companys schools are accredited by the Accrediting Council
for Independent Colleges and Schools (ACICS),
thirty-one schools are accredited by the Accrediting Commission
of Career Schools and Colleges of Technology
(ACCSCT), two schools and two training centers are
accredited by the Accrediting Council for Continuing Education
and Training (ACCET), nine schools are accredited by
the Accrediting Bureau of Health Education Sciences
(ABHES) and one school is accredited by North
Central Association (NCA).

The following table specifies the accrediting
agency and the expiration of accreditation for each college.




|                                |  |                      |  |             |        |            |  |  |          | 
|------------------------------- |  | -------------------- |  | ----------- | ------ | ---------- |  |  | -------- | 
|                                |  |                      |  | Accrediting |        |           
|Degree Granting Colleges(2)     |  | Location             |  | Agency      |        | Expiration
|                                |  |                      |  |             |        |           
|Blair College                   |  | Colorado Springs, CO |  |             | ACICS  |            |  |  | 12/31/06 | 
|Duffs Business Institute       |  | Pittsburgh, PA       |  |             | ACICS  |            |  |  | 12/31/04 | 
|Florida Metropolitan University |  | Jacksonville, FL     |  |             | ACICS  |            |  |  | 12/31/07 | 
|Florida Metropolitan University |  | Fort Lauderdale, FL  |  |             | ACICS  |            |  |  | 12/31/03 | 
|Florida Metropolitan University |  | Orlando (North), FL  |  |             | ACICS  |            |  |  | 12/31/07 | 
|Florida Metropolitan University |  | Orlando (South), FL  |  |             | ACICS  |            |  |  | 12/31/07 | 
|Florida Metropolitan University |  | Melbourne, FL        |  |             | ACICS  |            |  |  | 12/31/07 | 
|Florida Metropolitan University |  | Tampa, FL            |  |             | ACICS  |            |  |  | 12/31/06 | 
|Florida Metropolitan University |  | Brandon, FL          |  |             | ACICS  |            |  |  | 12/31/06 | 
|Florida Metropolitan University |  | Lakeland, FL         |  |             | ACICS  |            |  |  | 12/31/07 | 
|Florida Metropolitan University |  | Pinellas, FL         |  |             | ACICS  |            |  |  | 12/31/07 | 
|Las Vegas College               |  | Las Vegas, NV        |  |             | ACICS  |            |  |  | 12/31/04 | 
|Mountain West College           |  | Salt Lake City, UT   |  |             | ACICS  |            |  |  | 12/31/04 | 
|Parks College                   |  | Thornton, CO         |  |             | ACICS  |            |  |  | 12/31/04 | 
|Parks College                   |  | Aurora, CO           |  |             | ACICS  |            |  |  | 12/31/04 | 
|Parks College                   |  | Arlington, VA        |  |             | ACICS  |            |  |  | 12/31/03 | 
|Everest College                 |  | Phoenix, AZ          |  |             | NCA    |            |  |  | 2008     | 
|Everest College                 |  | Rancho Cucamonga, CA |  |             | ACICS  |            |  |  | 12/31/04 | 
|Everest College                 |  | Arlington, TX        |  |             | ACICS  |            |  |  | 10/31/04 | 
|Everest College                 |  | Dallas, TX           |  |             | ACICS  |            |  |  | 02/29/04 | 
|Springfield College             |  | Springfield, MO      |  |             | ACICS  |            |  |  | 12/31/04 | 
|Rochester Business Institute    |  | Rochester, NY        |  |             | ACICS  |            |  |  | 12/31/06 | 
|Western Business College        |  | Portland, OR         |  |             | ACICS  |            |  |  | 12/31/07 | 
|Western Business College        |  | Vancouver, WA        |  |             | ACICS  |            |  |  | 12/31/07 | 
|National School of Technology   |  | N. Miami Beach, FL   |  |             | ABHES  |            |  |  | 12/31/07 | 
|National School of Technology   |  | Hialeah, FL          |  |             | ABHES  |            |  |  | 12/31/07 | 
|National School of Technology   |  | Miami, FL            |  |             | ABHES  |            |  |  | 12/31/07 | 
|Wyo-Tech                        |  | Laramie, WY          |  |             | ACCSCT |            |  |  | 11/30/04 | 
|Wyo-Tech                        |  | Blairsville, PA      |  |             | ACCSCT |            |  |  | 10/31/03 | 




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|                                  |  |                      |  |             |        |            |  |  |          |    
|--------------------------------- |  | -------------------- |  | ----------- | ------ | ---------- |  |  | -------- | ---
|                                  |  |                      |  | Accrediting |        |           
|Diploma Granting Colleges(2)      |  | Location             |  | Agency      |        | Expiration
|                                  |  |                      |  |             |        |           
|Bryman College                    |  | Los Angeles, CA      |  |             | ACCSCT |            |  |  | 11/01/05 |    
|Bryman College                    |  | New Orleans, LA      |  |             | ACCSCT |            |  |  | 12/31/06 |    
|Bryman Institute                  |  | Brighton, MA         |  |             | ACCSCT |            |  |  | 12/31/07 |    
|Bryman College                    |  | Anaheim, CA          |  |             | ACCSCT |            |  |  | 04/01/07 |    
|Bryman College                    |  | El Monte, CA         |  |             | ACCSCT |            |  |  | 08/01/04 |    
|Bryman College                    |  | San Francisco, CA    |  |             | ACCSCT |            |  |  | 12/31/06 |    
|Bryman College                    |  | Renton, WA           |  |             | ACCSCT |            |  |  | 10/01/07 |    
|Bryman College                    |  | Lynnwood, WA         |  |             | ACCSCT |            |  |  | 06/27/04 |    
|Bryman College                    |  | Gardena, CA          |  |             | ACCSCT |            |  |  | 10/01/07 |    
|Bryman College                    |  | Reseda, CA           |  |             | ACCSCT |            |  |  | 12/31/06 |    
|Bryman College                    |  | Ontario, CA          |  |             | ACCSCT |            |  |  | 10/01/03 |    
|Bryman College                    |  | San Jose, CA         |  |             | ACCSCT |            |  |  | 01/01/08 |    
|Bryman College                    |  | Hayward, CA          |  |             | ACCSCT |            |  |  | 12/31/06 |    
|Bryman College                    |  | Whittier, CA         |  |             | ACCSCT |            |  |  | 08/01/05 |    
|Bryman College                    |  | West Los Angeles, CA |  |             | ACCSCT |            |  |  | 05/01/04 |    
|Bryman College                    |  | Torrance, CA         |  |             | ACCET  |            |  |  | 12/31/04 |    
|Bryman College                    |  | San Bernardino, CA   |  |             | ACICS  |            |  |  | 12/31/05 |    
|Georgia Medical Institute         |  | Atlanta, GA          |  |             | ABHES  |            |  |  | 12/31/04 |    
|Georgia Medical Institute         |  | Jonesboro, GA        |  |             | ABHES  |            |  |  | 12/31/04 |    
|Georgia Medical Institute         |  | Norcross, GA         |  |             | ACCSCT |            |  |  | 03/19/04 |    
|Georgia Medical Institute         |  | Marietta, GA         |  |             | ABHES  |            |  |  | 12/31/04 |    
|Georgia Medical Institute         |  | Dekalb, GA           |  |             | ACCSCT |            |  |  | 12/31/05 |    
|Kee Business College              |  | Newport News, VA     |  |             | ACICS  |            |  |  | 12/31/04 |    
|Kee Business College              |  | Chesapeake, VA       |  |             | ACICS  |            |  |  | 12/31/04 |    
|National Institute of Technology  |  | Austin, TX           |  |             | ACCSCT |            |  |  | 11/07/04 |    
|National Institute of Technology  |  | San Antonio, TX      |  |             | ACCSCT |            |  |  | 12/31/06 |    
|National Institute of Technology  |  | San Jose, CA         |  |             | ACCET  |            |  |  | 04/15/03 | (1)
|National Institute of Technology  |  | Dearborn, MI         |  |             | ACCSCT |            |  |  | 03/19/03 | (1)
|National Institute of Technology  |  | Greenspoint, TX      |  |             | ACCSCT |            |  |  | 03/07/07 |    
|National Institute of Technology  |  | Houston, TX          |  |             | ACCSCT |            |  |  | 11/01/05 |    
|National Institute of Technology  |  | Hobby, TX            |  |             | ACCSCT |            |  |  | 11/27/03 |    
|National Institute of Technology  |  | Long Beach, CA       |  |             | ACCSCT |            |  |  | 07/01/03 |    
|National Institute of Technology  |  | Southfield, MI       |  |             | ACCSCT |            |  |  | 04/01/08 |    
|National Institute of Technology  |  | Cross Lanes, WV      |  |             | ACCSCT |            |  |  | 12/31/06 |    
|Olympia Career Training Institute |  | Grand Rapids, MI     |  |             | ABHES  |            |  |  | 12/31/05 |    
|Olympia Career Training Institute |  | Kalamazoo, MI        |  |             | ABHES  |            |  |  | 12/31/05 |    
|Olympia College                   |  | Merrillville, IN     |  |             | ABHES  |            |  |  | 12/31/05 |    
|Olympia College                   |  | Skokie, IL           |  |             | ACCSCT |            |  |  | 01/01/05 |    
|Olympia College                   |  | Burr Ridge, IL       |  |             | ACCSCT |            |  |  | 10/15/04 |    
|Olympia College                   |  | Chicago, IL          |  |             | ACCSCT |            |  |  | 07/10/05 |    
|LTU(3)                            |  | Chatsworth, CA       |  |             | ACCET  |            |  |  | 12/01/04 |    
|LTU(3)                            |  | Costa Mesa, CA       |  |             | ACCET  |            |  |  | 12/01/04 |    






---



|    |                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------
|(1) | Pending re-accreditation approval.                                                                                              
|   
|(2) | Excludes 56 schools and 15 training centers
    acquired in August 2003 following our fiscal year end.                          
|   
|(3) | Although LTU is accredited by an accrediting
    agency recognized by the DOE, it is not eligible to receive
    Title IV funds.

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The HEA requires accrediting agencies recognized
by the DOE to review many aspects of an institutions
operations in order to ensure that the education or training
offered is of sufficient quality to achieve, for the duration of
the accreditation period, the stated objectives of the education
or training offered. Under the HEA, recognized accrediting
agencies must conduct regular reviews of the institutions they
accredit. In addition to periodic accreditation reviews,
institutions undergoing a change of ownership must be reviewed
by the appropriate accrediting agency. All of the Companys
colleges have been visited and reviewed by their respective
accrediting agencies subsequent to the date of acquisition by
the Company. Accrediting agencies also monitor
institutions compliance during the term of their
accreditation. If an accrediting agency believes that an
institution may be out of compliance with accrediting standards,
it may place the institution on probation or a similar warning
status or direct the institution to show cause why its
accreditation should not be revoked. An accrediting agency may
also place an institution on reporting status in order to
monitor one or more specific areas of the institutions
performance. An institution placed on reporting status is
required to report periodically to its accrediting agency on
that institutions performance in specific areas. Failure
to demonstrate compliance with accrediting standards in any of
these instances could result in loss of accreditation. While on
probation, show cause or reporting status, an institution may be
required to seek permission from its accrediting agency to open
and commence instruction at new locations. As of June 30,
2003, 12 of our 69 campuses were on retention reporting
with ACICS and three campuses were on retention reporting with
ACCSCT. We believe the corrective actions we have implemented to
remediate the reporting status for student retention will over
time remove the campuses from reporting status and such
remediation costs will not have a material adverse impact on the
operating results of the Company.

Federal Support for Post-Secondary
Education

While many states support their public colleges
and universities through direct state subsidies, the federal
government provides a substantial part of its support for
post-secondary education through grants and loans to students
who can apply the funds received to pay for their educational
costs at any institution certified by the DOE as eligible to
participate in the federally funded student financial aid
programs. Since 1972, Congress has expanded the scope of the HEA
by, among other things, (i) providing that students
attending proprietary institutions, such as the Companys
institutions, are eligible for assistance under the Title IV
Programs, (ii) establishing a program for loans to parents
of eligible students, (iii) opening the Title IV
Programs to part-time students, and (iv) increasing maximum
loan limits and in some cases eliminating the requirement that
students demonstrate financial need to obtain federally
guaranteed loans. Most recently, the Federal Direct Loan Program
(FDL) was enacted, enabling students to obtain loans
directly from the federal government rather than from commercial
lenders. Congress reauthorizes the student financial assistance
programs of the HEA approximately every five years.

Congress is currently considering the
reauthorization of the HEA. Although it is unclear at this time
what changes, if any, Congress may make to the HEA as a result
of reauthorization, we believe that upon reauthorization, our
institutions and students will continue to have access to
Title IV funds. However, substantial changes to HEA, as a
result of reauthorization, may have a material adverse impact on
our operating results and cash flows.

Students at the Companys institutions
receive grants, loans and work opportunities to fund their
education under several of the Title IV Programs, of which
the two largest are the Federal Family Education Loan
(FFEL) program and the Federal Pell Grant
(Pell) program. The Companys institutions also
participate in the Federal Supplemental Educational Opportunity
Grant (FSEOG) program, and some of them participate
in the Federal Perkins loan program and the Federal Work-Study
(FWS) program.

Most aid under the Title IV Programs is
awarded on the basis of financial need, generally defined under
the HEA as the difference between the cost of attending an
educational institution and the amount a student can reasonably
contribute to that cost. All recipients of Title IV Program
funds must maintain both a satisfactory grade point average and
progress in a timely manner toward completion of their program
of study.

Pell.Pell grants
are the primary component of the Title IV Programs under
which the DOE makes grants to students who demonstrate financial
need. Every eligible student is entitled to receive a Pell grant;

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there is no institutional allocation or limit.
For the 2002-2003 award year, Pell grants ranged from $400 to
$4,000 per year. Amounts received by students enrolled in the
Companys institutions in the 2002-2003 award year under
the Pell program equaled approximately 24.5% of the
Companys net revenue (on a cash basis).


FSEOG.FSEOG awards
are designed to supplement Pell grants for the neediest
students. FSEOG grants generally range in amount from $100 to
$4,000 per year; however, the availability of FSEOG awards is
limited by the amount of those funds allocated to an institution
under a formula that takes into account the size of the
institution, its costs and the income levels of its students.
The Company is required to make a 25% contribution for all FSEOG
awards disbursed. Resources for this institutional contribution
may include institutional grants, scholarships and other
eligible funds (i.e., funds from foundations and other
charitable organizations) and, in certain states, portions of
state scholarships and grants. During the 2002-2003 award year,
the Companys contribution was met by approximately
$1.1 million in funds from its institutions and funds from
state scholarships and grants and from foundations and other
charitable organizations. Amounts received by students in the
Companys institutions under the federal share (including
the SEOG match) of the FSEOG programs in the 2002-2003 award
year equaled approximately 0.9% of the Companys net
revenue (on a cash basis).

FFEL and FDL.The
FFEL program consists of two types of loans, Stafford loans,
which are made available to students, and PLUS loans, which are
made available to parents of students classified as dependents.
Under the FDL program, students may obtain loans directly from
the DOE rather than commercial lenders. The conditions on FDL
loans are generally the same as on loans made under the FFEL
program. Under the Stafford loan program, a student may borrow
up to $2,625 for the first academic year, $3,500 for the second
academic year and, in some educational programs, $5,500 for each
of the third and fourth academic years. Students with financial
needs qualify for interest subsidies while in school and during
grace periods. Students who are classified as independent can
increase their borrowing limits and receive additional
unsubsidized Stafford loans. Such students can obtain an
additional $4,000 for each of the first and second academic
years and, depending upon the educational program, an additional
$5,000 for each of the third and fourth academic years. The
obligation to begin repaying Stafford loans does not commence
until six months after a student ceases enrollment as at least a
half-time student. Amounts received by students in the
Companys institutions under the Stafford program in the
2002-2003 award year equaled approximately 48.8% of the
Companys net revenue (on a cash basis). PLUS loans may be
obtained by the parents of a dependent student in an amount not
to exceed the difference between the total cost of that
students education (including allowable expenses) and
other aid to which that student is entitled. Amounts received by
students in the Companys institutions under the PLUS
program in the 2002-2003 award year equaled approximately 7.2%
of the Companys net revenue (on a cash basis).

The Companys schools and their students use
a wide variety of lenders and guaranty agencies and have
generally not experienced difficulties in identifying lenders
and guaranty agencies willing to make federal student loans.
Additionally, the HEA requires the establishment of lenders of
last resort in every state to ensure that students at any
institution that cannot identify such lenders will have access
to the FFEL program loans. None of our colleges use a lender of
last resort.

Perkins.Eligible
undergraduate students may borrow up to $4,000 under the Perkins
program during each award year, with repayment delayed until
nine months after the borrower ceases to be enrolled on at least
a half-time basis. Perkins loans are made available to those
students who demonstrate a financial need. Perkins loans are
made from a revolving account, 75% of which was initially
capitalized by the DOE. Subsequent federal capital
contributions, with an institutional contribution of one-third
of the federal contribution , may be received if an institution
meets certain requirements. Each institution collects payments
on Perkins loans from its former students and loans those funds
to currently enrolled students. Collection and disbursement of
Perkins loans is the responsibility of each participating
institution. During the 2002-2003 award year, the Company
collected approximately $733,000 from its former students in
repayment of Perkins loans. In the 2002-2003 award year, the
Company had no required matching contribution. The Perkins loans
disbursed to students in the Companys institutions in the
2002-2003 award year equaled approximately 0.7% of the
Companys net revenue (on a cash basis).

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FWS.Under the FWS
program, federal funds are made available to pay up to 75% of
the cost of compensation for part-time employment of eligible
students, based on their financial need, to perform work for the
institution or for off-campus public or non-profit
organizations. During the 2002-2003 award year, the
Companys institutions and other organizations provided
matching contributions totaling approximately $457,000. At least
7% of an institutions FWS allocation must be used to fund
student employment in community service positions. FWS earnings
are given directly to the student for their own discretionary
use.

Federal Oversight of the Title IV
Programs

The substantial amount of federal funds disbursed
through the Title IV Programs coupled with the large
numbers of students and institutions participating in those
programs have led to instances in the past of fraud, waste and
abuse. As a result, the United States Congress has required the
DOE to increase its level of regulatory oversight of
institutions to ensure that public funds are properly used. Each
institution which participates in the Title IV Programs
must annually submit to the DOE an audit by an independent
accounting firm of that institutions compliance with the
Title IV Program requirements, as well as audited financial
statements. The DOE also conducts compliance reviews, which
include on-site evaluations, and directs student loan guaranty
agencies to conduct additional reviews relating to the FFEL
programs. In addition, the Office of the Inspector General of
the DOE conducts audits and investigations of institutions in
certain circumstances. Under the HEA, accrediting agencies and
state licensing agencies also have responsibilities for
overseeing institutions compliance with Title IV
Program requirements. As a result, each participating
institution, including each of our institutions, is subject to
frequent and detailed oversight and must comply with a complex
framework of laws and regulations or risk being required to
repay funds or becoming ineligible to participate in the
Title IV Programs. In addition, the DOE periodically
revises its regulations and changes its interpretation of
existing laws and regulations.

Cohort Default Rates.A significant component of the
Congressional initiative aimed at reducing fraud, waste and
abuse was the imposition of limitations on participation in the
Title IV Programs by institutions whose former students
defaulted on the repayment of federally guaranteed or funded
student loans at an excessive rate (Cohort
Default Rates). Many institutions, including all of the
Companys institutions within the United States, have
responded by implementing aggressive student loan default
management programs aimed at reducing the likelihood of students
failing to repay their federally guaranteed loans in a timely
manner. An institutions Cohort Default Rates under the
FFEL and FDL programs are calculated on an annual basis as the
rate at which student borrowers scheduled to begin repayment on
their loans in one federal fiscal year default on those loans by
the end of the next federal fiscal year. An institution that
participates in both the FFEL and FDL programs receives a single
weighted average Cohort Default Rate in place of an
FFEL or FDL Cohort Default Rate. Any institution whose Cohort
Default Rate equals or exceeds 25% for any one of the three most
recent federal fiscal years may be found by the DOE to lack
administrative capability and, on that basis, placed on
provisional certification status for up to three years.
Provisional certification status does not limit an
institutions access to Title IV Program funds but
does subject that institution to closer review by the DOE and
possible summary adverse action if that institution commits
violations of the Title IV Program requirements. Any
institution whose Cohort Default Rates equal or exceed 25% for
three consecutive years may lose eligibility to participate in
the FFEL or FDL programs for the remainder of the federal fiscal
year in which the DOE determines that such institution has lost
its eligibility and for the two subsequent federal fiscal years.
In addition, an institution whose Cohort Default Rate for any
federal fiscal year exceeds 40% may have its eligibility to
participate in all of the Title IV Programs limited,
suspended or terminated. In amendments to the HEA provide that
institutions which become ineligible to participate in the
Title IV Programs because of Cohort Default Rates in excess
of the applicable levels would also become ineligible to
participate in the Pell grant program. Since the calculation of
Cohort Default Rates involves the collection of data from many
non-governmental agencies (i.e., lenders, private guarantors or
servicers), as well as the DOE, the HEA provides a formal
process for the review and appeal of the accuracy of Cohort
Default Rates before the DOE takes any action against an
institution based on such rates.

We proactively manage our students
repayment obligations and have engaged a professional default
management firm to assist us in reducing the Cohort Default
Rates at our institutions. To date this firm has

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favorably impacted the Cohort Default Rates. We
believe that professional default management services can
continue to assist us in reducing the Cohort Default Rates at
our institutions.


Due to excessive Cohort Default Rates during 1992
to 1996, six of our schools became ineligible to participate in
the FFEL programs beginning in May 1997 and a seventh school
lost its eligibility to participate in the FFEL program in June
of 1994. Through the Companys aggressive default
management efforts and as a result of negotiations with the DOE,
all seven of our institutions had been reinstated and were
participating in the Title IV Programs by October 2000.

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The following table sets forth the final Cohort
Default Rates for our institutions for federal fiscal years
1999, 2000, and 2001:

|                                                                                                                   |  |      |      |      |  |         |      |   |  |  |      |  
|------------------------------------------------------------------------------------------------------------------ |  | ---- | ---- | ---- |  | ------- | ---- | - |  |  | ---- | -
|Institution                                                                                                        |  | 1999 |      | 2000 |  | 2001(4)
|                                                                                                                   |  |      |      |      |  |        
|Degree-Granting
    Colleges(3)                                                                                    |  |      |      |      |  |         |      |   |  |  |      |  
|Blair College, Colorado Springs, CO                                                                                |  |      | 16.6 | %    |  |         | 18.1 | % |  |  | 14.4 | %
|Duffs Business Institute, Pittsburgh, PA                                                                          |  |      | 22.5 | %    |  |         | 19.4 | % |  |  | 24.1 | %
|FMU, Orlando (North), FL (Orlando South, and
    Melbourne, FL)(2)                                                 |  |      | 9.5  | %    |  |         | 10.7 | % |  |  | 12.4 | %
|FMU, Pinellas, FL (Lakeland and Jacksonville,
    FL)(2)                                                           |  |      | 10.1 | %    |  |         | 11.3 | % |  |  | 11.1 | %
|FMU, Tampa, FL (Brandon, FL)(2)                                                                                    |  |      | 11.9 | %    |  |         | 13.9 | % |  |  | 12.9 | %
|FMU, Ft. Lauderdale, FL                                                                                            |  |      | 11.4 | %    |  |         | 14.5 | % |  |  | 13.0 | %
|Las Vegas College, Las Vegas, NV                                                                                   |  |      | 16.5 | %    |  |         | 13.3 | % |  |  | 17.6 | %
|Mountain West College, Salt Lake City, UT                                                                          |  |      | 12.9 | %    |  |         | 9.5  | % |  |  | 15.6 | %
|Parks College, Aurora, CO (Thornton, CO, and
    Arlington, VA)(2)                                                 |  |      | 17.7 | %    |  |         | 17.0 | % |  |  | 15.7 | %
|Rochester Business Institute, Rochester, NY
    (Everest College, Arlington, TX)(2)                                |  |      | 14.2 | %    |  |         | 17.3 | % |  |  | 16.3 | %
|Everest College, Phoenix, AZ                                                                                       |  |      | 12.9 | %    |  |         | 10.9 | % |  |  | 8.5  | %
|Springfield College, Springfield, MO (Everest
    College, Rancho Cucamonga, CA)(2)                                |  |      | 18.2 | %    |  |         | 18.3 | % |  |  | 17.1 | %
|Western Business College, Portland, OR
    (Vancouver, WA, and Everest College, Dallas, TX)(2)                     |  |      | 11.3 | %    |  |         | 13.4 | % |  |  | 9.2  | %
|National School of Technology, North Miami Beach,
    FL (Hialeah, FL)(2)                                          |  |      | 6.7  | %    |  |         | 11.2 | % |  |  | 15.2 | %
|National School of Technology, Kendall, FL                                                                         |  |      | 7.6  | %    |  |         | 11.3 | % |  |  | 14.2 | %
|Wyo-Tech (Laramie, WY, and Blairsville, PA)(2)                                                                     |  |      | 5    | %    |  |         | 4.9  | % |  |  | 5.5  | %
|                                                                                                                  
|Diploma-Granting
    Colleges(3)                                                                                   |  |      |      |      |  |         |      |   |  |  |      |  
|Bryman Institute, Brighton, MA                                                                                     |  |      | 13.8 | %    |  |         | 9.9  | % |  |  | 9.7  | %
|Bryman College, El Monte, CA                                                                                       |  |      | 11.2 | %    |  |         | 14.2 | % |  |  | 12.0 | %
|Bryman College, Gardena, CA (GMI, Norcross, GA)(2)                                                                 |  |      | 17.1 | %    |  |         | 17.6 | % |  |  | 11.7 | %
|Bryman College, Los Angeles, CA                                                                                    |  |      | 13.3 | %    |  |         | 16.6 | % |  |  | 10.1 | %
|Bryman College, Anaheim, CA                                                                                        |  |      | 12.9 | %    |  |         | 15.2 | % |  |  | 6.7  | %
|Bryman College, San Francisco, CA (Olympia
    College, Chicago, IL)(2)                                            |  |      | 12.2 | %    |  |         | 15.3 | % |  |  | 13.2 | %
|Bryman College, San Jose, CA                                                                                       |  |      | 12.7 | %    |  |         | 13.9 | % |  |  | 10.0 | %
|Bryman College, Hayward, CA (New Orleans, LA)(2)                                                                   |  |      | 19.2 | %    |  |         | 7.1  | % |  |  | 11.9 | %
|Bryman College, Renton, WA (Lynwood, WA)(2)                                                                        |  |      | 14.7 | %    |  |         | 12.4 | % |  |  | 10.0 | %
|Bryman College, Reseda, CA                                                                                         |  |      | 10.8 | %    |  |         | 9.6  | % |  |  | 7.7  | %
|Bryman College, Ontario, CA                                                                                        |  |      | 12.5 | %    |  |         | 7.5  | % |  |  | 9.5  | %
|Bryman College, Torrance, CA(1)                                                                                    |  |      | 25.0 | %    |  |         | 7.5  | % |  |  | 6.6  | %
|Computer Training Academy, San Jose, CA                                                                            |  |      | 15.6 | %    |  |         | 13.9 | % |  |  | 9.7  | %
|GMI, Atlanta, GA (Jonesboro and Marietta, GA)(2)                                                                   |  |      | 2.8  | %    |  |         | 15.7 | % |  |  | 18.5 | %
|Kee Business College, Newport News, VA
    (Chesapeake, VA)(2)                                                     |  |      | 12.3 | %    |  |         | 9.5  | % |  |  | 10.9 | %
|NIT, Cross Lanes, WV (GMI, Dekalb, GA)(2)                                                                          |  |      | 11.3 | %    |  |         | 10.2 | % |  |  | 13.2 | %
|NIT, Long Beach, CA (Bryman College, West Los
    Angeles and Whittier, CA)(2)                                     |  |      | 15.0 | %    |  |         | 14.7 | % |  |  | 15.8 | %
|NIT, San Antonio, TX (Houston, Greenspoint, and
    Hobby, TX)(2)                                                  |  |      | 15.8 | %    |  |         | 12.0 | % |  |  | 14.3 | %
|NIT, Southfield, MI (Dearborn, MI, and Austin,
    TX)(2)                                                          |  |      | 18.9 | %    |  |         | 17.0 | % |  |  | 15.1 | %
|Olympia College, Skokie, IL (Burr Ridge, IL)(2)                                                                    |  |      | 7.2  | %    |  |         | 18.7 | % |  |  | 10.0 | %
|Olympia Career Training Institute, Grand Rapids,
    MI, (Kalamazoo, MI, and Olympia College, Merrillville, IN)(2) |  |      | 7.4  | %    |  |         | 12.1 | % |  |  | 8.5  | %
|Bryman College, San Bernardino, CA                                                                                 |  |      | 0    | %    |  |         | 0    | % |  |  | 2.7  | %

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---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 1999 rate for Bryman College, Torrance,
    California is an unofficial rate because there were
    less than 30 students in the cohort. Accordingly, the 1999
    rate will not count against the college in determining its Title
    IV eligibility.                                                                                                                                                                      
|   
|(2) | Indicates additional locations wherein the Cohort
    Default Rates are blended with the main campus.                                                                                                                                                                                                                                                                                                                              
|   
|(3) | Additionally, subsequent to our fiscal year end,
    we acquired East Coast Aero Tech, LLC whose default rates were
    16.6% in 1999, 14.0% in 2000 and 10.2% in 2001, and Career
    Choices, Inc. whose default rates are as follows: Ashmead were
    9.1% in 1999, 6.2% in 2000 and 7.3% in 2001; Eton were 10.4% in
    1999, 9.8% in 2000 and 9.0% in 2001; Sequoia were 16.2% in 1999,
    16.9% in 2000 and 17.1% in 2001.
|   
|(4) | The Company has appealed certain rates and is
    awaiting final determination.                                                                                                                                                                                                                                                                                                                                                    

In addition, if an institutions Cohort
Default Rate for loans under the Perkins program exceeds 15% for
any federal award year (i.e., July 1 through June 30), that
institution may be placed on provisional certification status
for up to three years. Fifteen of the Companys
institutions have Perkins program Cohort Default Rates in excess
of 15% for students who were scheduled to begin repayment in the
2001 federal award year, the most recent year for which such
rates have been calculated. During fiscal 2002, Perkins loans
amounted to approximately 0.7% of total Company revenues (on a
cash basis). The Perkins program Cohort Default Rates for these
institutions ranged from 16.7% to 48.6%. Default rates in excess
of 15% could result in provisional certification status.
Historically, provisional certification due to excessive Perkins
program Cohort Default Rates has not had a material adverse
effect on our business.

Beyond the efforts of our outside professional
default management firm, each of the Companys colleges has
adopted an internal student loan default management plan. Those
plans emphasize to students the importance of meeting loan
repayment requirements and provide for extensive loan
counseling, along with methods to increase student persistence
and completion rates and graduate employment
(placement) rates. Immediately upon a students
cessation of enrollment, the professional default management
firm initiates regular contact with the student, and maintains
regular contact throughout the grace period, and continues this
activity through the entire cohort period. The colleges continue
to work with the default management firm to maintain accurate
and up-to-date information on address changes, marital status
changes, or changes in circumstance that may allow the student
to apply for deferments. These activities are all in addition to
the loan servicing and collection activities of FFEL lenders and
guarantee agencies.

Increased Regulatory Scrutiny.The HEA provides for a three-part
initiative, generally referred to as the Triad, to provide
regulatory scrutiny of post-secondary education institutions.
One part of the Triad consists of accrediting agencies which
review and accredit the Companys campuses and conducts
reviews of substantial breadth. Their examinations pertain to
such areas as student achievement, curriculum, faculty,
facilities, equipment, admissions, financial responsibility and
timeliness of student refunds. The Triad provisions also require
each accrediting agency recognized by the DOE to undergo
comprehensive periodic reviews by the DOE to ascertain whether
such accrediting agency is adhering to required standards.

A second part of the Triad involves the standards
to be applied by the DOE in evaluating the financial
responsibility and administrative capability of institutions
participating in the Title IV Programs. In addition, the Triad
mandates that the DOE periodically review the eligibility and
certification to participate in the Title IV Programs of
every such eligible institution. By law, all institutions are
required to undergo a recertification review at least every six
years, although the DOE may recertify an institution for a
shorter time period. Under these standards, each of our
institutions is evaluated by the DOE on a routine basis. A
denial of recertification would preclude an institution from
continuing to participate in the Title IV Programs.

A third part of the Triad involves approvals by
state education agencies with jurisdiction over educational
institutions. State requirements are important to an
institutions eligibility to participate in the
Title IV Programs since an institution must be licensed or
otherwise authorized to operate in the state in which it offers
education or training services in order to be certified as
eligible. The level of regulatory oversight varies substantially
from state to state. In some states, the campuses are subject to
licensure by the state education agency and also by a separate
higher education agency. State laws establish standards for
instruction, qualifications of faculty, location and nature of
facilities, financial policies and responsibility and other

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operational matters. State laws and regulations
may limit the ability of the Company to obtain authorization to
operate in certain states or to award degrees or diplomas or
offer new degree programs. Certain states prescribe standards of
financial responsibility that are different from those
prescribed by the DOE. The Company believes that each of its
campuses is in substantial compliance with state authorizing and
licensure laws.


Financial Responsibility Standards.All institutions participating in the
Title IV Programs must satisfy a series of specific standards of
financial responsibility. Institutions are evaluated for
compliance with those requirements in several circumstances,
including as part of the DOEs recertification process and
also annually as each institution submits its audited financial
statements to the DOE. As part of the evaluation of an
institutions financial responsibility, the DOE calculates
three financial ratios for an institution, an equity ratio, a
primary reserve ratio, and a net income ratio, each of which is
scored separately and is then combined to determine the
institutions financial responsibility. If an
institutions composite score is below the minimum
requirement for unconditional approval (which is a score of 1.5)
but above a designated threshold level (the Zone,
which is 1.0 to 1.4), such institution may take advantage of an
alternative that allows it to continue to participate in the
Title IV Programs for up to three years under additional
monitoring and reporting procedures but without having to post a
letter of credit in favor of the DOE. If an institutions
composite score falls below the minimum threshold level of 1.0
or is in the Zone for more than three consecutive years, the
institution may be required to post a letter of credit in favor
of the DOE.

For fiscal 2003, our calculations reflect that
all of our schools exceed the requirements for financial
responsibility on an individual basis, with composite scores
ranging from 1.8 to 3.0. Also, the Company, on a consolidated
basis, meets the requirements with the composite score of 2.6.

An institution that is determined by the DOE not
to meet the standards of financial responsibility is nonetheless
entitled to participate in the Title IV Programs if it can
demonstrate to the DOE that it is financially responsible on an
alternative basis. An institution may do so by posting a surety
either in an amount equal to 50% (or greater, as the DOE may
require) of the total Title IV Program funds received by
students enrolled at such institution during the prior year or
in an amount equal to 10% (or greater, as the DOE may require)
of such prior years funds if the institution also agrees
to provisional certification and to transfer to the
reimbursement or cash monitoring system of payment for its Title
IV Program funds. The DOE has interpreted this surety condition
to require the posting of an irrevocable letter of credit in
favor of the DOE.

Under a separate standard of financial
responsibility, if an institution has made late Title IV
refunds to students in its prior two years, the institution is
required to post a letter of credit in favor of the DOE in an
amount equal to 25% of the total Title IV Program refunds
paid by the institution in its prior fiscal year. As of
July 1, 1997, this standard was modified to exempt an
institution that has not been found to make late refunds to 5%
or more of its students who were due refunds in either of the
two most recent fiscal years and has not been cited for a
reportable condition or material weakness in its internal
controls related to late refunds in either of its two most
recent fiscal years. Based on this standard, the Company
currently has outstanding letters of credit relating to these
programs in the aggregate amount of approximately
$3.8 million. Although there are no citations for material
weaknesses in the Companys or its colleges internal
controls, there can be no assurance that, upon review by the
DOE, that we will not be required to post additional letters of
credit in favor of the DOE on behalf of the affected colleges.

Restrictions on Acquiring or Opening
Additional Schools and Adding Educational Programs.An institution which undergoes a
change of ownership resulting in a change in control, including
all of the institutions that we have acquired or will acquire,
must be reviewed and recertified for participation in the Title
IV Programs under its new ownership. If an institution is
recertified following a change of ownership, it will be on a
provisional basis. During the time an institution is
provisionally certified, it may be subject to closer review by
the DOE and to summary adverse action for violations of Title IV
Program requirements, but provisional certification does not
otherwise limit an institutions access to Title IV Program
funds. All of our schools have been provisionally certified
following their acquisition by us. As of June 30, 2003, 10
of our schools are still on provisional certification due to
their change in ownership when we acquired them.

The HEA generally requires that proprietary
institutions be fully operational for two years before applying
to participate in the Title IV Programs. However, under the
HEA and applicable regulations, an institution

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that is certified to participate in the Title IV
Programs may establish an additional location and apply to
participate in the Title IV Programs at that location without
reference to the two-year requirement, if such additional
location satisfies all other applicable Title IV Program
participation eligibility requirements. Our expansion plans are
based, in part, on its ability to acquire schools that can be
recertified and to open additional locations as branch campuses
of existing institutions.


Generally, if an institution that is eligible to
participate in the Title IV Programs adds an educational
program after it has been designated as an eligible institution,
the institution must apply to the DOE to have the additional
program designated as eligible. However, an institution is not
obligated to obtain DOE approval of an additional program that
leads to an associates, bachelors, professional or
graduate degree or which prepares students for gainful
employment in the same or related recognized occupation as an
educational program that has previously been designated as an
eligible program at that institution and meets certain minimum
length requirements. Furthermore, short-term educational
programs, which generally consist of those programs that provide
at least 300 but less than 600 clock hours of instruction, are
eligible only for FFEL funding and only if they have been
offered for a year and the institution can demonstrate, based on
an attestation by its independent auditor, that at least 70% of
all students who enroll in such programs complete them within a
prescribed time and at least 70% of those students who graduate
from such programs obtain employment in the recognized
occupation for which they were trained within a prescribed time.
Certain of our colleges offer such short-term programs in
compliance with DOE regulations. Students enrolled in such
programs represent a small percentage of the total enrollment at
our colleges. In the event that an institution erroneously
determines that an educational program is eligible for purposes
of the Title IV Programs without the DOEs express
approval, the institution would likely be required to repay the
Title IV Program funds provided to students in that educational
program. Certain of the state authorizing agencies and
accrediting agencies with jurisdiction over our campuses also
have requirements that may, in certain instances, limit our
ability to open a new campus, acquire an existing campus or
establish an additional location of an existing institution or
begin offering a new educational program.

Ability to Benefit Regulations.Under certain circumstances, an
institution may elect to admit non-high school graduates into
certain of its programs of study. In such instances, the
institution must demonstrate that the student has the
ability to benefit from the program of study.
Thirty-six of the Companys colleges admit ATB students
into their programs. The basic evaluation method to determine
that a student has the ability to benefit from the program is
the students achievement of a minimum score on a test
approved by the DOE and independently administered in accordance
with DOE regulations. In addition to the testing requirements,
the DOE regulations also prohibit enrollment of ATB students
from constituting 50% or more of the total enrollment of the
institution. None of the our colleges that accept ATB students
has an ATB enrollment population that exceeds 50% of the total
enrolled population. As of June 30, 2003, ATB students
represented approximately 6.4% of our total student population.

The 90/10 Rule.Under a provision of the HEA commonly
referred to as the 90/10 Rule, a private, for-profit
institution, such as each of the Companys institutions,
would cease being eligible to participate in the Title IV
Programs if, on a cash accounting basis, more than 90% of its
revenue for the prior fiscal year was derived from the Title IV
Programs. Any institution that violates the 90/10 Rule
immediately becomes ineligible to participate in the Title IV
Programs and is unable to apply to regain its eligibility until
the following fiscal year. We have calculated, our independent
financial aid auditors have certified, that, since this
requirement took effect each of our institutions have met this
requirement in each fiscal year. We regularly monitor compliance
with this requirement in order to minimize the risk that any of
our institutions would derive more than the applicable
thresholds of its revenue from the Title IV Programs for any
fiscal year. If an institution appears likely to approach the
threshold, we would evaluate the appropriateness of making
changes in student funding and financing to ensure compliance
with the 90/10 Rule.

Restrictions on Payment of Bonuses,
Commissions or Other Incentives.The
HEA prohibits an institution from providing any commission,
bonus or other incentive payment based directly or indirectly on
success in securing enrollments or financial aid to any person
or entity engaged in any student recruitment, admission or
financial aid awarding activity for programs eligible for Title
IV Program funds. We believe that our current compensation plans
are in compliance with HEA standards.

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Return of Title IV
Funds.In 1998 amendments to the HEA
changed substantially the refund requirements when a recipient
of Title IV funds withdraws from an institution. We believe
Title IV refund calculations are in compliance with current
regulations.

Canadian Regulations

Subsequent to our fiscal 2003 year end, we
acquired approximately 90% of the common shares of CDI and
announced that we intended to acquire the remaining shares of
CDI through exercise of our compulsory acquisition rights under
the laws of the Province of Ontario, Canada. The schools
operated by CDIs post-secondary are subject to extensive
regulations in the provinces in which they operate. We believe
these schools currently hold all necessary registrations,
approvals and permits and meet all eligibility requirements to
participate in governmental financial aid programs in their
respective provinces. If these schools cannot continue to meet
eligibility standards or fail to comply with applicable
requirements, it could have a material adverse effect on
CDIs business, results of operations or financial
condition.




RISKS RELATED TO OUR BUSINESS

Risks Related To Extensive Regulation Of
Our Business



| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to follow extensive regulatory
    requirements for our business, we could suffer severe fines and
    penalties, including loss of access to federal student loans and
    grants for our students.

We derive a majority of our revenues from federal
student financial aid programs. To participate in such programs
an institution must obtain and maintain authorization by the
appropriate state agencies, accreditation by an accrediting
agency recognized by the DOE, and certification by the DOE. As a
result, our schools are subject to extensive regulation by these
agencies that, among other things, requires us to:



| |   |                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | undertake steps to assure that the students at
    each of our schools do not default on payments to third party
    lenders for funded student loans, when the loans are federally
    guaranteed, at a rate of 25% or more for three consecutive years;
|
| |  | limit the percentage of revenues derived at each
    of our institutions from federal student financial aid programs
    to less than 90%;                                                                                                               
|
| |  | adhere to financial responsibility and
    administrative capability standards;                                                                                                                                                                          
|
| |  | prohibit the payment of incentives to personnel
    engaged in student recruiting, admissions activities or awarding
    financial aid; and                                                                                                              
|
| |  | achieve stringent completion and placement
    outcomes for short-term programs.                                                                                                                                                                         

These regulations also affect our ability to
acquire or open additional schools or change our corporate
structure. These regulatory agencies periodically revise their
requirements and modify their interpretations of existing
requirements.

If one or more of our schools were to violate any
of these regulatory requirements, we could suffer fines,
penalties or other censure, including the loss of our ability to
participate in federal student financial aid programs at those
schools, any of which could have a materially adverse effect on
our business. We cannot predict how all of these requirements
will be applied, or whether we will be able to comply with all
of the requirements in the future. Some of the most significant
regulatory requirements and risks that apply to our schools are
described in the following paragraphs.



| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | Congress may change the law or reduce
    funding for federal student financial aid programs, which could
    harm our business.

Congress regularly reviews and revises the laws
governing the federal student financial aid programs and
annually determines the funding level for each of these
programs. Any action by Congress that significantly reduces
funding for the federal student financial aid programs or the
ability of our schools or students to

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participate in these programs could harm our
business. Legislative action may also increase our
administrative costs and burden and require us to modify our
practices in order for our schools to comply fully with
applicable requirements, which could have a material adverse
effect on our business.


For example, the 1998 amendments to the HEA
changed substantially the way federal student financial aid
funds are handled when a student withdraws from a school.
Instead of the previous federal refund policy, institutions must
follow requirements which ensure the return to the federal
student financial aid programs of all of the unearned funds of a
student who withdraws from a program. We have implemented
policies to require our schools to make refund calculations in
accordance with current regulations.

The effect of these refund policies is to
generally reduce the amount of federal loans and grant funds
available to students who withdraw from school before finishing
their programs. Consequently, the amount of money owed directly
by the students to the schools could increase and, to the extent
the students fail to pay the amounts owed, the Companys
bad debt expense would increase. We have implemented procedures
designed to mitigate the adverse impact of these federal refund
policies. The procedures, however, may be insufficient to
entirely mitigate any adverse effect on bad debt expense. Any
significant increase in bad debt expense could have a material
adverse effect on our business.



| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not meet specific financial
    responsibility ratios and tests established by the DOE our
    schools may lose eligibility to participate in federal student
    financial aid programs.

To participate in the federal student financial
aid programs, an institution must either satisfy quantitative
standards of financial responsibility, or post a letter of
credit in favor of the DOE and possibly accept other conditions
on its participation in the federal student financial aid
programs. Each year, based on financial information submitted by
institutions that participate in federal student financial aid
programs, the DOE calculates three financial ratios for an
institution: an equity ratio, a primary reserve ratio and a net
income ratio. Each of these ratios is scored separately and then
combined to determine the institutions financial
responsibility. If an institutions score is above 1.5, it
may continue its participation in federal student financial aid
programs. For fiscal 2003, our calculations show that all of our
schools exceed this requirement on an individual basis and are
eligible to participate in the federal student financial aid
programs, with composite scores ranging from 1.8 to 3.0. On a
consolidated basis, our Company also exceeds this requirement
with the composite score of 2.6. We cannot assure you that we
and our institutions will continue to satisfy the numeric
standards in the future.



| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our schools may lose eligibility to
    participate in federal student financial aid programs if the
    percentage of their revenues derived from those programs is too
    high.

A proprietary institution loses its eligibility
to participate in the federal student financial aid programs for
a period of one year if it derives more than 90% of its
revenues, on a cash basis, from these programs in any fiscal
year. Any institution that violates this rule immediately
becomes ineligible to participate in federal student financial
aid programs and is ineligible to reapply to regain its
eligibility until the following fiscal year. Based on our
calculations, none of our schools received more than 90% of its
revenues, on a cash basis, in fiscal 2003, with our highest
institution receiving 87.1% of its revenues, on a cash basis,
from federal student financial aid programs. On a consolidated
basis, the Company received 81.9% of its revenues, on a cash
basis, from federal student financial aid programs in fiscal
2003. If any of our institutions, depending on its size, loses
eligibility to participate in federal student financial aid
programs, it could have a material adverse effect on our
business.



| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our schools may lose eligibility to
    participate in federal student financial aid programs if their
    current and former students loan default rates on funded
    student loans made by third parties which are federally
    guaranteed are too high.

An institution may lose its eligibility to
participate in some or all of the federal student financial aid
programs if defaults by its former students on their federal
student loans funded by third parties and such loans are
federally guaranteed, equal or exceed 25% per year for three
consecutive years. For federal fiscal year 2001,

26



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##### Table of Contents



the last year for which final rates have been
published, default rates for our institutions range from a low
of 2.7% to a high of 24.1%. The Company reviews all annually
published Cohort Default Rates and appeals the rates it believes
are inaccurate. Even though rates are published as final, they
are still subject to appeal by the Company and may change based
on current and future appeals that may be submitted by the
Company. If any of our institutions, depending on its size,
loses eligibility to participate in federal student financial
aid programs because of high student loan default rates, it
could have a material adverse effect on our business.




| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If regulators do not approve our
    acquisitions, the acquired school(s) would not be permitted to
    participate in federal student financial aid
    programs.

When we acquire an institution that participates
in federal student financial aid programs, we must seek approval
from the DOE and most applicable state agencies and accrediting
agencies, because an acquisition is considered a change of
ownership or control of the acquired institution under
applicable regulatory standards. A change of ownership or
control of an institution under the DOE standards can result in
the temporary suspension of the institutions participation
in the federal student financial aid programs unless a timely
and materially complete application for recertification is filed
with the DOE and the DOE issues a temporary certification
document. If we are unable to obtain approvals from the state
agencies, accrediting agencies or DOE for any institution we
have acquired or will acquire, depending on the size of that
acquisition, such a failure to obtain approval could have a
material adverse effect on our business.



| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If regulators do not approve transactions
    involving a change of control or change in our corporate
    structure, we may lose our ability to participate in federal
    student financial aid programs.

Additionally, if regulators do not approve
transactions involving a change of control of our Company or any
of our schools, we may lose our ability to participate in
federal student financial aid programs. If we or any of our
institutions experience a change of control under the standards
of applicable state agencies or accrediting agencies or the DOE,
we or the affected institutions must seek the approval of the
relevant agencies. Some of these transactions or events, such as
a significant acquisition or disposition of our common stock,
may be beyond our control. The adverse regulatory effect of a
change of ownership resulting in a change of control could also
discourage bids for the Companys outstanding shares of
common stock at a premium and could have an adverse effect on
the market price of our common stock.



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Congress fails to reauthorize the HEA,
    or substantially reduces access to federal student financial aid
    programs by our students, our business would be
    harmed.

Congress is currently in various stages of
reviewing the reauthorization of HEA, which provides for federal
student financial aid programs. Approximately 81.9% of our
revenues (on a cash basis) are derived from federal student
financial aid programs. The reauthorization is in the early
stages of Congressional review and it is unclear what changes,
if any, Congress may impose upon HEA as a result of
reauthorization. As in previous reauthorizations, we believe
that following reauthorization of HEA our students will have
access to federal student financial aid programs. However, any
action by Congress that significantly reduces funding for the
federal student financial aid programs or the ability of our
schools or students to participate in these programs could have
a material adverse effect on our business. Legislative action
may also increase our administrative costs and require us to
modify our practices in order for our schools to comply fully
with applicable requirements.



| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If any of our schools fails to maintain its
    state authorizations and accreditations, we may lose our ability
    to operate in that state and to participate in federal student
    financial aid programs.

An institution that grants degrees, diplomas or
certificates must be authorized by the relevant agencies of the
state in which it is located and, in some cases, other states.
Requirements for authorization vary substantially among the
states. State authorization and accreditation by an accrediting
agency recognized by the DOE are also required for an
institution to participate in the federal student financial aid
programs. If any of our campuses were to lose its state
authorization or accreditation, it could have a materially
adverse effect on our business.

27



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##### Table of Contents



During fiscal year 2004, current accreditation
for 10 of our schools will expire and these schools will be
subject to reaccreditation reviews. If one or more of these
schools fails to be reaccredited, our business could be harmed.



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | If we fail to demonstrate
    administrative capability to the DOE, our business
    could suffer.

DOE regulations specify extensive criteria an
institution must satisfy to establish that it has the requisite
administrative capability to participate in federal
student financial aid programs. These criteria require, among
other things, that the institution:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | comply with all applicable federal student
    financial aid regulations;                                
|
| |  | have capable and sufficient personnel to
    administer the federal student financial aid programs;      
|
| |  | have acceptable methods of defining and measuring
    the satisfactory academic progress of its students;
|
| |  | provide financial aid counseling to its students;
    and                                                
|
| |  | submit all reports and financial statements
    required by the regulations.                             

If an institution fails to satisfy any of these
criteria, the DOE may:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | require the repayment of federal student
    financial aid funds;                                                                                                            
|
| |  | transfer the institution from the
    advance system of payment of federal student
    financial aid funds to the reimbursement system of
    payment or cash monitoring;
|
| |  | place the institution on provisional
    certification status; or                                                                                                            
|
| |  | commence a proceeding to impose a fine or to
    limit, suspend or terminate the participation of the institution
    in federal student financial aid programs.             

Should one or more of our institutions be limited
in their access to, or lose, federal student financial aid funds
due to their failure to demonstrate administrative capability,
our business could be materially adversely affected.



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | Regulatory agencies or third parties may
    commence investigation, bring claims or institute litigation
    against us.

Because we operate in a highly regulated
industry, we may be subject from time to time to investigations,
claims of non-compliance, or lawsuits by governmental agencies
or third parties, which may allege statutory violations,
regulatory infractions, or common law causes of action. If the
results of the investigations are unfavorable to us or if we are
unable to successfully defend against third-party lawsuits, we
may be required to pay money damages or be subject to fines,
penalties, injunctions or other censure that could have a
materially adverse effect on our business. Even if we adequately
address the issues raised by an agency investigation or
successfully defend a third-party lawsuit, we may have to devote
significant money and management resources to address these
issues, which could harm our business.



| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to comply with extensive Canadian
    regulations could affect the ability of our recently-acquired
    CDI schools to participate in Canadian financial aid
    programs.

Our recently-acquired CDI post-secondary schools
derive a significant percentage of their revenue from Canadian
governmental financial aid programs. Depending on their province
of residence, our Canadian students may receive loans under
various student financial aid programs.

Our CDI schools must meet eligibility standards
to administer these programs and must comply with extensive
statutes, rules, regulations and requirements. If our CDI
schools cannot meet these and other eligibility standards or
fail to comply with applicable requirements, it could have a
material adverse effect on our net business.

28



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##### Table of Contents



Additionally, the Canadian and various provincial
governments continuously review the legislative, regulatory and
other requirements relating to student financial assistance
programs due to political and budgetary pressures. Although we
do not currently anticipate a significant reduction in the
funding for these programs, any change that significantly
reduces funding or the ability of our schools to participate in
these programs could have a material adverse effect on our
business and results of operation.

Operational Risks That Could Have A Material
Adverse Effect On Our Business



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | If students fail to pay their outstanding
    balances, our business will be harmed.

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. Losses related to unpaid student balances in excess
of the amounts we have reserved for bad debts could have a
material adverse effect on our business.



| |                                                                      
| | ---------------------------------------------------------------------
| | Failure to effectively manage our growth
    could harm our business.

We have grown rapidly since we formed our company
in 1995. Our rapid growth, now or in the future, could place a
strain on our management, operations, employees or resources. We
cannot assure our stockholders that we will be able to maintain
or accelerate our current growth rate, effectively manage our
expanding operations or achieve planned growth on a timely or
profitable basis. If we are unable to manage our growth
effectively, our business could be materially adversely affected.



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | If we cannot effectively identify, acquire
    and integrate additional schools, it could harm our
    business.

We expect to continue to rely on acquisitions as
a key component of our growth strategy. We often engage in
evaluations of, and discussions with, possible acquisition
candidates. We cannot make assurances that we will be able to
identify suitable acquisition candidates or that we will be able
to acquire any of the acquisition candidates on favorable terms.
Furthermore, we cannot make assurances that any acquired schools
can be successfully integrated into our operations or be
operated profitably. Acquisitions involve a number of risks that
include:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | diversion of management resources;                               
|
| |  | integration of the acquired schools
    operations;             
|
| |  | adverse short-term effects on reported operating
    results; and
|
| |  | possible loss of key employees.                                  

Continued growth through acquisition may also
subject us to unanticipated business or regulatory uncertainties
or liabilities. When we acquire an existing school, we typically
allocate a significant portion of the purchase price to fixed
assets, curriculum, goodwill and intangibles, such as covenants
not-to-compete, trade names and accreditations. For our
acquisitions through fiscal 2002, we have amortized goodwill and
trade names over a period of 40 years and curricula over
three to 15 years. Effective July 1, 2002, the Company
adopted SFAS No. 142, Accounting for Business
Combinations, Goodwill and Other Intangible Assets, in its
entirety. Under SFAS 142, goodwill is no longer amortized
on a periodic basis, but instead is subject to an impairment
test to be performed at least on a annual basis. Separable
intangible assets that are not deemed to have indefinite lives
will continue to be amortized over their useful lives. In
addition, our acquisition of a school is a change of ownership
of that school, which may result in the temporary suspension of
that schools participation in federal student financial
aid programs until it obtains the DOEs approval. If we
fail to successfully manage our acquisitions, our business would
likely suffer.



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Failure to effectively manage opening new
    schools and adding new services could harm our
    business.

Establishing new schools requires us to make
investments in management, capital expenditures, marketing
expenses and other resources. To open a new school, we are also
required to obtain appropriate state and accrediting agency
approvals. In addition, to be eligible for federal student
financial aid programs, the new

29



---



##### Table of Contents



school is required to be certified as eligible to
receive Title IV funds by the DOE. We cannot assure you that we
will be able to successfully open new schools in the future. Our
failure to effectively manage the operations of newly
established schools could have a material adverse effect on our
business.




| |                                                                              
| | -----------------------------------------------------------------------------
| | Our success depends upon our ability to
    recruit and retain key personnel.

We depend on key personnel, including David G.
Moore, Anthony Digiovanni, Dennis L. Devereux, Dennis N. Beal,
Beth A. Wilson, Mary H. Barry, Mark L. Pelseh, Nolan A. Miura,
Stan A. Mortensen and Paul T. Dimeo to effectively operate our
business. If any of these people left our Company and we failed
to effectively manage a transition to new people, our business
could suffer.

Our success also depends, in large part, upon our
ability to attract and retain highly qualified faculty, school
presidents and administrators and corporate management. We may
have difficulty locating and hiring qualified personnel, and
retaining such personnel once hired. The loss of the services of
any of our key personnel, or our failure to attract and retain
other qualified and experienced personnel on acceptable terms,
could cause our business to suffer.



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Anti-takeover provisions in our charter
    documents and Delaware law could make an acquisition of our
    Company difficult.

Our certificate of incorporation, our by-laws and
Delaware law contain provisions that may delay, defer or inhibit
a future acquisition of our Company not approved by our board of
directors. These provisions are intended to encourage any person
interested in acquiring us to negotiate with and obtain the
approval of our board of directors. Our certificate of
incorporation also permits our board of directors to issue
shares of preferred stock with voting, conversion and other
rights as it determines, without any further vote or action by
our stockholders. By using preferred stock, we could:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | discourage a proxy contest;                                                                      
|
| |  | make the acquisition of a substantial block of
    our common stock more difficult; or           
|
| |  | limit the price investors may be willing to pay
    in the future for shares of our common stock.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Failure to keep pace with changing market
    needs and technology could harm our business.

Prospective employers of our graduates
increasingly demand that their entry-level employees possess
appropriate technological skills. Educational programs at our
schools, particularly programs in information technology, must
keep pace with these evolving requirements. If we cannot respond
to changes in industry requirements, it could have a material
adverse effect on our business.



| |                                                                
| | ---------------------------------------------------------------
| | Competitors with greater resources could
    harm our business.

The post-secondary education market is highly
competitive. Our schools compete with traditional public and
private two-year and four-year colleges and universities and
other proprietary schools, including those that offer distance
learning programs. Some public and private colleges and
universities, as well as other private career-oriented schools,
may offer programs similar to those of our schools. Although
tuition at private non-profit institutions is, on average,
higher than tuition at our schools, some public institutions are
able to charge lower tuition than our schools, due in part to
government subsidies, government and foundation grants,
tax-deductible contributions and other financial sources not
available to proprietary schools. Some of our competitors in
both the public and private sectors have substantially greater
financial and other resources than us.



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Failure to obtain additional capital in the
    future could reduce our ability to grow.

We believe that funds from operations, cash,
investments and borrowings under our $235 million Amended
Credit Agreement will be adequate to fund our current operation
plans for the foreseeable future. However, we may need
additional debt or equity financing in order to carry out our
strategy of growth through

30



---



##### Table of Contents



acquisitions. We may also need additional debt or
equity financing in the future to carry out our growth strategy.
The amount and timing of such additional financing will vary
principally depending on the timing and size of acquisitions and
the sellers willingness to provide financing themselves.
To the extent that we require additional financing in the future
and are unable to obtain such additional financing, we may not
be able to fully implement our growth strategy.





Item
2.     Properties

Our corporate office is located in Santa Ana,
California and our 69 campuses and two training centers, as of
June 30, 2003, are located in 21 states. Each campus
provides our students with lecture halls, instructional medical
labs, libraries, Internet access and other facilities.

We actively monitor the capacity of our
facilities and future capacity in our facilities required to
accommodate campus growth initiatives. We provide for expansion
and future growth at each campus through relocations to larger
facilities and by expanding or remodeling at existing
facilities. From the end of fiscal 1999 through fiscal 2003,
approximately 27% of the campuses have been relocated and an
additional 55% of total campuses have been either expanded or
remodeled. The following table reflects the number of campuses
added or closed, the number of campuses and the number of
campuses that have been relocated, enlarged or remodeled in each
of the last five fiscal years ended:

|                                            |          |         |    |         |  |         |    |         |  |            |    |   |  |  |    |   |  |  |    |   | 
|------------------------------------------- | -------- | ------- | -- | ------- |  | ------- | -- | ------- |  | ---------- | -- | - |  |  | -- | - |  |  | -- | - | 
|During Fiscal Years Ended                   |          | 6/30/99 |    | 6/30/00 |  | 6/30/01 |    | 6/30/02 |  | 6/30/03(1)
|                                            |          |         |    |         |  |         |    |         |  |           
|Opened                                      |          |         |    |         |  |         |    |         |  |            |    |   |  |  |    |   |  |  |    |  
|                                            | Acquired |         |    | 0       |  |         |    | 5       |  |            |    | 9 |  |  |    | 3 |  |  |    | 4 | 
|                                            | Branched |         |    | 2       |  |         |    | 2       |  |            |    | 4 |  |  |    | 4 |  |  |    | 6 | 
|Closed                                      |          |         | 0  |         |  |         | 0  |         |  |            | 1  |   |  |  | 1  |   |  |  | 0  |  
|Combined with another campus                |          |         | 0  |         |  |         | 0  |         |  |            | 0  |   |  |  | 1  |   |  |  | 0  |  
|Total campuses/training centers at year end |          |         | 37 |         |  |         | 44 |         |  |            | 56 |   |  |  | 61 |   |  |  | 71 |  
|Relocated                                   |          |         | 5  |         |  |         | 2  |         |  |            | 3  |   |  |  | 6  |   |  |  | 3  |  
|Enlarged or remodeled                       |          |         | 1  |         |  |         | 2  |         |  |            | 9  |   |  |  | 10 |   |  |  | 17 |  



---



|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | Excludes the 56 colleges and 15 training centers
    acquired in August 2003 following our fiscal year end.

All but three of our campuses, and two buildings
at Wyo-Tech, are leased. In addition, we lease our headquarters
offices. Most of our leases have primary terms between five and
ten years with options to extend the lease, at our election.

31



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##### Table of Contents



Square footage of the Companys colleges
varies significantly based upon the type of programs offered and
the market being served. The following table reflects square
footage by location as of June 30, 2003:

|                                            |               |         |         |         | 
|------------------------------------------- | ------------- | ------- | ------- | ------- | 
|                                            |               | Approx.
|                                            |               | Square 
|Degree-Granting Colleges(2)                 |               | Footage
|                                            |               |        
|Blair College, Colorado Springs, CO         |               |         | 35,000  |        
|Duffs Business Institute, Pittsburgh, PA   |               |         | 30,370  |        
|FMU, Brandon, FL                            |               |         | 35,250  |        
|FMU, Ft. Lauderdale, FL                     |               |         | 34,500  |        
|FMU, Jacksonville, FL                       |               |         | 27,775  |        
|FMU, Lakeland, FL                           |               |         | 30,428  |        
|FMU, Melbourne, FL(1)                       |               |         | 22,238  |        
|FMU, Orlando (North), FL                    |               |         | 39,424  |        
|FMU, Orlando (South), FL                    |               |         | 60,000  |        
|FMU, Pinellas, FL                           |               |         | 30,734  |        
|FMU, Tampa, FL(1)                           |               |         | 29,380  |        
|Las Vegas College, Las Vegas, NV            |               |         | 27,541  |        
|Mountain West College, Salt Lake City, UT   |               |         | 24,200  |        
|Parks College, Thornton, CO(1)              |               |         | 28,000  |        
|Parks College, Aurora, CO                   |               |         | 33,000  |        
|Parks College, Arlington, VA                |               |         | 16,619  |        
|Rochester Business Institute, Rochester, NY |               |         | 39,424  |        
|Everest College, Phoenix, AZ                |               |         | 28,251  |        
|Everest College, Rancho Cucamonga, CA       |               |         | 28,556  |        
|Springfield College, Springfield, MO        |               |         | 25,791  |        
|Western Business College, Vancouver, WA     |               |         | 19,306  |        
|Western Business College, Portland, OR      |               |         | 26,800  |        
|NST, North Miami Beach, FL                  |               |         | 34,597  |        
|NST, Hialeah, FL                            |               |         | 22,282  |        
|NST, Kendall, FL                            |               |         | 29,354  |        
|Wyo-Tech, Laramie, WY                       |               |         | 413,277 |        
|Wyo-Tech, Blairsville, PA(3)                |               |         | 220,662 |        
|Everest College, Dallas, TX                 |               |         | 22,934  |        
|Everest College, Arlington, TX              |               |         | 21,500  |        
|Corporate Offices                           |               |         |         |        
|                                            | Santa Ana, CA |         |         | 120,598 | 
|                                            | Gulfport, MS  |         |         | 3,021   | 
|                                            | Miami, FL     |         |         | 4,410   | 

|                                                        |  |         |           | 
|------------------------------------------------------- |  | ------- | --------- | 
|                                                        |  | Approx.
|                                                        |  | Square 
|Diploma-Granting Colleges(2)                            |  | Footage
|                                                        |  |        
|                                                        |  |        
|Bryman Institute, Brighton, MA                          |  |         | 23,905    | 
|Bryman College, El Monte, CA                            |  |         | 22,497    | 
|Bryman College, Gardena, CA                             |  |         | 25,666    | 
|Bryman College, Los Angeles, CA                         |  |         | 22,591    | 
|Bryman College, New Orleans, LA                         |  |         | 19,939    | 
|Bryman College, Anaheim, CA                             |  |         | 20,940    | 
|Bryman College, San Francisco, CA                       |  |         | 24,945    | 
|Bryman College, San Jose, CA                            |  |         | 24,158    | 
|Bryman College, Hayward CA                              |  |         | 20,000    | 
|Bryman College, Reseda, CA                              |  |         | 19,486    | 
|Bryman College, Renton, WA                              |  |         | 34,859    | 
|Bryman College, Lynnwood, WA                            |  |         | 19,593    | 
|Bryman College, Ontario, CA                             |  |         | 12,244    | 
|Bryman College, West Los Angeles, CA                    |  |         | 27,146    | 
|Bryman College, Whittier, CA                            |  |         | 21,030    | 
|Bryman College, Torrance, CA                            |  |         | 7,399     | 
|Computer Training Academy, San Jose, CA                 |  |         | 17,088    | 
|GMI, Atlanta, GA                                        |  |         | 18,118    | 
|GMI, Jonesboro, GA                                      |  |         | 20,630    | 
|GMI, Marietta, GA                                       |  |         | 24,959    | 
|GMI, Dekalb, GA                                         |  |         | 18,000    | 
|Kee Business College, Newport News, VA                  |  |         | 16,215    | 
|Kee Business College, Chesapeake, VA                    |  |         | 21,299    | 
|NIT, Cross Lanes, WV                                    |  |         | 24,700    | 
|NIT, Dearborn, MI                                       |  |         | 21,384    | 
|NIT, Greenspoint, TX                                    |  |         | 23,648    | 
|NIT, Hobby, TX                                          |  |         | 20,574    | 
|NIT, Houston, TX                                        |  |         | 20,585    | 
|NIT, Long Beach, CA                                     |  |         | 42,712    | 
|NIT, San Antonio, TX                                    |  |         | 35,800    | 
|NIT, Southfield, MI                                     |  |         | 32,473    | 
|Olympia Career Training Institute, Grand Rapids,
    MI |  |         | 22,255    | 
|Olympia Career Training Institute, Kalamazoo, MI        |  |         | 16,450    | 
|Olympia College, Merrillville, IN                       |  |         | 19,756    | 
|Olympia College, Skokie, IL                             |  |         | 20,077    | 
|Bryman College, San Bernardino, CA                      |  |         | 24,158    | 
|Olympia College, Burr Ridge, IL                         |  |         | 20,000    | 
|GMI, Norcross, GA                                       |  |         | 19,397    | 
|NIT, Austin, TX                                         |  |         | 20,768    | 
|Learning Tree University, Chatsworth, CA                |  |         | 31,400    | 
|Learning Tree University, Cost Mesa, CA                 |  |         | 17,900    | 
|Olympia College, Chicago, IL                            |  |         | 24,331    | 
|                                                        |  |         |           | 
|                                                       
|Grand Total                                             |  |         | 2,506,297 | 
|                                                        |  |         |           | 

32



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---



|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Indicates owned properties                                                                                                                             
|   
|(2) | Excludes the 56 colleges and 15 training centers
    acquired in August 2003 following our fiscal year end and new
    branches to open in fiscal 2004.
|   
|(3) | Leased portion is approximately 79,900 and owned
    portion is approximately 140,762                                                                  






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

In the ordinary conduct of our business, we and
our colleges are subject to occasional lawsuits, investigations
and claims, including, but not limited to, claims involving
students or graduates and routine employment matters. Although
we cannot predict with certainty the ultimate resolution of
lawsuits, investigations and claims asserted against us, we do
not believe that any currently pending legal proceedings to
which we are a party will have a material adverse effect on our
business, results of operations or financial condition.

One of the legal actions currently pending
against us is Aldape, et al. v. Corinthian Schools, Inc., et
al.,originally reported in our Report on Form 10-K for the
fiscal year ended June 30, 2002. Since the date of that
report, the Court has granted our motion to compel arbitration
with respect to the claims of the eight of the nine individual
plaintiffs who are former students of the Companys Bryman
campus in Los Angeles, California (the Individual
Plaintiffs). Accordingly, eight of the Individual
Plaintiffs claims will be adjudicated in binding
arbitration. A decision on the motion to compel arbitration as
to the ninth Individual Plaintiff is pending. Additionally,
plaintiffs attorney has voluntarily agreed to dismiss all
claims by the Trade School Review Association and the claims by
the Individual Plaintiffs under the California Business and
Professions Code for restitution on behalf of themselves and as
private attorneys general on behalf of all persons
similarly situated. We believe the plaintiffs claims are
without merit and we intend to vigorously defend the Company
against them.

On or about March 18, 2003, a complaint was
filed (but not served) with the Los Angeles Superior Court
entitled Socorra Estrada v. Corinthian Schools, Inc., et al.Plaintiff is a former student in the Companys Bryman
College Campus in Whittier who enrolled in that campus prior to
its acquisition by the Company from Educorp, Inc.
(Educorp) in October 2000. Plaintiff initially
alleged violation by the Company of the California Education
Code, intentional misrepresentation and concealment. Plaintiff
has since filed and served a First Amended Complaint in which
she has dismissed her causes of action against the Company for
violation of the California Education Code, intentional
misrepresentation and concealment, but has added a cause of
action against the Company seeking injunctive relief under
California Business and Professions Code Section 17200.
Plaintiff has also added Educorp and two individuals affiliated
with Educorp as defendants in the matter. We believe the
plaintiffs claims are without merit and we intend to
vigorously defend the Company against them.

On or about May 29, 2003, a class action
complaint was filed with the Los Angeles Superior Court entitled
Montoya v. Corinthian Schools, Inc., et al. Plaintiff, a
former instructor with the Companys Bryman College campus
in El Monte, California, alleges that she and other instructors
employed by the Companys Corinthian Schools, Inc.
subsidiary in the State of California for the previous four
years were improperly classified as exempt from
Californias overtime compensation laws. Plaintiff states
causes of action under California wage orders, Californias
Labor Code, and Californias Business and Professions Code.
Plaintiff seeks certification as a class, monetary damages in
unspecified amounts, penalties, interest, attorneys fees,
exemplary damages, and injunctive relief. We believe the
Companys classification of employees for overtime purposes
has been consistent with applicable law and that the
plaintiffs claims are without merit. We intend to
vigorously defend the Company in this matter.






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

There were no matters submitted to a vote of
security holders during the fourth quarter of the fiscal year
ended June 30, 2003.

33



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##### Table of Contents






PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Dividend Policy

We have never paid cash dividends on our common
stock. We currently anticipate retaining future earnings, if
any, to finance internal growth and potential acquisitions.
Payment of dividends in the future, if at all, will depend upon
our earnings and financial condition and various other factors
our Board of Directors may deem appropriate at the time. Our
amended credit agreement restricts the payment of cash dividends.

Price Range of Common Stock

Our common stock is listed on the Nasdaq National
Market System under the symbol COCO. The approximate
number of holders of record of our common stock as of
September 3, 2003 was 47 and we believe the number of
beneficial owners to be in excess of 22,500. Our common stock
was first listed on Nasdaq upon completion of our initial public
offering in February 1999.

On September 3, 2003 the closing price per
share of common stock was $57.76 and the range of high and low
sales prices of our common stock, as reported by the Nasdaq
National Market System, for each applicable quarter in fiscal
2001, 2002 and 2003 is as follows after giving effect to the
Companys two-for-one stock splits effected in the form of
stock dividends in December 2000 and May 2002:

|                            |                                           |                |   |       |  |  |   |       | 
|--------------------------- | ----------------------------------------- | -------------- | - | ----- |  |  | - | ----- | 
|                            |                                           |               
|                            |                                           | Price Range of
|                            |                                           | Common Stock  
|                            |                                           |               
|                            |                                           | High           |   | Low  
|                            |                                           |                |   |      
|Fiscal Years Ended June 30: |                                           |                |   |       |  |  |   |      
|2001:                       |                                           |                |   |       |  |  |   |      
|                            | First Quarter                             |                | $ | 15.32 |  |  | $ | 5.75  | 
|                            | Second Quarter                            |                |   | 21.50 |  |  |   | 12.32 | 
|                            | Third Quarter                             |                |   | 24.18 |  |  |   | 15.57 | 
|                            | Fourth Quarter                            |                |   | 26.00 |  |  |   | 17.00 | 
|2002:                       |                                           |                |   |       |  |  |   |      
|                            | First Quarter                             |                | $ | 27.74 |  |  | $ | 12.00 | 
|                            | Second Quarter                            |                |   | 21.19 |  |  |   | 15.00 | 
|                            | Third Quarter                             |                |   | 25.60 |  |  |   | 18.89 | 
|                            | Fourth Quarter                            |                |   | 34.88 |  |  |   | 24.38 | 
|2003:                       |                                           |                |   |       |  |  |   |      
|                            | First Quarter                             |                | $ | 37.85 |  |  | $ | 23.85 | 
|                            | Second Quarter                            |                |   | 40.95 |  |  |   | 32.21 | 
|                            | Third Quarter                             |                |   | 41.43 |  |  |   | 33.30 | 
|                            | Fourth Quarter                            |                |   | 49.88 |  |  |   | 38.78 | 
|2004:                       |                                           |                |   |       |  |  |   |      
|                            | First Quarter (through September 3, 2003) |                | $ | 58.99 |  |  | $ | 50.35 | 






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data




The following selected financial data are
qualified by reference to, and should be read in conjunction
with, our consolidated financial statements and the related
notes thereto appearing elsewhere in this Report on
Form 10-K/A and Managements Discussion and
Analysis of Financial Condition and Results of Operations.
The selected statement of operations data and the balance sheet
data set forth below as of and for each of the five years ended
June 30, 1999, 2000, 2001, 2002 and 2003 are derived from
our audited consolidated financial




34



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##### Table of Contents



statements. These historical results are not
necessarily indicative of the results that may be expected in
the future.


|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |         |         |        |      | 
|----------------------------- | ------------------------------------------------------------------- | -------------------------------------- | -------------------------------------------------------------------------- | ------------------------------ | ------- | ----- | ---- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | ---- | 
|                              |                                                                     |                                       
|                              |                                                                     | Years Ended June 30,                  
|                              |                                                                     |                                       
|                              |                                                                     | 1999                                   |                                                                            | 2000                           |         | 2001  |      | 2002    |         | 2003  
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |       
|                              |                                                                     |                                       
|                              |                                                                     | (In thousands, except per share data) 
|Statement of Operations Data: |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              | Net revenues(1)                                                     |                                        | $                                                                          | 132,972                        |         |       | $    | 170,734 |         |        | $    | 244,163 |         |        | $    | 338,146 |         |        | $    | 517,293 |        
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              | Operating expenses:                                                 |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |         |        
|                              |                                                                     | Educational services                   |                                                                            |                                | 76,425  |       |      |         | 92,757  |        |      |         | 131,501 |        |      |         | 175,088 |        |      |         | 251,366 |       
|                              |                                                                     | General and administrative             |                                                                            |                                | 13,961  |       |      |         | 16,346  |        |      |         | 19,562  |        |      |         | 29,614  |        |      |         | 49,770  |       
|                              |                                                                     | Marketing and advertising              |                                                                            |                                | 29,702  |       |      |         | 37,225  |        |      |         | 52,349  |        |      |         | 70,741  |        |      |         | 106,478 |       
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              |                                                                     | Total operating expenses               |                                                                            |                                | 120,088 |       |      |         | 146,328 |        |      |         | 203,412 |        |      |         | 275,443 |        |      |         | 407,614 |       
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              | Income from operations                                              |                                        |                                                                            | 12,884                         |         |       |      | 24,406  |         |        |      | 40,751  |         |        |      | 62,703  |         |        |      | 109,679 |        
|                              | Interest (income)                                                   |                                        |                                                                            | (735                           | )       |       |      | (2,071  | )       |        |      | (2,363  | )       |        |      | (1,763  | )       |        |      | (1,259  | )      
|                              | Interest expense                                                    |                                        |                                                                            | 2,413                          |         |       |      | 390     |         |        |      | 285     |         |        |      | 225     |         |        |      | 1,602   |        
|                              | Other (income)                                                      |                                        |                                                                            |                               |         |       |      | (175    | )       |        |      |        |         |        |      | (662    | )       |        |      | (13     | )      
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              | Income before income taxes and extraordinary
    (loss)             |                                        |                                                                            | 11,206                         |         |       |      | 26,262  |         |        |      | 42,829  |         |        |      | 64,903  |         |        |      | 109,349 |        
|                              | Provision for income taxes                                          |                                        |                                                                            | 4,703                          |         |       |      | 10,840  |         |        |      | 17,098  |         |        |      | 25,955  |         |        |      | 43,412  |        
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              | Net income before extraordinary (loss)                              |                                        |                                                                            | 6,503                          |         |       |      | 15,422  |         |        |      | 25,731  |         |        |      | 38,948  |         |        |      | 65,937  |        
|                              | Extraordinary (loss), net of tax benefit                            |                                        |                                                                            | (2,011                         | )       |       |      |        |         |        |      |        |         |        |      |        |         |        |      |        |        
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              | Net income                                                          |                                        | $                                                                          | 4,492                          |         |       | $    | 15,422  |         |        | $    | 25,731  |         |        | $    | 38,948  |         |        | $    | 65,937  |        
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              | INCOME (LOSS) ATTRIBUTABLE TO COMMON
    STOCKHOLDERS:              |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |         |        
|                              |                                                                     | Net income before extraordinary (loss) |                                                                            | $                              | 6,503   |       |      | $       | 15,422  |        |      | $       | 25,731  |        |      | $       | 38,948  |        |      | $       | 65,937  |       
|                              |                                                                     |                                        |                                                                            | Less preferred stock dividends |         |       | (355 | )       |         |        |     |         |         |        |     |         |         |        |     |         |         |        |     | 
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              |                                                                     |                                        | Income before extraordinary
    (loss) attributable to Common stockholders |                                |         | 6,148 |      |         |         | 15,422 |      |         |         | 25,731 |      |         |         | 38,948 |      |         |         | 65,937 |     
|                              |                                                                     | Extraordinary (loss)                   |                                                                            |                                | (2,011  | )     |      |         |        |        |      |         |        |        |      |         |        |        |      |         |        |       
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              |                                                                     |                                        | Net income attributable to common stockholders                             |                                | $       | 4,137 |      |         | $       | 15,422 |      |         | $       | 25,731 |      |         | $       | 38,948 |      |         | $       | 65,937 |     
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              | INCOME (LOSS) PER SHARE ATTRIBUTABLE TO
    COMMON STOCKHOLDERS(2): |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |         |        
|                              |                                                                     | Basic                                 |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |         |         |       
|                              |                                                                     |                                        | Income before extraordinary (loss)                                         |                                | $       | 0.21  |      |         | $       | 0.37   |      |         | $       | 0.61   |      |         | $       | 0.91   |      |         | $       | 1.52   |     
|                              |                                                                     |                                        | Extraordinary (loss)                                                       |                                |         | (0.07 | )    |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |     
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              |                                                                     |                                        |                                                                            | Net income                     |         | $     | 0.14 |         |         | $      | 0.37 |         |         | $      | 0.61 |         |         | $      | 0.91 |         |         | $      | 1.52 | 
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              |                                                                     | Diluted                               |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |         |         |       
|                              |                                                                     |                                        | Income before extraordinary (loss)                                         |                                | $       | 0.18  |      |         | $       | 0.37   |      |         | $       | 0.59   |      |         | $       | 0.87   |      |         | $       | 1.43   |     
|                              |                                                                     |                                        | Extraordinary (loss)                                                       |                                |         | (0.06 | )    |         |         |       |      |         |         |       |      |         |         |       |      |         |         |       |     
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              |                                                                     |                                        |                                                                            | Net income                     |         | $     | 0.12 |         |         | $      | 0.37 |         |         | $      | 0.59 |         |         | $      | 0.87 |         |         | $      | 1.43 | 
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              | Weighted average number of common shares
    outstanding:           |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |         |        
|                              |                                                                     | Basic                                  |                                                                            |                                | 29,064  |       |      |         | 41,386  |        |      |         | 42,064  |        |      |         | 42,692  |        |      |         | 43,465  |       
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        
|                              |                                                                     | Diluted                                |                                                                            |                                | 34,196  |       |      |         | 41,698  |        |      |         | 43,462  |        |      |         | 44,694  |        |      |         | 46,028  |       
|                              |                                                                     |                                        |                                                                            |                                |         |       |      |         |         |        |      |         |         |        |      |         |         |        |      |        

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|                    |                                                          |                                       |   |        |         |      |   |        |         |      |   |         |         |   |   |         |         |   |   |         |         |  
|------------------- | -------------------------------------------------------- | ------------------------------------- | - | ------ | ------- | ---- | - | ------ | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                    |                                                          |                                      
|                    |                                                          | Years Ended June 30,                 
|                    |                                                          |                                      
|                    |                                                          | 1999                                  |   | 2000   |         | 2001 |   | 2002   |         | 2003
|                    |                                                          |                                       |   |        |         |      |   |        |         |     
|                    |                                                          |                                      
|                    |                                                          | (In thousands, except per share data)
|Other Data:         |                                                          |                                       |   |        |         |      |   |        |         |      |   |         |         |   |   |         |         |   |   |        
|                    | Cash flow provided by (used in):                         |                                       |   |        |         |      |   |        |         |      |   |         |         |   |   |         |         |   |   |         |        
|                    |                                                          | Operating activities                  |   | $      | 5,794   |      |   | $      | 23,582  |      |   | $       | 21,532  |   |   | $       | 60,633  |   |   | $       | 71,102  |  
|                    |                                                          | Investing activities                  |   |        | (16,140 | )    |   |        | (19,362 | )    |   |         | (17,395 | ) |   |         | (44,288 | ) |   |         | (92,470 | )
|                    |                                                          | Financing activities                  |   |        | 9,731   |      |   |        | (1,121  | )    |   |         | 10,715  |   |   |         | 4,678   |   |   |         | 16,508  |  
|                    | Capital expenditures                                     |                                       |   | 2,790  |         |      |   | 4,182  |         |      |   | 12,545  |         |   |   | 19,003  |         |   |   | 30,764  |        
|                    | Number of colleges/training centers at end of
    period |                                       |   | 37     |         |      |   | 44     |         |      |   | 56      |         |   |   | 61      |         |   |   | 71      |        
|                    | Student population at end of period                      |                                       |   | 16,012 |         |      |   | 19,464 |         |      |   | 25,626  |         |   |   | 34,221  |         |   |   | 43,229  |        
|                    | Starts during the period(3)                              |                                       |   | 21,008 |         |      |   | 24,660 |         |      |   | 33,252  |         |   |   | 43,427  |         |   |   | 56,787  |        
|Balance Sheet Data: |                                                          |                                       |   |        |         |      |   |        |         |      |   |         |         |   |   |         |         |   |   |        
|                    | Cash, cash equivalents and restricted cash(4)            |                                       | $ | 1,797  |         |      | $ | 4,896  |         |      | $ | 19,748  |         |   | $ | 41,028  |         |   | $ | 35,911  |        
|                    | Marketable securities                                    |                                       |   | 14,501 |         |      |   | 24,107 |         |      |   | 9,699   |         |   |   | 25,706  |         |   |   | 3,897   |        
|                    | Working capital                                          |                                       |   | 19,108 |         |      |   | 29,069 |         |      |   | 39,722  |         |   |   | 60,064  |         |   |   | 42,038  |        
|                    | Total assets                                             |                                       |   | 73,857 |         |      |   | 95,233 |         |      |   | 138,636 |         |   |   | 207,806 |         |   |   | 329,398 |        
|                    | Long-term debt, net of current maturities                |                                       |   | 3,396  |         |      |   | 2,230  |         |      |   | 2,138   |         |   |   | 1,515   |         |   |   | 1,384   |        
|                    | Long term capital leases, net of current portion         |                                       |   |       |         |      |   |       |         |      |   |        |         |   |   |        |         |   |   | 12,586  |        
|                    | Total stockholders equity                               |                                       | $ | 53,536 |         |      | $ | 69,003 |         |      | $ | 105,563 |         |   | $ | 151,054 |         |   | $ | 234,341 |        



---



|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents student tuition and fees and bookstore
    sales, net of refunds.                                                                                         
|   
|(2) | All share and per share amounts have been
    restated to reflect two-for-one stock splits effected in the
    form of stock dividends in December 2000 and May 2002.
|   
|(3) | Represents the new students starting school
    during the periods presented.                                                                                        
|   
|(4) | Includes approximately $10,000, $10,000, $10,000,
    $267,000 and $10,000 of restricted cash at June 30, 1999,
    2000, 2001, 2002 and 2003, respectively.         

36



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations




The following discussion and analysis should be
read in conjunction with the Selected Financial Data and the
Companys Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Report on Form 10-K/A.




Background and Overview

As of June 30, 2003, we operated 69 colleges
and two training centers, with more than 43,200 students, in 21
states. During the fiscal year ended June 30, 2003, our
Company had net revenues of $517.3 million. Our revenues
consist principally of student tuition, enrollment fees and
bookstore sales, and are presented as net revenues after
adjustments for refunds related to students who do not complete
their courses. We recognize revenue on a pro-rata (on a
straight-line basis) over the relevant period attended by the
student of the applicable course or program.

Net revenues increased 53.0% to
$517.3 million in 2003 from $338.1 million in 2002.
The increase was largely the result of a 26.3% increase in
student population and a 11.8% increase in average tuition rate
per student during the period. Tuition revenues, which
represented 92.7% of fiscal 2003 total net revenues, fluctuate
with the aggregate enrolled student population and the average
program or credit hour charge. The student population varies
depending on, among other factors, the number of
(i) continuing students at the beginning of a fiscal
period, (ii) new student enrollments during the fiscal
period, (iii) students who have previously withdrawn but
who reenter during the fiscal period, and (iv) graduations
and withdrawals during the fiscal period. New student starts
typically occur on a monthly basis in the diploma-granting
colleges. In the degree-granting colleges, the majority of new
student starts occur in the first month of each calendar quarter
with an additional mini-start in the second month of
each quarter in most colleges. The tuition charges vary by
college depending on the local market, the program level, such
as diploma, associates, bachelors or masters
degree, and the specific curriculum.

The majority of students at our colleges rely on
funds received under various government sponsored student
financial aid programs to pay a substantial portion of their
tuition and other education-related expenses. In fiscal 2003,
approximately 81.9% of our net revenues, on a cash basis, were
derived from federal student financial aid programs.

We categorize our expenses as educational
services, general and administrative, and marketing and
advertising. Educational services expense primarily consists of
those costs incurred to deliver and administer the education
programs at the colleges, including faculty and college
administration compensation; education materials and supplies;
college facility rent and other occupancy costs; bad debt
expense; depreciation and amortization of college property and
equipment; and default management expenses and financial aid
processing costs.

General and administrative expense consists
principally of those costs incurred at the corporate and
regional level in support of college operations, except for
marketing and advertising related costs. Included in general and
administrative expenses are costs relating to executive
management, corporate staff and regional operations management
compensation; rent and other occupancy costs for corporate
headquarters; depreciation and amortization of corporate
property and equipment and certain intangibles; and other
expenses incurred at corporate headquarters. Additionally, all
incentive compensation expenses are included in general and
administrative expenses.

Marketing and advertising expense includes
compensation for college admissions staff, regional admissions
personnel, compensation expenses for marketing and advertising
management, and all direct advertising and production costs. We
expense advertising costs as incurred.

Critical Accounting Policies and
Estimates

Our discussions and analysis of our financial
condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires us to make

37



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estimates and judgments that affect the reported
amounts on those financial statements. Note 1 to the
Consolidated Financial Statements in the Annual Report on
Form 10-K/A for the fiscal year ended June 30, 2003
describes the significant accounting policies and methods used
in the preparation of the Consolidated Financial Statements. On
an on-going basis, we evaluate our estimates, including, but not
limited to, those related to our allowance for doubtful
accounts, intangible assets, deferred 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 financial statements:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue Recognition.We maintain a revenue recognition policy. Revenues consist
    primarily of tuition and fees derived from courses taught in our
    colleges, schools, and training centers. Revenue from tuition
    and fees are recognized pro-rata (on a straight-line basis) over
    the relevant period attended by the student of the applicable
    course or program. If a student withdraws from a course or
    program, the paid but unearned portion of the student tuition is
    refunded. Textbook sales and other revenues are recognized as
    sales occur or services are performed and represent less than
    10% of total revenues. Prepaid tuition is the portion of
    payments received but not earned and is reflected as a current
    liability in the accompanying consolidated balance sheets as
    this amount is expected to be earned within the next year.                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Students attending our institutions enroll in
    either (i) diploma programs, which cover a specific area of
    training over a discrete length of time (averaging nine months
    for such programs) or (ii) courses leading to
    an associate, bachelor or masters degree. Costs of
    programs or credit hours for courses are
    clearly identified in the Companys enrollment agreements.
    At the start of each students respective
    program or course of study leading to a
    degree, the student executes an enrollment agreement which
    specifies the field of study, the expected length of study, and
    the cost of the program or course. We recognize revenue from
    tuition and fees pro-rata over the relevant period attended by
    the student of the applicable course or program of study. If a
    student withdraws from an institution, we cease the recognition
    of revenue and the paid but unearned portion of the student
    tuition is refunded. Additionally, to ensure the delivery of
    education has occurred, either attendance is taken or academic
    events are conducted at appropriate intervals to ensure that the
    student is completing his or her respective field of study
    within the acceptable time period.
|
| | Marketing and Advertising
    Expense.We maintain an advertising
    expense recognition policy. Marketing and advertising costs are
    generally expensed as incurred. We have significant marketing
    and advertising expenses consisting primarily of payroll and
    payroll related expenses, direct-response and other advertising,
    promotional materials and other related marketing costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | Allowance for Doubtful
    Accounts.We maintain an allowance for
    doubtful accounts for estimated losses resulting from the
    inability, failure or refusal of our students to make required
    payments. We determine the adequacy of this allowance by
    regularly reviewing the accounts receivable aging and applying
    various expected loss percentages to certain student accounts
    receivable categories based upon historical bad debt experience.
    We generally write-off accounts receivable balances deemed
    uncollectible as they are sent to collection agencies. We offer
    a variety of payment plans to help students pay that portion of
    their education expense not covered by financial aid programs.
    These balances are unsecured and not guaranteed. We believe our
    reserves are adequate; however, losses related to unpaid student
    balances could exceed the amounts we have reserved for bad debts.                                                                                                                                                                                                                                                                                                                                      
|
| | Many of our students 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 the ours. Accordingly, we do not record an
    obligation to repay any of the guaranteed loans that are not
    repaid by our former students and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | we do not record either a contingent obligation
    or an allowance for future obligations as a result of student
    defaults of federally guaranteed student loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | The guarantee of student loans is provided by an
    agency of the federal government, not by us. If an
    institutions 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 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 institutions students may lose eligibility to receive
    federal student financial aid.
|
| | Intangible Assets.We have significant intangible assets, including goodwill. The
    determination of related estimated useful lives and whether or
    not these assets are impaired involves significant judgments. We
    have adopted Statement of Financial Accounting Standard
    (SFAS) No. 142, Goodwill and Other
    Intangible Assets and do not amortize goodwill. We assign
    values to other intangible assets, such as curriculum, trade
    names and accreditation. Although we believe our intangible
    assets are fairly stated, changes in strategy or market
    conditions could significantly impact the reported values of
    intangible assets which could result in future reductions to
    earnings and require adjustments to asset balances.                                                                                                                                                                                                                                
|
| | Deferred Taxes.We
    currently have deferred tax assets, which are subject to
    periodic recoverability assessments. Realization of our deferred
    tax assets is principally dependent upon achievement of
    projected future taxable income offset by deferred tax
    liabilities. We evaluate the realizability of our deferred tax
    assets annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Stock-based
    Compensation.We account for
    stock-based compensation using the intrinsic value method of APB
    Opinion No. 25, Accounting for Stock Issued to
    Employees, and have adopted the disclosure-only provisions
    of SFAS No. 123, Accounting for Stock-Based
    Compensation, related to options issued to employees and
    SFAS No. 148, Accounting for Stock-based Compensation
    Transition and Disclosure. No stock-based employee
    compensation cost is reflected in net income. All options, stock
    appreciation rights or other common stock based securities
    granted are accounted for under fixed accounting and have an
    exercise price equal to the market value of the underlying
    common stock on the date of grant.                                                                                                                                                                                                                                   

Acquisitions

Since our inception, we have completed the
following acquisitions, each of which was accounted for using
the purchase method of accounting, and the results of their
operations are included in our consolidated results of
operations since their respective dates of acquisition:

On June 30, 1995, we acquired five colleges
from National Education Corporation. As part of the same
transaction, we subsequently acquired from National Education
Corporation a second group of five colleges on
September 30, 1995 and an additional six colleges on
December 31, 1995. The adjusted purchase price for all 16
colleges was approximately $4.7 million in cash.

On July 1, 1996, we acquired one college
from Repose, Inc., for a purchase price of $250,000 in cash.

On August 31, 1996, we acquired one college
from Concorde Career Colleges, Inc., for a purchase price of
$350,000 in cash.

On October 17, 1996, we acquired 18 colleges
from Phillips Colleges, Inc., for an adjusted purchase price of
approximately $23.6 million in cash.

On January 18, 2000, we acquired
substantially all of the assets of Harbor Medical College, which
operated one college in Torrance, California, for approximately
$300,000 in cash.

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On April 1, 2000, we acquired substantially
all of the assets of the Georgia Medical Institute, which
operated three colleges in the greater Atlanta, Georgia
metropolitan area, for approximately $7.0 million in cash.

On June 1, 2000, we acquired substantially
all of the assets of Academy of Business College, Inc. which
operated one college in Phoenix, Arizona, for approximately
$1.0 million in cash.

On October 23, 2000, we acquired
substantially all of the assets of Educorp, Inc. which operated
four colleges in California, for approximately
$12.6 million in cash.

On November 1, 2000, we acquired
substantially all of the assets of Computer Training Academy,
Inc. which operated two colleges in northern California, for
approximately $6.1 million in cash.

On February 1, 2001, we acquired all of the
outstanding stock of Grand Rapids Educational Center, Inc.,
which operated three campuses in Michigan and Illinois, for
approximately $2.8 million in cash.

On April 1, 2002, we acquired all of the
outstanding stock of National School of Technology, Inc., which
operated three campuses in the greater Miami, Florida area, for
approximately $14.4 million in cash.

On July 1, 2002, we acquired all of the
outstanding stock of Wyo-Tech Acquisition Corporation. The cash
purchase price was $84.4 million and was funded through
cash on hand and approximately $43 million provided from
our credit facility. Wyo-Tech operates two colleges in Laramie,
Wyoming and Blairsville, Pennsylvania.

On January 2, 2003, we acquired
substantially all of the assets of Learning Tree University,
Inc. and LTU Extension, Inc., which operates two training
centers in southern California, for approximately
$5.3 million in cash of which $2.0 million has been
deferred subject to achieving certain operating performance
criteria.

Subsequent to fiscal 2003 year end, on
August 1, 2003, we acquired all of the outstanding stock of
Career Choices, Inc., which operates 10 campuses in
California, Washington and Oregon, for approximately
$56 million, financed through a combination of available
cash and borrowings from our credit facility. The results of
Career Choices, Inc. are not included in the consolidated
financial statements for the fiscal year ended June 30,
2003.

Subsequent to fiscal 2003 year end, on
August 6, 2003, we acquired substantially all of the assets
of East Coast Aero Tech, LLC, which operates one campus in
Massachusetts, for approximately $2.9 million plus or minus
certain balance sheet adjustments, financed through a
combination of available cash and borrowings from our credit
facility. The results of East Coast Aero Tech, LLC. are not
included in the consolidated financial statements for the fiscal
year ended June 30, 2003.

Subsequent to fiscal 2003 year end, we
acquired more than 90% of the outstanding CDI common shares
pursuant to a tender offer for approximately $32 million
and the assumption of debt of approximately $10 million. We
funded the acquisition with available cash and borrowings from
our credit facility. CDI operates 45 post-secondary
colleges and 15 corporate training centers throughout
Canada. The results of CDI are not included in the consolidated
financial statements for the fiscal year ended June 30,
2003. We expect to acquire the approximate 10% of the remaining
outstanding common shares of CDI Education Corporation during
our second fiscal quarter ending December 31, 2003.

Results of Operations

Comparisons of results of operations between
fiscal year ended June 30, 2003, and fiscal years ended
June 30, 2002 and 2001, are difficult due to the opening of
six branch campuses and the acquisition of two campuses and two
training centers in fiscal 2003, opening of four branch campuses
and the acquisition of three campuses in fiscal 2002, and the
opening of four branch campuses and the acquisition of nine
campuses in fiscal 2001.

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The following table summarizes our operating
results as a percentage of net revenues for the periods
indicated.

|                              |                            |                          |  |       |      |      |  |       |      |   |  |       |      |  
|----------------------------- | -------------------------- | ------------------------ |  | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                              |                            |                         
|                              |                            | Years Ended June 30,    
|                              |                            |                         
|                              |                            | 2001                     |  | 2002  |      | 2003
|                              |                            |                          |  |       |      |     
|Statement of Operations Data: |                            |                          |  |       |      |      |  |       |      |   |  |      
|                              | Net revenues               |                          |  | 100.0 | %    |      |  | 100.0 | %    |   |  | 100.0 | %   
|                              |                            |                          |  |       |      |      |  |       |      |   |  |      
|                              | Operating expenses:        |                          |  |       |      |      |  |       |      |   |  |       |     
|                              | Educational services       |                          |  | 53.9  |      |      |  | 51.8  |      |   |  | 48.6  |     
|                              | General and administrative |                          |  | 8.0   |      |      |  | 8.8   |      |   |  | 9.6   |     
|                              | Marketing and advertising  |                          |  | 21.4  |      |      |  | 20.9  |      |   |  | 20.6  |     
|                              |                            |                          |  |       |      |      |  |       |      |   |  |      
|                              |                            | Total operating expenses |  |       | 83.3 |      |  |       | 81.5 |   |  |       | 78.8 |  
|                              | Income from operations     |                          |  | 16.7  |      |      |  | 18.5  |      |   |  | 21.2  |     
|                              | Interest (income)          |                          |  | (0.9  | )    |      |  | (0.5  | )    |   |  | (0.2  | )   
|                              | Interest expense           |                          |  | 0.1   |      |      |  |      |      |   |  | 0.3   |     
|                              | Other (income)             |                          |  |      |      |      |  | (0.2  | )    |   |  |      |     
|                              |                            |                          |  |       |      |      |  |       |      |   |  |      
|                              | Income before income taxes |                          |  | 17.5  |      |      |  | 19.2  |      |   |  | 21.1  |     
|                              | Provision for income taxes |                          |  | 7.0   |      |      |  | 7.7   |      |   |  | 8.4   |     
|                              |                            |                          |  |       |      |      |  |       |      |   |  |      
|                              |                            | Net income               |  |       | 10.5 | %    |  |       | 11.5 | % |  |       | 12.7 | %
|                              |                            |                          |  |       |      |      |  |       |      |   |  |      



| |                                                                  
| | -----------------------------------------------------------------
| | Year Ended June 30, 2003 Compared to
    Year Ended June 30, 2002

Net Revenues.Net
revenues increased $179.1 million, or 53%, from
$338.1 million in fiscal 2002 to $517.3 million in
fiscal 2003 due primarily to a 26.3% increase in total student
population, a 17.3% increase in same school population and an
11.8% increase in the average earning rate per student. At
June 30, 2003, student population was 43,229, compared with
34,221 at June 30, 2002. Revenues in same schools increased
29.1% for the fiscal year 2003. The Company defines same schools
as those colleges, schools and training centers that have been
owned and operated by the Company for four full quarters. Core
growth in revenues increased 32.8% for the fiscal year 2003. The
Company defines core growth in revenues as the increase in
revenues, including revenues from branches opened during the
last four full quarters, but excluding revenues attributable to
colleges, schools and training centers acquired within the last
four quarters. Same school student population increased 17.3% as
of June 30, 2003 when compared to the prior year. Net
revenues also increased as a result of opening six branch
campuses and acquiring two additional campuses and two training
centers during fiscal 2003.

Educational
Services.Educational services include
direct operating expenses of the schools consisting primarily of
payroll and payroll related expenses, occupancy and supply
expense, and bad debt expense. As a percentage of revenues,
educational services expense decreased from 51.8% of revenues in
fiscal 2002 to 48.6% of revenues in fiscal 2003. Educational
services expense increased $76.3 million, or 43.6%, from
$175.1 million in fiscal 2002 to $251.4 million in fiscal
2003. The increase was due primarily to additional expenses
required to support the 26.3% increase in student population,
wage increases for employees, increases in bookstore expenses
and classroom materials, increase in facility rents, increase in
outside services, additional depreciation expense, and expenses
relating to the two acquired campuses, two acquired training
centers and six new branch campuses opened since June 30,
2002. Bad debt expense decreased to 3.8% of revenues or
$19.9 million in fiscal 2003 as compared to
$18.5 million, or 5.5% of revenues in fiscal 2002.
Additionally, 50 new programs were adopted into existing
schools during fiscal 2003, compared to 44 program
adoptions in fiscal 2002 and 75 program adoptions were
adopted in fiscal 2001.

General and
Administrative.General and
administrative expenses include incentive compensation and
corporate payroll and payroll related expenses, headquarters
office occupancy expenses, professional fees and other support
related expenses. As a percentage of revenues, general and
administrative expenses increased

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from 8.8% in fiscal 2002 to 9.6% in fiscal 2003.
General and administrative expense increased $20.2 million,
or 68.1%, from $29.6 million in fiscal 2002 to
$49.8 million in fiscal 2003. The increase was primarily a
result of additional performance bonuses earned as a result of
improved operating results, additional headquarters staff
required to support the 53% increase in revenues and 26.3%
increase in student population, wage increases for employees,
increase in insurance expense and occupancy costs, expenses
incurred to support the increase in the number of campuses
operated by the Company and increases in outside services, which
include accounting, legal and consulting expenses.


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
revenues, marketing and advertising expenses decreased from
20.9% of revenues in fiscal 2002 to 20.6% of revenues in fiscal
2003. Marketing and advertising expenses increased
$35.7 million, or 50.5%, from $70.7 million in fiscal
2002 to $106.4 million in fiscal 2003. The increase
resulted in 30.8% increase in total student starts and 14.9%
increase in same school starts, as well as increased advertising
required to support the two campuses and two training centers
acquired in fiscal 2003 and the six new branch campuses opened
since June 30, 2002.

Income From Operations.As a percentage of revenues, income
from operations increased from 18.5% of revenues for fiscal 2002
to 21.2% of revenues for fiscal 2003. Income from operations in
fiscal 2003 increased 75% to $109.7 million, compared to
$62.7 million in fiscal 2002.

Interest (Income) Expense, net.Interest expense (net of interest
income of $1.3 million) amounted to $0.3 million in
fiscal 2003 compared to interest income (net of interest expense
of $0.2 million) of $1.5 million in fiscal 2002. The
decrease in net interest income from the prior year is primarily
due to an increase in interest expense related to capital lease
obligations, a decrease in investments due to cash used to fund
acquisitions in fiscal 2003 and a decline in the interest rate
earned on invested funds.

Provision for Income
Taxes.The effective income tax rate
was 39.7% of income before income taxes in fiscal 2003 compared
to 40.0% of income before income taxes in fiscal 2002.

Net Income.As a
percentage of revenues, net income increased from 11.5% in
fiscal 2002 to 12.7% of revenues for fiscal 2003. Net income for
fiscal 2003 increased 69.3% to $65.9 million compared to
net income of $38.9 million for fiscal 2002.

Income per Share.Diluted earnings per common share for
fiscal 2003 increased 64.4% to $1.43 per diluted common share
compared to $0.87 per diluted common share for fiscal 2002. The
weighted average number of diluted shares outstanding was
46.0 million in fiscal 2003 and 44.7 million in fiscal
2002.



| |                                                                  
| | -----------------------------------------------------------------
| | Year Ended June 30, 2002 Compared to
    Year Ended June 30, 2001

Net Revenues.Net
revenues increased $93.9 million, or 38.5%, from
$244.2 million in fiscal 2001 to $338.1 million in
fiscal 2002 due primarily to a 33.5% increase in the student
population during the year and a 7.9% increase in the average
tuition rate per student during the period. At June 30,
2002, the total student population was 34,221, compared with
25,626 at June 30, 2001. Same school student population
increased 22.7% as of June 30, 2002 when compared to the
prior year. Net revenues also increased as a result of opening
four branch campuses and acquiring three additional campuses
during fiscal 2002.

Educational Services.As a percentage of revenues,
educational services expense decreased from 53.9% in fiscal 2001
to 51.8% in fiscal 2002. Educational services expense increased
$43.6 million, or 33.1%, from $131.5 million in fiscal
2001 to $175.1 million in fiscal 2002. The increase was due
primarily to the 33.5% increase in the student population, wage
increases for employees, increase in bad debt expense, and
increase in bookstore cost of sales and course materials. Due to
initiatives begun in fiscal 2002 to reduce bad debt expense, bad
debt expense decreased to 5.5% of revenue or $18.5 million in
fiscal 2002 as compared to $14.0 million, or 5.7% of
revenue in fiscal 2001. Bad debt expense, as a percentage of
revenue improved to 4.7% for the fourth quarter of fiscal 2002
compared to 6.3% in the fourth quarter of fiscal 2001.
Additionally, 44 programs were adopted by our schools during
fiscal 2002, compared to 75 program adoptions in fiscal 2001

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and 36 programs were adopted in fiscal 2000.
During fiscal 2002, four new branch campuses were opened and
three campuses were acquired.


General and
Administrative.As a percentage of
revenues, general and administrative expense increased from 8.0%
in fiscal 2001 to 8.8% in fiscal 2002. General and
administrative expense increased $10.0 million, or 51.4%,
from $19.6 million in fiscal 2001 to $29.6 million in
fiscal 2002. The increase was primarily a result of higher
incentive compensation, an increase in the number of employees
required to support the increased revenues, student population
and the number of campuses and wage increases for employees,
increased professional fees, and increased campus relocation
expenses.

Marketing and
Advertising.As a percentage of
revenues, marketing and advertising expense decreased from 21.4%
in fiscal 2001 to 20.9% in fiscal 2002. Marketing and
advertising expense increased $18.4 million, or 35.1%, from
$52.3 million in fiscal 2001 to $70.7 million in
fiscal 2002, primarily due to the increased advertising required
to support the acquired campuses and new branch campus openings
and additional admissions staff necessary to support the 30.6%
increase in new student enrollments. Also contributing to the
increase was advertising cost inflation, wage increases for
employees, and increased travel expense.

Income From Operations.Income from operations in fiscal 2002
increased 53.9% to $62.7 million, or 18.5% of revenues,
compared to $40.8 million, or 16.7% of revenues in fiscal
2001.

Interest (Income) Expense,
net.Interest income (net of interest
expense of $0.2 million) amounted to $1.5 million in
fiscal 2002 compared to interest income (net of interest expense
of $0.3 million) of $2.1 million in fiscal 2001.

Provision for Income
Taxes.The effective income tax rate
was 40.0% of income before income taxes in fiscal 2002 and 39.9%
of income before income taxes in fiscal 2001.

Net Income.Net
income for fiscal 2002 increased 51.4% to $38.9 million, or
11.5% of revenues, compared to net income of $25.7 million,
or 10.5% of revenues, for fiscal 2001.

Income per Share.Diluted earnings per share for fiscal
2002 amounted to $0.87 compared to $0.59 for fiscal 2001. The
weighted average number of diluted shares outstanding was
44.7 million in fiscal 2002 and 43.5 million in fiscal
2001.

Seasonality and Other Factors Affecting
Quarterly Results

Our revenues normally fluctuate as a result of
seasonal variations in our business. Student population varies
as a result of new student enrollments and student attrition.
Historically, our colleges, schools and training centers have
had lower student populations in the first fiscal quarter than
in the remainder of the year. Our expenses, however, do not vary
as significantly as student population and revenues. We expect
quarterly fluctuations in operating results to continue as a
result of seasonal enrollment patterns. Such patterns may
change, however, as a result of acquisitions, new school
openings, new program introductions and increased high school
enrollments. The operating results for any quarter are not
necessarily indicative of the results for any future period. See
the footnote entitled Quarterly Financial Summary
(unaudited) of the Consolidated Financial Statements
included elsewhere herein.

Liquidity and Capital Resources

In June 2002, we entered into a Credit Agreement
for $100.0 million with a syndication of financial
institutions administered by Bank of America, N.A which would
have expired in July 2005. On August 15, 2003, we amended
the 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 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 the Company, including LIBOR 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,

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plus a margin of 0% to 0.25% depending on the
Companys consolidated leverage ratio as defined in the
agreement. The Agreement contains customary affirmative and
negative covenants including financial covenants requiring the
maintenance of consolidated net worth, fixed charge coverage
ratios, leverage ratios, DOE financial responsibility composite
score ratio, and limitations on long term student notes
receivables. As of June 30, 2003, we were in compliance
with all of the covenants. As of June 30, 2003, there were
no borrowings outstanding under the credit facility and
approximately $5.0 million of the credit facility was used
to support performance bonds and standby letters of credit. The
Amended Credit Agreement is secured by substantially all of our
real and personal property including the stock of its
significant operating subsidiaries and it is guaranteed by our
present and future significant operating subsidiaries.


On July 1, 2002, we acquired all of the
outstanding stock of Wyo-Tech for an aggregate purchase price of
approximately $84.4 million, of which approximately
$41.4 million was funded with cash on hand and we borrowed
approximately $43 million from the credit facility. The
Wyo-Tech acquisition borrowings were repaid in full prior to
October 30, 2002.

Average daily borrowings outstanding amounted to
$5.9 million in fiscal 2003, $35,000 in fiscal 2001, and
there were no borrowings in fiscal 2002.

Working capital amounted to $42.0 million as
of June 30, 2003 and $60.1 million as of June 30,
2002 and the current ratios were 1.6:1 and 2.2:1, respectively.
The reduction in working capital in fiscal 2003 when compared to
fiscal 2002 was due primarily to the acquisition of Wyo-Tech.

Cash provided by operating activities amounted to
$71.1 million in fiscal 2003 compared to $60.6 million
in fiscal 2002 and $21.5 million in fiscal 2001. The
increase in cash provided by operating activities in fiscal
2003, compared to fiscal 2002, was primarily due to increased
earnings, increased depreciation and amortization, increased
accrued expenses and an increase in deferred taxes, partially
offset by an increase in receivables and other assets.

Cash used in investing activities amounted to
$92.5 million in fiscal 2003, $44.3 million in fiscal
2002 and $17.4 million in fiscal 2001. The change in cash
used in investing activities is due primarily to the acquisition
of colleges, increased capital expenditures, net of proceeds
from asset dispositions and from the sale of marketable
securities. During fiscal 2003, we completed the acquisition of
Wyo-Tech and its two campuses for a purchase price of
approximately $84.4 million. We also completed the
acquisition of LTU and its two training centers located in
Southern California for the purchase price of approximately
$3.3 million in cash and we opened six new branch campuses.
The amount paid in excess of the fair market values of assets
acquired, net of liabilities assumed, was approximately
$81.0 million and was allocated to goodwill and other
intangible assets. During fiscal 2002, we completed the
acquisition of NST and its three colleges in the greater Miami
area for a purchase price of $14.4 million and assumed net
liabilities of $0.6 million. The amount paid in excess of
the fair market value of the assets acquired, net of liabilities
assumed, was $15.0 million and was allocated to goodwill
and other intangible assets. During fiscal 2001, we completed
the acquisition of nine colleges in three separate transactions
for a combined purchase price of $22.1 million, including
$2.8 million of liabilities assumed or paid. The amount
paid in excess of the fair market value of the assets acquired,
net of liabilities assumed, was $18.4 million, of which
$17.0 million was allocated to goodwill and was being
amortized over 40 years through June 30, 2002. The
remaining $1.4 million was allocated to curriculum and
non-compete agreements with the former owners. These
acquisitions were accounted for using the purchase method of
accounting and their respective results of operations are
included in our consolidated results of operations since their
respective acquisition dates.

Capital expenditures amounted to
$30.8 million in fiscal 2003, $19.0 million in fiscal 2002
and $12.5 million in fiscal 2001. Capital expenditures were
incurred to open six new branch campuses in fiscal 2003, four
new branch campuses in fiscal 2002 and four new branch campuses
in fiscal 2001 and for the purchases of classroom equipment to
accommodate the increased student population and to continue to
upgrade existing schools and classroom equipment. Capital
expenditures were also incurred to relocate, remodel and enlarge
campuses. Additionally, during fiscal 2003, we incurred capital
expenditures to relocate three campuses and to enlarge or
remodel seventeen campuses, and during fiscal 2002, we incurred
capital expenditures to relocate six campuses and to enlarge or
remodel ten campuses. During fiscal 2001, three

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campuses were relocated and nine campuses and our
corporate headquarters were enlarged or remodeled. Capital
expenditures of approximately $11.0 million and
$5.7 million were incurred to purchase information
technology equipment and to integrate software in fiscal 2003
and fiscal 2002, respectively. In fiscal 2002, the Company sold
its Colorado Springs facility and subsequently leased the
facility back at rents which we believe approximate fair market
rents. The gain on sale of the facility was approximately
$0.2 million and will be amortized into income over the
term of the lease. In fiscal 2000, the Company sold its Aurora,
Colorado facility and subsequently leased the facility back at
rents which we believe approximate fair market rents. The gain
on the sale of the facility was approximately $1.0 million
and was to be amortized into income over the term of the lease.
During fiscal 2002, the Company relocated its Colorado facility
and recognized the unamortized portion of the deferred gain of
approximately $0.6 million. We believe that our capital
expenditures for fiscal 2004 will approximate $60.0 million.


During fiscal 2003, investments in marketable
securities decreased by $21.8 million, while in fiscal 2002
marketable securities increased by $16.0 million.
Marketable securities decreased by $14.4 million in fiscal
2001.

Net cash provided by financing activities
amounted to $16.5 million in fiscal 2003. Net cash provided
by financing activities amounted to $ 4.7 million in fiscal
2002 and net cash provided by financing activities amounted to
$10.7 million in fiscal 2001. During fiscal 2003, net cash
provided by financing activities consisted of proceeds from
borrowings of $58.6 million and proceeds from the exercises
of stock options of $17.4 million, partially offset by the
payments on long-term debt including capital lease obligations
of $59.4 million. During fiscal 2002, net cash provided by
financing activities consisted of proceeds from the exercise of
stock options of $6.5 million, partially offset by the
payments on long-term debt of $1.9 million. During fiscal
2001, net cash provided by financing activities consisted
primarily of net proceeds of $8.8 million from the
secondary public stock offering of approximately 800,000 shares
of common stock and proceeds from the exercises of stock
options, including tax benefits, of $2.0 million.

We believe that our working capital, cash flow
from operations, access to operating leases and borrowings
available from our Amended Credit Agreement will provide us with
adequate resources for our ongoing operations through fiscal
2004 and our currently identified and planned capital
expenditures.

Off-Balance Sheet Arrangements

As of June 30, 2003, future minimum cash
payments due under contractual obligations, including our credit
agreement, non-cancelable operating and capital lease agreements
and other long-term arrangements, are as follows (in thousands):

|                            |  |                        |         |           |  |           |         |         |  |   |        |  |  |   |        | 
|--------------------------- |  | ---------------------- | ------- | --------- |  | --------- | ------- | ------- |  | - | ------ |  |  | - | ------ | 
|                            |  |                       
|                            |  | Payments Due by Period
|                            |  |                       
|                            |  |                        |         | More Than
|Contractual Obligations     |  | Total                  |         | 0-3 Years |  | 4-5 Years |         | 5 Years
|                            |  |                        |         |           |  |           |         |        
|Capital Lease Obligations   |  |                        | 30,536  |           |  |           | 4,599   |         |  |   | 3,146  |  |  |   | 22,791 | 
|Operating Lease Obligations |  |                        | 205,195 |           |  |           | 97,679  |         |  |   | 52,490 |  |  |   | 55,026 | 
|Other Long-Term Obligations |  |                        | 2,038   |           |  |           | 792     |         |  |   | 1,246  |  |  |   |       | 
|Total                       |  | $                      | 237,769 |           |  | $         | 103,070 |         |  | $ | 56,882 |  |  | $ | 77,817 | 

The Department of Education requires that Title
IV Program funds collected in advance of student billings be
kept in a separate cash or cash equivalent account until the
students are billed for the program portion related to those
funds. In addition, all Title IV Program funds received by our
schools through electronic funds transfer are subject to certain
holding period restrictions. These funds are also deposited into
a separate account until the restrictions are satisfied. As of
June 30, 2003, 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.

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New Accounting Pronouncements

In June 2001, Financial Accounting Standards
Board (FASB) issued SFAS No. 141,
Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 141 addresses financial accounting and reporting for
business combinations and is effective for all business
combinations after June 30, 2001. SFAS No. 142
addresses financial accounting and reporting for acquired
goodwill and other intangible assets. The Company adopted SFAS
No. 142, Accounting for Business Combinations,
Goodwill and Other Intangible Assets, in its entirety
effective July 1, 2002. Accordingly, under SFAS
No. 142, goodwill is no longer amortized on a periodic
basis, but instead is subject to an impairment test to be
performed at least on an annual basis. If the test indicates
that goodwill is impaired, the goodwill will be written down to
its fair value and a corresponding charge to earnings will be
recorded. Separable intangible assets that are not deemed to
have indefinite lives will continue to be amortized over their
useful lives. As a result of the adoption on July 1, 2002,
of SFAS No. 142, there was no goodwill amortization expense
for fiscal 2003, compared to approximately $824,000 of goodwill
amortization expense (pre-tax) in fiscal 2002. Additionally,
there was approximately $206,000 of goodwill amortization
expense (pre-tax) in the fourth quarter of fiscal 2002. No
impairment losses were recorded upon the initial adoption of
SFAS No. 142. The adoption of SFAS No. 141 and SFAS
No. 142 did not have an adverse material impact on our
consolidated financial position, results of operations or
earnings per share.

In October 2002, the FASB issued SFAS
No. 147, Acquisitions of Certain Financial
Institutions  An Amendment of FASB Statements
No. 72 and 144 and FASB Interpretation No. 9,
which provides guidance on the accounting for the acquisition of
a financial institution. SFAS No. 147 is effective for
acquisitions on or after October 1, 2002. The adoption of
SFAS No. 147 is not expected to have an adverse material
impact on our consolidated financial position or results of
operations.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (Interpretation
No. 45). Interpretation No. 45 requires a
guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in
issuing the guarantee. Interpretation No. 45 also expands
the disclosures required to be made by a guarantor about its
obligations under certain guarantees that it has issued. Initial
recognition and measurement provisions of Interpretation
No. 45 are applicable on a prospective basis to guarantees
issued or modified. The disclosure requirements are effective
immediately. The Company does not expect the adoption of
Interpretation No. 45 to have a material effect on its
financial condition or results of operations.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
An Amendment of FASB Statement No. 123. SFAS
No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation and amends the disclosure
requirements of SFAS No. 123 to improve the clarity and
prominence of disclosures about the pro forma effects of
accounting for stock based compensation on the financial
statements. The transition guidance and annual disclosure
provisions of SFAS No. 148 are effective for fiscal years
ending after December 15, 2002 with earlier application
permitted in certain circumstances. The Company adopted SFAS
No. 148 as of January 1, 2003 through its continued
application of the intrinsic value method of accounting under
APB opinion No. 25.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (Interpretation No. 46).
Interpretation No. 46 requires a company to consolidate a
variable interest entity if the company is subject to a majority
of the risk of loss from the variable interest entitys
activities or is entitled to receive a majority of the
entitys residual returns. The interpretation also requires
disclosures about variable interest entities that the company is
not required to consolidate but in which it has a significant
variable interest. Interpretation No. 46 is immediately
effective for variable interest entities created after
January 31, 2003 and to variable interest entities in which
an enterprise obtains an interest after that date. It applies in
the first fiscal year or interim period beginning after
June 15, 2003, with respect to variable interest entities
in which an enterprise holds a variable interest that is
acquired before February 1, 2003. The Company does not

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have Variable Interest Entities, or Special
Purpose Entities (SPEs) and the adoption of
Interpretation No. 46 will not have an impact on our
consolidated financial position or results of operations.


In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. The
adoption of SFAS No. 149 is not expected to have an adverse
material impact on our consolidated financial position or
results of operations.

In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify
a financial instrument that is within its scope as a liability
(or an asset in some circumstances). SFAS No. 150 is
effective for financial instruments entered into or modified
after May 31, 2003. The adoption of SFAS No. 150 is
not expected to have an adverse material impact on our
consolidated financial position or results of operations.

Subsequent Events

Effective August 1, 2003, we acquired all of
the outstanding stock of Career Choices, Inc. The cash purchase
price was approximately $56 million, plus certain balance
sheet adjustments. The cash purchase price was funded through a
combination of available cash and borrowings from our credit
facility. Career Choices Inc. had approximately 2,900 students
as of June 30, 2003 and operates 10 campuses in California,
Washington and Oregon that offer both degree and diploma and
certificate programs with concentrations of study in applied
science, automotive technology, HVAC technology and allied
health, including the popular fields of massage therapy, dental
assisting and medical assisting. For fiscal 2004, we expect
Career Choices to generate revenues of between $36 million
and $39 million. Additionally, we expect Career Choices,
after giving effect to acquisition integration costs, the
incurrence of interest expense and the reduction of interest
income, to be accretive to diluted earnings per share by between
$0.03 and $0.04 for fiscal 2004.

Effective August 6, 2003, we acquired
substantially all of the assets of East Coast Aero Tech, LLC.
The cash purchase price was approximately $2.9 million,
plus or minus certain balance sheet adjustments. The cash
purchase price was funded through a combination of available
cash and borrowings from our credit facility. East Coast Aero
Tech had approximately 180 students as of June 30, 2003 and
operates one campus in Massachusetts that offers programs in
aviation maintenance technology. For fiscal 2004, we expect East
Coast Aero Tech to generate revenues of approximately
$2.6 million. Additionally, we expect East Coast Aero Tech,
after giving effect to acquisition integration costs, the
incurrence of interest expense and the reduction of interest
income, to be slightly dilutive to earnings per share for fiscal
2004.

On August 19, 2003, we 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.
By September 3, 2003, we acquired an aggregate of
approximately 9,250,613 common shares of CDI Education
Corporation representing slightly more than 90% of all
outstanding CDI shares for approximately $32 million and
the assumption of debt of approximately $10 million. We
will proceed to acquire the remaining CDI shares not deposited
under the tender offer by the exercise of the compulsory
acquisition right under the Business Corporations Act (Ontario).
Shareholders of CDI Education Corporation who did not tender to
the tender offer will be offered C$4.33 per CDI share, the same
price offered to shareholders under the offer. Upon acquisition
of these remaining CDI shares, CDI will become an indirect,
wholly-owned subsidiary of Corinthian Colleges, Inc. The cash
purchase price was funded with available cash and borrowings
from our amended credit facility. CDI operates 45 post-secondary
colleges and 15 corporate training centers throughout Canada.
CDIs 45 post-secondary colleges offer diploma-granting
programs in allied health, business and information technology
and had approximately 6,000 students as of June 30, 2003.
CDIs corporate education division, which has 15 training
centers, serves as both an outsourced and e-learning

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provider focused on skills development
specialties such as leadership, innovation and business
analysis. For fiscal 2004, we expect CDI to generate revenues of
between $67 million and $72 million. Additionally, we
expect CDI, after giving effect to acquisition integration
costs, the incurrence of interest expense and the reduction of
interest income, to break even for fiscal 2004.


These acquisitions were strategic to us and will
supplement our growth strategies geographically and
internationally and will add new and exciting curricula to our
library. ECAT and Career Choices Sequoia college will
provide operating synergies and new curricula to our TSI
division. Career Choices Ashmead and Eton colleges will
add new curricula and expands our presence in the Pacific
Northwest and, we expect, will provide operating synergies to
our CSI division. The acquisition of CDI expands our footprint
into Canada and is our first international operations.
Additionally, CDIs corporate education division becomes
the cornerstone of our corporate education growth strategy.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

We do not utilize interest rate swaps, forward or
option contracts on foreign currencies or commodities, or other
types of derivative financial instruments. As of June 30,
2003, 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 $1.5 million
in addition to capital lease obligations of $12.8 million,
(ii) student notes receivable, net, in the aggregate amount
of $2.8 million, and (iii) marketable securities of
$3.9 million. Our mortgage debt and capital lease
obligations, student notes receivable, and the marketable
securities 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.

Following our CDI acquisition, we are exposed to
the impact of foreign currency fluctuations between the Canadian
and U.S. dollar. Although we have not utilized hedging
instruments to manage this exposure, we may consider doing so in
future periods.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The following financial statements of the company
and its subsidiaries are included below on pages 57-85 and
page 94 of this report:

|                                                                                                      |  |             |    | 
|----------------------------------------------------------------------------------------------------- |  | ----------- | -- | 
|                                                                                                      |  | 10K        
|                                                                                                      |  | Report Page
|                                                                                                      |  |            
|Report of Independent Auditors                                                                        |  |             | 50 | 
|Report of Independent Public Accountants                                                              |  |             | 51 | 
|Consolidated Balance Sheets at June 30, 2002
    and 2003                                             |  |             | 52 | 
|Consolidated Statements of Operations for the
    years ended June 30, 2001, 2002 and 2003            |  |             | 53 | 
|Consolidated Statements of Stockholders
    Equity for the years ended June 30, 2001, 2002, and 2003 |  |             | 54 | 
|Consolidated Statements of Cash Flows for the
    years ended June 30, 2001, 2002, and 2003           |  |             | 55 | 
|Notes to Consolidated Financial Statements                                                            |  |             | 56 | 
|Schedule II  Valuation and
    Qualifying Accounts                                                   |  |             | 84 | 

Schedules other than the one listed above are
omitted because they are not required, are not applicable, or
the required information is shown on the financial statements or
the notes thereto.

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REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders

Corinthian Colleges, Inc.


We have audited the accompanying consolidated
balance sheets of Corinthian Colleges, Inc. and subsidiaries as
of June 30, 2003 and 2002 and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the two years in the period ended
June 30, 2003. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Corinthian Colleges, Inc. and
subsidiaries at June 30, 2003 and 2002 and the consolidated
results of their operations and their cash flows for each of the
two years in the period ended June 30, 2003, in conformity
with accounting principles generally accepted in the United
States.



| |                        
| | -----------------------
| | /s/ ERNST AND YOUNG LLP

Orange County, California

August 13, 2003, except for


Notes 5 and
12, as to which


the date is
September 3, 2003


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The following report of Arthur Andersen LLP
(Andersen) is a copy of the original report dated
August 15, 2001, rendered on the prior years
financial statements. It is being furnished solely in respect of
the consolidated statements of operations, stockholders
equity and cash flows for fiscal year 2001. The SEC provided
regulatory relief designed to allow public companies to dispense
with the requirement that they file a consent of Andersen in
certain circumstances. After reasonable efforts, we have not
been able to obtain a re-issued report or consent from Andersen.
Because we have not been able to obtain Arthur Andersens
consent, you may not be able to recover against Arthur Andersen
under Section 11 of the Securities Act for any untrue
statements of a material fact contained in our financial
statements audited by Arthur Andersen or any omission to state a
material fact required to be stated therein.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Corinthian Colleges, Inc.:

We have audited the accompanying consolidated
balance sheets of CORINTHIAN COLLEGES, INC. (a Delaware
corporation) and subsidiaries as of June 30, 2000 and 2001
and the related consolidated statements of operations,
stockholders equity and cash flows for each of the three
years in the period ended June 30, 2001. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Corinthian Colleges, Inc.
and subsidiaries, as of June 30, 2000 and 2001, and the
results of their operations and their cash flows for each of the
three years in the period ended June 30, 2001, in
conformity with accounting principles generally accepted in the
United States.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Orange County, California

August 15, 2001


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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |         |         |         | 
|--------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                                                |                                                                                                                                   |                                                                                                                                               
|                                                                |                                                                                                                                   | As of June 30,                                                                                                                                
|                                                                |                                                                                                                                   |                                                                                                                                               
|                                                                |                                                                                                                                   | 2002                                                                                                                                           |                                            | 2003  
|                                                                |                                                                                                                                   |                                                                                                                                                |                                            |       
|                                                                |                                                                                                                                   |                                                                                                                                               
|                                                                |                                                                                                                                   | (In thousands)                                                                                                                                
|ASSETS                                                         
|CURRENT ASSETS:                                                 |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        
|                                                                | Cash and cash equivalents                                                                                                         |                                                                                                                                                | $                                          | 40,761 |         |         | $      | 35,901  |        
|                                                                | Restricted cash                                                                                                                   |                                                                                                                                                |                                            | 267    |         |         |        | 10      |        
|                                                                | Marketable securities                                                                                                             |                                                                                                                                                |                                            | 25,706 |         |         |        | 3,897   |        
|                                                                | Accounts receivable, net of allowance for
    doubtful accounts of $7,297 and $10,362 at June 30, 2002
    and 2003, respectively |                                                                                                                                                |                                            | 24,043 |         |         |        | 36,145  |        
|                                                                | Student notes receivable, net of allowance for
    doubtful accounts of $320 and $313 at June 30, 2002 and
    2003, respectively |                                                                                                                                                |                                            | 726    |         |         |        | 848     |        
|                                                                | Deferred income taxes                                                                                                             |                                                                                                                                                |                                            | 6,142  |         |         |        | 10,538  |        
|                                                                | Prepaid expenses and other current assets                                                                                         |                                                                                                                                                |                                            | 11,482 |         |         |        | 21,356  |        
|                                                                |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        
|                                                                |                                                                                                                                   | Total current assets                                                                                                                           |                                            |        | 109,127 |         |        |         | 108,695 |        
|PROPERTY AND EQUIPMENT, net                                     |                                                                                                                                   |                                                                                                                                                | 36,956                                     |        |         |         | 77,887 |        
|OTHER ASSETS:                                                   |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        
|                                                                | Goodwill, net                                                                                                                     |                                                                                                                                                |                                            | 45,340 |         |         |        | 102,565 |        
|                                                                | Other intangibles, net                                                                                                            |                                                                                                                                                |                                            | 12,085 |         |         |        | 33,885  |        
|                                                                | Student notes receivable, net of allowance for
    doubtful accounts of $434 and $608 at June 30, 2002 and
    2003, respectively |                                                                                                                                                |                                            | 1,218  |         |         |        | 2,001   |        
|                                                                | Deposits and other assets                                                                                                         |                                                                                                                                                |                                            | 3,080  |         |         |        | 4,365   |        
|                                                                |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        
|                                                                |                                                                                                                                   |                                                                                                                                                | TOTAL ASSETS                               |        | $       | 207,806 |        |         | $       | 329,398 | 
|                                                                |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY                       
|CURRENT LIABILITIES:                                            |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        
|                                                                | Accounts payable                                                                                                                  |                                                                                                                                                | $                                          | 14,371 |         |         | $      | 12,592  |        
|                                                                | Accrued compensation and related liabilities                                                                                      |                                                                                                                                                |                                            | 15,800 |         |         |        | 26,182  |        
|                                                                | Accrued expenses                                                                                                                  |                                                                                                                                                |                                            | 2,671  |         |         |        | 6,426   |        
|                                                                | Income taxes payable                                                                                                              |                                                                                                                                                |                                            | 2,304  |         |         |        |        |        
|                                                                | Prepaid tuition                                                                                                                   |                                                                                                                                                |                                            | 13,332 |         |         |        | 21,161  |        
|                                                                | Current portion of capital lease obligations                                                                                      |                                                                                                                                                |                                            |       |         |         |        | 186     |        
|                                                                | Current portion of long-term debt                                                                                                 |                                                                                                                                                |                                            | 585    |         |         |        | 110     |        
|                                                                |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        
|                                                                |                                                                                                                                   |                                                                                                                                                | Total current liabilities                  |        |         | 49,063  |        |         |         | 66,657  | 
|LONG TERM CAPITAL LEASE OBLIGATIONS, net of
    current portion |                                                                                                                                   |                                                                                                                                                |                                           |        |         |         | 12,586 |        
|LONG-TERM DEBT, net of current portion                          |                                                                                                                                   |                                                                                                                                                | 1,515                                      |        |         |         | 1,384  |        
|DEFERRED INCOME                                                 |                                                                                                                                   |                                                                                                                                                | 147                                        |        |         |         |       |        
|DEFERRED INCOME TAXES                                           |                                                                                                                                   |                                                                                                                                                | 5,920                                      |        |         |         | 14,185 |        
|OTHER LIABILITIES                                               |                                                                                                                                   |                                                                                                                                                | 107                                        |        |         |         | 245    |        
|COMMITMENTS AND CONTINGENCIES (Note 10)                         |                                                                                                                                   |                                                                                                                                                |                                           |        |         |         |       |        
|STOCKHOLDERS EQUITY:                                           |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        
|                                                                | Common Stock, $0.0001 par value:                                                                                                  |                                                                                                                                                |                                            |        |         |         |        |         |        
|                                                                |                                                                                                                                   | Common Stock, 80,000 shares authorized, 42,954
    shares and 43,822 shares issued and outstanding at June 30,
    2002 and 2003, respectively |                                            |        | 4       |         |        |         | 4       |        
|                                                                | Additional paid-in capital                                                                                                        |                                                                                                                                                |                                            | 67,023 |         |         |        | 84,373  |        
|                                                                | Retained earnings                                                                                                                 |                                                                                                                                                |                                            | 84,027 |         |         |        | 149,964 |        
|                                                                |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        
|                                                                |                                                                                                                                   |                                                                                                                                                | Total stockholders equity                 |        |         | 151,054 |        |         |         | 234,341 | 
|                                                                |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        
|                                                                |                                                                                                                                   |                                                                                                                                                | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |        | $       | 207,806 |        |         | $       | 329,398 | 
|                                                                |                                                                                                                                   |                                                                                                                                                |                                            |        |         |         |        |        

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

52



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##### Table of Contents



CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |         |         | 
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                          |                                                                                                                                                                          |                                      
|                                                          |                                                                                                                                                                          | Years Ended June 30,                 
|                                                          |                                                                                                                                                                          |                                      
|                                                          |                                                                                                                                                                          | 2001                                  |         | 2002    |         | 2003
|                                                          |                                                                                                                                                                          |                                       |         |         |         |     
|                                                          |                                                                                                                                                                          |                                      
|                                                          |                                                                                                                                                                          | (In thousands, except per share data)
|NET REVENUES                                              |                                                                                                                                                                          | $                                     | 244,163 |         |         | $    | 338,146 |         |         | $ | 517,293 |        
|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|OPERATING EXPENSES:                                       |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|                                                          | Educational services (including a provision for
    bad debt expense of $13,965, $18,527 and $19,871 for the years
    ended June 30, 2001, 2002 and 2003, respectively) |                                       |         | 131,501 |         |      |         | 175,088 |         |   |         | 251,366 |        
|                                                          | General and administrative                                                                                                                                               |                                       |         | 19,562  |         |      |         | 29,614  |         |   |         | 49,770  |        
|                                                          | Marketing and advertising                                                                                                                                                |                                       |         | 52,349  |         |      |         | 70,741  |         |   |         | 106,478 |        
|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|                                                          |                                                                                                                                                                          | Total operating expenses              |         |         | 203,412 |      |         |         | 275,443 |   |         |         | 407,614 | 
|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|INCOME FROM OPERATIONS                                    |                                                                                                                                                                          |                                       | 40,751  |         |         |      | 62,703  |         |         |   | 109,679 |        
|                                                          | Interest (income)                                                                                                                                                        |                                       |         | (2,363  | )       |      |         | (1,763  | )       |   |         | (1,259  | )      
|                                                          | Interest expense                                                                                                                                                         |                                       |         | 285     |         |      |         | 225     |         |   |         | 1,602   |        
|                                                          | Other (income) expense                                                                                                                                                   |                                       |         |        |         |      |         | (662    | )       |   |         | (13     | )      
|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|INCOME BEFORE PROVISION FOR INCOME TAXES                  |                                                                                                                                                                          |                                       | 42,829  |         |         |      | 64,903  |         |         |   | 109,349 |        
|                                                          | Provision for income taxes                                                                                                                                               |                                       |         | 17,098  |         |      |         | 25,955  |         |   |         | 43,412  |        
|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|NET INCOME                                                |                                                                                                                                                                          | $                                     | 25,731  |         |         | $    | 38,948  |         |         | $ | 65,937  |        
|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|INCOME PER SHARE:                                         |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|                                                          | Basic                                                                                                                                                                    |                                       | $       | 0.61    |         |      | $       | 0.91    |         |   | $       | 1.52    |        
|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|                                                          | Diluted                                                                                                                                                                  |                                       | $       | 0.59    |         |      | $       | 0.87    |         |   | $       | 1.43    |        
|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|Weighted average number of common shares
    outstanding: |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|                                                          | Basic                                                                                                                                                                    |                                       |         | 42,064  |         |      |         | 42,692  |         |   |         | 43,465  |        
|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        
|                                                          | Diluted                                                                                                                                                                  |                                       |         | 43,462  |         |      |         | 44,694  |         |   |         | 46,028  |        
|                                                          |                                                                                                                                                                          |                                       |         |         |         |      |         |         |         |   |         |        

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

53



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##### Table of Contents



CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                          |                                                                        |                |        |              |  |            |   |       |  |         |       |          |   |               |   |   |  |   |        |        |  |   |         |        |  |   |         |        | 
|------------------------- | ---------------------------------------------------------------------- | -------------- | ------ | ------------ |  | ---------- | - | ----- |  | ------- | ----- | -------- | - | ------------- | - | - |  | - | ------ | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                          |                                                                        |                |        |              |  |            |   |       |  |         |       |         
|                          |                                                                        |                |        | Nonvoting    |  |            |   |       |  |        
|                          |                                                                        | Common Stock   |        | Common Stock |  |            |   |       |  |        
|                          |                                                                        |                |        |              |  | Additional |   |       |  | Total  
|                          |                                                                        |                |        | Par          |  |            |   | Par   |  | Paid-in |       | Retained |   | Stockholders
|                          |                                                                        | Shares         |        | Value        |  | Shares     |   | Value |  | Capital |       | Earnings |   | Equity       
|                          |                                                                        |                |        |              |  |            |   |       |  |         |       |          |   |              
|                          |                                                                        |               
|                          |                                                                        | (In thousands)
|Balance at June 30, 2000. |                                                                        |                | 36,690 |              |  | $          | 4 |       |  |         | 4,706 |          |   | $             |  |   |  | $ | 49,651 |        |  | $ | 19,348  |        |  | $ | 69,003  |       
|                          | Conversion of Nonvoting Common Stock to Common
    Stock               |                |        | 4,706        |  |            |   |      |  |         |       | (4,706   | ) |               |   |  |  |   |        |       |  |   |         |       |  |   |         |       | 
|                          | Issuance of Common Stock from secondary public
    stock offering, net |                |        | 800          |  |            |   |      |  |         |       |         |   |               |   |  |  |   |        | 8,821  |  |   |         |       |  |   |         | 8,821  | 
|                          | Exercise of Stock Options, including tax benefit                       |                |        | 250          |  |            |   |      |  |         |       |         |   |               |   |  |  |   |        | 2,008  |  |   |         |       |  |   |         | 2,008  | 
|                          | Net income and comprehensive income                                    |                |        |             |  |            |   |      |  |         |       |         |   |               |   |  |  |   |        |       |  |   |         | 25,731 |  |   |         | 25,731 | 
|                          |                                                                        |                |        |              |  |            |   |       |  |         |       |          |   |               |   |   |  |   |        |        |  |   |         |        |  |   |         |       
|Balance at June 30, 2001. |                                                                        |                | 42,446 |              |  |            | 4 |       |  |         |      |          |   |               |  |   |  |   | 60,480 |        |  |   | 45,079  |        |  |   | 105,563 |       
|                          | Issuance of Common Stock from Employee Stock
    Purchase Plan         |                |        | 23           |  |            |   |      |  |         |       |         |   |               |   |  |  |   |        | 396    |  |   |         |       |  |   |         | 396    | 
|                          | Exercise of Stock Options, including tax benefit                       |                |        | 485          |  |            |   |      |  |         |       |         |   |               |   |  |  |   |        | 6,147  |  |   |         |       |  |   |         | 6,147  | 
|                          | Net income and comprehensive income                                    |                |        |             |  |            |   |      |  |         |       |         |   |               |   |  |  |   |        |       |  |   |         | 38,948 |  |   |         | 38,948 | 
|                          |                                                                        |                |        |              |  |            |   |       |  |         |       |          |   |               |   |   |  |   |        |        |  |   |         |        |  |   |         |       
|Balance at June 30, 2002. |                                                                        |                | 42,954 |              |  |            | 4 |       |  |         |      |          |   |               |  |   |  |   | 67,023 |        |  |   | 84,027  |        |  |   | 151,054 |       
|                          | Issuance of Common Stock from Employee Stock
    Purchase Plan         |                |        | 23           |  |            |   |       |  |         |       |          |   |               |   |   |  |   |        | 518    |  |   |         |        |  |   |         | 518    | 
|                          | Exercise of Stock Options, including tax benefit                       |                |        | 845          |  |            |   |      |  |         |       |         |   |               |   |  |  |   |        | 16,832 |  |   |         |       |  |   |         | 16,832 | 
|                          | Net income and comprehensive income                                    |                |        |             |  |            |   |      |  |         |       |         |   |               |   |  |  |   |        |       |  |   |         | 65,937 |  |   |         | 65,937 | 
|                          |                                                                        |                |        |              |  |            |   |       |  |         |       |          |   |               |   |   |  |   |        |        |  |   |         |        |  |   |         |       
|Balance at June 30, 2003. |                                                                        |                | 43,822 |              |  | $          | 4 |       |  |         |      |          |   | $             |  |   |  | $ | 84,373 |        |  | $ | 149,964 |        |  | $ | 234,341 |       
|                          |                                                                        |                |        |              |  |            |   |       |  |         |       |          |   |               |   |   |  |   |        |        |  |   |         |        |  |   |         |       

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

54



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##### Table of Contents



CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |         |         |         |         |  
|--------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | --------------------------------- | ----------------------------------------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------- | ------- | ------- | -
|                                                                            |                                                                                                     |                                                                         
|                                                                            |                                                                                                     | Years Ended June 30,                                                    
|                                                                            |                                                                                                     |                                                                         
|                                                                            |                                                                                                     | 2001                                                                     |                                   | 2002                                      |        | 2003  
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |       
|                                                                            |                                                                                                     |                                                                         
|                                                                            |                                                                                                     | (In thousands)                                                          
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            | Net income                                                                                          |                                                                          | $                                 | 25,731                                    |        |        | $       | 38,948  |        |        | $       | 65,937  |        
|                                                                            | Adjustments to reconcile net income to net cash
    provided by operating activities:               |                                                                          |                                   |                                           |        |        |         |         |        |        |         |         |        
|                                                                            |                                                                                                     | Depreciation and amortization                                            |                                   |                                           | 4,860  |        |         |         | 6,653  |        |         |         | 12,575  |        
|                                                                            |                                                                                                     | Deferred income taxes                                                    |                                   |                                           | (1,260 | )      |         |         | 2,549  |        |         |         | 3,819   |        
|                                                                            |                                                                                                     | Loss (gain) on disposal of assets                                        |                                   |                                           |       |        |         |         | 37     |        |         |         | (13     | )      
|                                                                            |                                                                                                     | Changes in assets and liabilities, net of effects
    from acquisitions: |                                   |                                           |        |        |         |         |        |        |         |         |         |        
|                                                                            |                                                                                                     |                                                                          | Accounts receivable               |                                           |        | (9,150 | )       |         |        | 645    |         |         |         | (11,555 | )      
|                                                                            |                                                                                                     |                                                                          | Student notes receivable          |                                           |        | 1,769  |         |         |        | 363    |         |         |         | (905    | )      
|                                                                            |                                                                                                     |                                                                          | Prepaid expenses and other assets |                                           |        | (5,509 | )       |         |        | (3,015 | )       |         |         | (7,640  | )      
|                                                                            |                                                                                                     |                                                                          | Accounts payable                  |                                           |        | 1,901  |         |         |        | 6,428  |         |         |         | (2,441  | )      
|                                                                            |                                                                                                     |                                                                          | Accrued expenses                  |                                           |        | 1,463  |         |         |        | 3,876  |         |         |         | 10,499  |        
|                                                                            |                                                                                                     |                                                                          | Income taxes payable              |                                           |        | 119    |         |         |        | 1,024  |         |         |         | (2,304  | )      
|                                                                            |                                                                                                     |                                                                          | Prepaid tuition                   |                                           |        | 1,085  |         |         |        | 3,999  |         |         |         | 3,139   |        
|                                                                            |                                                                                                     |                                                                          | Other long-term liabilities       |                                           |        | 523    |         |         |        | (874   | )       |         |         | (9      | )      
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            |                                                                                                     |                                                                          |                                   | Net cash provided by operating activities |        |        | 21,532  |         |        |        | 60,633  |         |         |         | 71,102  |  
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            | Acquisitions of schools, colleges and training
    centers, net of cash acquired                    |                                                                          |                                   | (19,258                                   | )      |        |         | (9,826  | )      |        |         | (83,785 | )      
|                                                                            | Change in restricted cash                                                                           |                                                                          |                                   |                                          |        |        |         | (257    | )      |        |         | 257     |        
|                                                                            | Capital expenditures, net of disposals                                                              |                                                                          |                                   | (12,545                                   | )      |        |         | (19,003 | )      |        |         | (30,764 | )      
|                                                                            | Proceeds from sale of assets                                                                        |                                                                          |                                   |                                          |        |        |         | 805     |        |        |         | 13      |        
|                                                                            | Sales of (investment in) marketable securities,
    net                                             |                                                                          |                                   | 14,408                                    |        |        |         | (16,007 | )      |        |         | 21,809  |        
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            |                                                                                                     |                                                                          |                                   | Net cash (used in) investing activities   |        |        | (17,395 | )       |        |        | (44,288 | )       |         |         | (92,470 | )
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            | Proceeds from borrowings                                                                            |                                                                          |                                   |                                          |        |        |         |        |        |        |         | 58,600  |        
|                                                                            | Principal repayments on capital lease obligations
    and long-term debt                            |                                                                          |                                   | (114                                      | )      |        |         | (1,865  | )      |        |         | (59,442 | )      
|                                                                            | Proceeds from secondary public offering                                                             |                                                                          |                                   | 8,821                                     |        |        |         |        |        |        |         |        |        
|                                                                            | Proceeds from exercise of stock options and
    Employee Stock Purchase Plan, including tax benefit |                                                                          |                                   | 2,008                                     |        |        |         | 6,543   |        |        |         | 17,350  |        
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            |                                                                                                     |                                                                          |                                   | Net cash provided by financing activities |        |        | 10,715  |         |        |        | 4,678   |         |         |         | 16,508  |  
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS                    |                                                                                                     |                                                                          | 14,852                            |                                           |        |        | 21,023  |         |        |        | (4,860  | )      
|CASH AND CASH EQUIVALENTS, beginning of year                                |                                                                                                     |                                                                          | 4,886                             |                                           |        |        | 19,738  |         |        |        | 40,761  |        
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|CASH AND CASH EQUIVALENTS, end of year                                      |                                                                                                     | $                                                                        | 19,738                            |                                           |        | $      | 40,761  |         |        | $      | 35,901  |        
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                           |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            | Cash paid during the year for:                                                                      |                                                                          |                                   |                                           |        |        |         |         |        |        |         |         |        
|                                                                            |                                                                                                     | Income taxes                                                             |                                   | $                                         | 16,979 |        |         | $       | 24,931 |        |         | $       | 38,063  |        
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            |                                                                                                     | Interest expense                                                         |                                   | $                                         | 275    |        |         | $       | 239    |        |         | $       | 1,617   |        
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND
    FINANCING ACTIVITIES: |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            | Acquisitions of various schools, colleges and
    training centers                                  |                                                                          |                                   |                                           |        |        |         |         |        |        |         |         |        
|                                                                            |                                                                                                     | Fair value of assets acquired                                            |                                   | $                                         | 20,754 |        |         | $       | 16,094 |        |         | $       | 100,421 |        
|                                                                            |                                                                                                     | Net cash used in acquisitions                                            |                                   |                                           | 19,258 |        |         |         | 9,826  |        |         |         | 83,785  |        
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            |                                                                                                     | Liabilities assumed or incurred                                          |                                   | $                                         | 1,496  |        |         | $       | 6,268  |        |         | $       | 16,638  |        
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        
|                                                                            |                                                                                                     | Capital lease additions                                                  |                                   | $                                         |       |        |         | $       |       |        |         | $       | 6,300   |        
|                                                                            |                                                                                                     |                                                                          |                                   |                                           |        |        |         |         |        |        |         |        

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

55



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##### Table of Contents



CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1  Description of the
Business and Summary of Significant Accounting
Policies



| |                            
| | ---------------------------
| | Description of the Business

Corinthian Colleges, Inc. (the
Company), a Delaware corporation, was formed in
October 1996 during a reorganization transaction with a
predecessor company which was accounted for as a
recapitalization. Prior to October 1996 and since 1995, the
Company operated under the name of its predecessor, Corinthian
Schools, Inc.

As of June 30, 2003, the Company operated 69
colleges and two training centers in 21 states in the
for-profit, post-secondary education industry: Arizona,
California, Colorado, Florida, Georgia, Illinois, Indiana,
Louisiana, Massachusetts, Michigan, Missouri, Nevada, New York,
Oregon, Pennsylvania, Texas, Utah, Virginia, Washington, West
Virginia and Wyoming. All of the Companys schools are
accredited and grant either degrees (Associate, Bachelor and
Master) or diplomas and offer educational opportunities from an
extensive and diverse curricula library with an emphasis on four
primary concentrations: allied health, business, technology and
criminal justice. Additionally, the Company has an online
learning alternative available to students pursing education
exclusively online and is approved to offer nine accredited
degrees to exclusively online students. Revenues generated from
the Companys schools consist primarily of tuition and fees
paid by students. To pay for a substantial portion of their
tuition, the majority of students rely on funds received from
federal financial aid programs under Title IV
(Title IV Programs) of the Higher Education Act
of 1965, as amended (HEA). For further discussion,
see Concentration of Risk below and the footnote describing
Governmental Regulation. The Company also offers continuing
professional education, short duration certification programs,
corporate training and customized learning solutions in its two
training centers in California.

Additionally, in August 2003, the Company
completed the acquisitions of East Coast Aero Tech, LLC
(ECAT), Career Choices, Inc. (Career),
and CDI Education Corporation (CDI) which added
56 colleges and 15 training centers. The purchase
price of the three acquisitions was approximately
$91 million and was funded with cash on hand and borrowings
of approximately $45 million from the Companys three
year, $235 million credit facility. ECAT operates one
college in Massachusetts, with a student population of
approximately 180 at June 30, 2003, offers accredited
diploma programs in airframe and power plant maintenance. Career
operates nine colleges in the pacific northwest and one college
in northern California, with a student population of
approximately 2,900 at June 30, 2003. Career offers
accredited programs in automotive technology and heating,
ventilation and air conditioning at its Sequoia campus, and
allied health programs at its nine Ashmead and Eton campuses.
CDI operates 45 colleges, with a student population of
approximately 6,000 as of June 30, 2003, and
15 training centers in Canada and is the Companys
first international operation. The CDI colleges offer programs
in information technology, business and allied health and the
15 training centers provide training in skills development
to both corporations and governmental departments. The results
of operations of ECAT, Career and CDI are excluded from the
consolidated financial statements of the Company since the
acquisitions were completed subsequent to year end.

The Company has grown through acquisitions as
well as through organic growth. Organic growth consists of
opening new branch campuses, remodeling, expanding or relocating
existing campuses and through curricula adoptions into existing
colleges. Since 1999 and through June 30, 2003, the Company
has opened 18 branch campuses and acquired 18 colleges and
two training centers. Since its beginning in 1995 and including
the August 2003 acquisitions of ECAT, Career and CDI, the
Company has acquired 107 colleges and 17 training centers
and has opened 18 branch campuses.

56



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##### Table of Contents



CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | Fiscal Year

Each fiscal year ends June 30.



| |                            
| | ---------------------------
| | Principles of Consolidation

The accompanying consolidated financial
statements include the accounts of Corinthian Colleges, Inc. and
each of its wholly owned subsidiaries. All intercompany activity
has been eliminated in consolidation.



| |                              
| | -----------------------------
| | Financial Statement Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from estimated
amounts.



| |                 
| | ----------------
| | Reclassification

Certain amounts for the prior years have been
reclassified to conform to fiscal 2003 financial statement
presentation.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Company considers all highly liquid
investments purchased with an original maturity of three months
or less to be cash equivalents.



| |                      
| | ---------------------
| | Marketable Securities

Statements 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. All
available-for-sale securities mature within one year.

The Company adopted SFAS No. 130,
Reporting Comprehensive Income, in 1999. This
statement requires that all items that meet the definition of
components of comprehensive income be reported in a financial
statement for the period in which they are recognized.
Components of comprehensive income include revenues, expenses,
gains and losses that under accounting principles generally
accepted in the United States are included in comprehensive
income, but excluded from net income. There are no differences
between the Companys net income, as reported, and
comprehensive income, as defined, for the periods presented. At
June 30, 2003 there were no material unrealized gains or
losses from available-for-sale securities.



| |                
| | ---------------
| | Restricted Cash

Restricted cash consists of a $10,000 deposit as
required by the State of Pennsylvania Department of Education.

57



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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                    
| | -------------------
| | Revenue Recognition

The Company maintains a revenue recognition
policy. Revenues consist primarily of tuition and fees derived
from courses taught in its 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s tuition is refunded. Refunds are
calculated and paid in accordance with applicable federal, state
and institutional refund policies. Textbook sales and other
revenues are recognized as sales occur or services are performed
and represent less than 10% of total revenues. Prepaid tuition
is the portion of payments received but not earned and is
reflected as a current liability in the accompanying condensed
consolidated balance sheets as such amount is expected to be
earned within the next year.

Students attending the Companys
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 masters degree. Costs of programs or credit hours
for courses are clearly identified in the
Companys enrollment agreements. At the start of each
students respective program or
course of study leading to a degree, the student
executes an enrollment agreement which specifies the field of
study, the expected length of study, and the cost of the program
or course. The Company recognizes 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, the Company ceases
recognition of revenue and the paid but unearned portion of the
students tuition is refunded. Additionally, to insure the
delivery of education has occurred, either attendance is taken
or academic events are conducted at appropriate intervals to
insure that the student is completing his or her respective
field of study within the acceptable time period.



| |                     
| | --------------------
| | Educational Services

Educational services include direct operating
expenses of the schools consisting primarily of payroll and
payroll related expenses, occupancy and supplies costs, bad debt
expense and for 2001 and 2002, the amortization of goodwill.



| |                          
| | -------------------------
| | Marketing and Advertising

Marketing and advertising expense includes
compensation for college admissions staff, regional admissions
personnel, compensation expenses for marketing and advertising
management, and all direct advertising and production costs.
Advertising costs are expensed as incurred and amounted to
approximately $31.7 million, $43.8 million, and
$63.1 million for the years ended June 30, 2001, 2002,
and 2003, respectively.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are stated at cost and are
being depreciated or amortized utilizing the straight-line
method over the following estimated useful lives:

|                               |  |                                    
|------------------------------ |  | -----------------------------------
|Furniture and equipment        |  | 7 years                            
|Computer hardware and software |  | 3-5 years                          
|Leasehold improvements         |  | Shorter of 7 years or term of lease
|Buildings                      |  | 39 years                           

The Company evaluates the recoverability of its
long-lived assets in accordance with Financial Accounting
Standards Board (FASB) SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 requires the recognition of
impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows
attributable to such assets. The

58



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##### Table of Contents



CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company assesses the recoverability of its
long-lived assets on an annual basis or whenever adverse events
or changes in circumstances or business climate indicate that
expected undiscounted future cash flows related to such
long-lived assets may not be sufficient to support the net book
value of such assets. If undiscounted cash flows are not
sufficient to support the recorded assets, impairment is
recognized to reduce the carrying value of the long-lived assets
to the estimated fair value. Cash flow projections, although
subject to a degree of uncertainty, are based on trends of
historical performance and managements estimate of future
performance, giving consideration to existing and anticipated
competitive and economic conditions. Additionally, in
conjunction with the review for impairment, the remaining
estimated lives of certain of the Companys long-lived
assets are assessed. At June 30, 2003, the Companys
review of long-lived assets showed no indication of loss or
impairment. Accordingly, no impairment loss was recorded in
2003, 2002 or 2001.



| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

The Company maintains an allowance for doubtful
accounts for estimated losses resulting from the inability,
failure or refusal of its students to make required payments.
The Company determines 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.
The Company generally will write-off accounts receivable
balances deemed uncollectible as they are sent to collection
agencies. The Company offers 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.



| |                         
| | ------------------------
| | Deferred Financing Costs

Costs incurred in connection with obtaining
financing are capitalized and amortized over the maturity period
of the debt and are included in deposits and other assets in the
accompanying consolidated balance sheets.



| |                  
| | -----------------
| | Intangible Assets

Intangible assets consist of goodwill, trade
names, accreditation and course curriculum. Goodwill represents
the excess of cost over the fair market value of net assets
acquired, including identified intangible assets. Goodwill
acquired prior to July 1, 2001 was amortized using the
straight-line method over 40 years. Course curriculum
represents the cost of acquiring such curriculum and is
amortized using the straight-line method over 3 to
15 years. Trade names represent the cost to acquire and use
the names of the colleges acquired and are amortized using the
straight line method over 40 years. Amortization of
curriculum and trade names is included in general and
administrative expenses while amortization of goodwill for 2001
and 2002 was included in education services in the accompanying
statements of operations.

The determination of related estimated useful
lives of intangible assets and whether or not these intangible
assets are impaired involves significant judgments. The Company
has adopted SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142), and
goodwill has not been amortized as of July 1, 2002 and is
tested annually or more frequently if circumstances indicate
potential impairment, by comparing the fair value of its assets
to its carrying amount. The Company conducts studies to
determine the amounts that are assignable to other intangible
assets, such as curriculum, accreditation, and trade names.
Although the Company believes its intangible assets are fairly
stated, changes in strategy or market conditions could
significantly impact these judgments and require adjustments to
asset balances.



| |                
| | ---------------
| | Deferred Income

During fiscal 2002, the Company relocated from
one of its Colorado facilities which it sold in fiscal 2000 and
recognized the unamortized portion of the deferred gain of
approximately $0.6 million.

59



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##### Table of Contents



CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In fiscal 2002, the Company sold a facility and
subsequently leased the facility back at rents which approximate
fair market rents. The gain on sale of the facility was
approximately $0.2 million and was completely amortized
into income as of June 30, 2003.



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

The carrying value of cash and cash equivalents,
restricted cash, marketable securities, receivables and accounts
payable approximates their fair value at June 30, 2003 and
2002. In addition, the carrying value of all borrowings
approximate fair value at June 30, 2003 and 2002.



| |                                       
| | --------------------------------------
| | Post Retirement Benefit
    Obligation

The Company provides certain post retirement
benefits to certain key employees. In accordance with SFAS
No. 106 Employers Accounting for Postretirement
Benefits Other Than Pensions, the related expense did not
have a material effect on the Companys financial position
or results of operations.



| |             
| | ------------
| | Income Taxes

The Company accounts for income taxes as
prescribed by SFAS No. 109, Accounting for Income
Taxes. SFAS No. 109 prescribes the use of the asset
and liability method to compute the differences between the tax
basis of assets and liabilities and the related financial
amounts, using currently enacted tax laws. Valuation allowances
are established, when necessary, to reduce deferred tax assets
to the amount that more likely than not will be realized.



| |               
| | --------------
| | Deferred Taxes

The Company has deferred tax assets, which are
subject to periodic recoverability assessments. Realization of
the deferred tax assets is principally dependent upon
achievement of projected future taxable income offset by
deferred tax liabilities. The Company evaluates the
realizability of the deferred tax assets annually.



| |                         
| | ------------------------
| | Stock-Based Compensation

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 SFAS No. 123,
Accounting for Stock-Based Compensation, related to
options issued to employees and SFAS No. 148,
Accounting for Stock-based Compensation 
Transition and Disclosure. No stock-based employee
compensation cost is reflected in net income, as all options,
stock appreciation rights or other common stock based securities
granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following
table illustrates the effect on net income and earnings per
share if the

60



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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company had applied the fair value recognition
provisions of SFAS No. 123, to stock-based employee
compensation.

|                            |                                                                                                                                            |                                 |        |        |      |      |        |        |      |   |        |        |      | 
|--------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------- | ------ | ------ | ---- | ---- | ------ | ------ | ---- | - | ------ | ------ | ---- | 
|                            |                                                                                                                                            |                                
|                            |                                                                                                                                            | Fiscal Years Ended June 30,    
|                            |                                                                                                                                            |                                
|                            |                                                                                                                                            | 2001                            |        | 2002   |      | 2003
|                            |                                                                                                                                            |                                 |        |        |      |     
|                            |                                                                                                                                            |                                
|                            |                                                                                                                                            | (In thousands, except per share
|                            |                                                                                                                                            | data)                          
|Net income, as reported     |                                                                                                                                            | $                               | 25,731 |        |      | $    | 38,948 |        |      | $ | 65,937 |       
|                            | Stock-based compensation included above                                                                                                    |                                 |        |       |      |      |        |       |      |   |        |       |     
|                            | Deduct: Total stock based employee compensation
    cost determined under fair value method for all awards, net of
    related tax effects |                                 |        | (3,274 | )    |      |        | (5,020 | )    |   |        | (8,979 | )   
|                            |                                                                                                                                            |                                 |        |        |      |      |        |        |      |   |        |       
|                            | Pro forma net income                                                                                                                       |                                 | $      | 22,457 |      |      | $      | 33,928 |      |   | $      | 56,958 |     
|                            |                                                                                                                                            |                                 |        |        |      |      |        |        |      |   |        |       
|Basic earnings per share:   |                                                                                                                                            |                                 |        |        |      |      |        |        |      |   |        |       
|                            |                                                                                                                                            | As reported                     |        | $      | 0.61 |      |        | $      | 0.91 |   |        | $      | 1.52 | 
|                            |                                                                                                                                            | Pro forma                       |        | $      | 0.53 |      |        | $      | 0.79 |   |        | $      | 1.31 | 
|Diluted earnings per share: |                                                                                                                                            |                                 |        |        |      |      |        |        |      |   |        |       
|                            |                                                                                                                                            | As reported                     |        | $      | 0.59 |      |        | $      | 0.87 |   |        | $      | 1.43 | 
|                            |                                                                                                                                            | Pro forma                       |        | $      | 0.52 |      |        | $      | 0.76 |   |        | $      | 1.24 | 

The effects of applying SFAS No. 123 in the
above pro forma disclosures are not necessarily indicative of
future amounts.



| |                        
| | -----------------------
| | Income Per Common Share

The Company accounts for net income per common
share in accordance with SFAS No. 128 Earnings Per
Share and SFAS No. 129, Disclosure of
Information about Capital Structure. Basic net income per
common share is computed by dividing income attributable to
common stockholders by the weighted average number of common
shares outstanding for the period. Diluted net income per common
share is computed by dividing income attributable to common
stockholders by the weighted average number of common shares
outstanding plus the effect of dilutive stock options, utilizing
the treasury stock method.



| |                    
| | -------------------
| | Segment Information

The Company operates in one industry segment.
Operations are within one geographic region under the same
management control.



| |                    
| | -------------------
| | Common Stock Splits

During fiscal 2001, on December 15, 2000,
the Company completed a two-for-one stock split effected in the
form of a stock dividend. During fiscal 2002, on May 28,
2002, the Company completed a two-for-one stock split effected
in the form of a stock dividend. All share and per share amounts
have been restated to reflect the stock splits as of the
beginning of the earliest period presented.



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In June 2001, Financial Accounting Standards
Board (FASB) issued SFAS No. 141,
Business Combinations and SFAS No. 142. SFAS
No. 141 addresses financial accounting and reporting for
business combinations and is effective for all business
combinations after June 30, 2001. SFAS No. 142
addresses financial accounting and reporting for acquired
goodwill and other intangible assets. The Company adopted SFAS
No. 142 in its entirety effective July 1, 2002. Under
SFAS No. 142, goodwill is no longer amortized on

61



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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

a periodic basis, but instead is subject to an
impairment test to be performed at least on an annual basis. If
the test indicates that goodwill is impaired, the goodwill will
be written down to its fair value and a corresponding charge to
earnings will be recorded. Separable intangible assets that are
not deemed to have indefinite lives will continue to be
amortized over their useful lives. As a result of the adoption
on July 1, 2002, of SFAS No. 142, there was no
goodwill amortization expense for fiscal 2003, compared to
approximately $636,000 and $824,000 of goodwill amortization
expense in fiscal 2001 and 2002, respectively. No impairment
losses were recorded upon the initial adoption of SFAS
No. 142. The adoption of SFAS No. 141 and SFAS
No. 142 did not have an adverse material impact on our
consolidated financial position, results of operations or
earnings per share.

In October 2002, the FASB issued SFAS
No. 147, Acquisitions of Certain Financial
Institutions  An Amendment of FASB Statements
No. 72 and 144 and FASB Interpretation No. 9,
which provides guidance on the accounting for the acquisition of
a financial institution. SFAS No. 147 is effective for
acquisitions on or after October 1, 2002. The adoption of
SFAS No. 147 is not expected to have an adverse material
impact on our consolidated financial position or results of
operations.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (Interpretation
No. 45). Interpretation No. 45 requires a
guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in
issuing the guarantee. Interpretation No. 45 also expands
the disclosures required to be made by a guarantor about its
obligations under certain guarantees that it has issued. Initial
recognition and measurement provisions of Interpretation
No. 45 are applicable on a prospective basis to guarantees
issued or modified. The disclosure requirements are effective
immediately. The Company does not expect Interpretation
No. 45 to have a material effect on its financial condition
or results of operations.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
An Amendment of FASB Statement No. 123. SFAS
No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation and amends the disclosure
requirements of SFAS No. 123 to improve the clarity and
prominence of disclosures about the pro forma effects of
accounting for stock based compensation on the financial
statements. The transition guidance and annual disclosure
provisions of SFAS No. 148 are effective for fiscal years
ending after December 15, 2002 with earlier application
permitted in certain circumstances. The Company adopted SFAS
No. 148 as of January 1, 2003 through its continued
application of the intrinsic value method of accounting under
APB opinion No. 25.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities
an Interpretation of ARB No. 51 (Interpretation
No. 46). Interpretation No. 46 requires a
company to consolidate a variable interest entity if the company
is subject to a majority of the risk of loss from the variable
interest entitys activities or is entitled to receive a
majority of the entitys residual returns. Interpretation
No. 46 also requires disclosures about variable interest
entities that the company is not required to consolidate but in
which it has a significant variable interest. Interpretation
No. 46 is immediately effective for variable interest
entities created after January 31, 2003 and to variable
interest entities in which an enterprise obtains an interest
after that date. It applies in the first fiscal year or interim
period beginning after June 15, 2003, with respect to
variable interest entities in which an enterprise holds a
variable interest that is acquired before February 1, 2003.
The Company does not have variable interest entities, or special
purpose entities (SPEs) and the adoption of
Interpretation No. 46 will not have an impact on the
Companys consolidated financial position or results of
operations.

In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 149
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities.

62



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##### Table of Contents



CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 except for
contracts which exist in fiscal quarters that began prior to
June 15, 2003 and for hedging relationships designed after
June 30, 2003. For existing contracts for fiscal quarters
that began prior to June 15, 2003, the provisions of this
Statement that relate to Statement 133 Implementation Issues
should continue to be applied in accordance with their
respective dates. SFAS No. 149 requires that contracts with
comparable characteristics be accounted for similarly. The
adoption of SFAS No. 149 is not expected to have an adverse
material impact on the Companys consolidated financial
position or results of operations.

In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This
Statement establishes standards for classification and
measurement of certain financial instruments with
characteristics of both liabilities and equity. SFAS
No. 150 is effective for financial instruments entered into
or modified after May 31, 2003. The adoption of
SFAS No. 150 is not expected to have an adverse
material impact on the Companys consolidated financial
position or results of operations.



| |                      
| | ---------------------
| | Concentration of Risk

The Company maintains its cash and cash
equivalents accounts in financial institutions. Accounts at
these institutions are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. The Company performs
ongoing evaluations of these institutions to limit its
concentration risk exposure.

The Company extends credit for tuition to a
majority of the students. A substantial portion is repaid
through the students participation in federally funded
financial aid programs. Transfers of funds from the financial
aid programs to the Company are made in accordance with the U.S.
Department of Education (DOE) requirements.
Approximately 81%, 82% and 82% of the Companys revenues,
on a cash basis, were collected from funds distributed under
Title IV Programs of the HEA for the years ended June 30,
2001, 2002 and 2003, respectively. The financial aid and
assistance programs are subject to political and budgetary
considerations. There is no assurance that such funding will be
maintained at current levels. Extensive and complex regulations
govern the financial assistance programs in which the
Companys students participate. The Companys
administration of these programs is periodically reviewed by
various regulatory agencies. Any regulatory violation could be
the basis for the initiation of potential adverse actions
including a suspension, limitation or termination proceeding
which could have a material effect to the Company.

If any of the Companys institutions were to
lose its eligibility to participate in federal student financial
aid programs, the students at that institution would lose access
to funds derived from those programs and would have to seek
alternative sources of funds to pay their tuition and fees.
Students obtain access to federal student financial aid through
a DOE prescribed application and eligibility certification
process. Student financial aid funds are generally made
available to students at prescribed intervals throughout their
predetermined expected length of study. Students typically apply
the funds accessed from the federal financial aid programs to
pay their tuition and fees. The transfer of funds is from the
financial aid program to the student, who then uses those funds
to pay for a portion of the cost of their education. The receipt
of financial aid funds reduces the students amounts due to
the Company and has no impact on revenue recognition, as the
transfer relates to the source of funding for the costs of
education which may occur either through Title IV or other funds
and resources available to the student.

The Company has routinely provided installment
payment plans to many of its students to supplement their
federally funded financial aid. While these loans are unsecured,
the Company believes it has adequate reserves against these loan
balances. However, there can be no assurance that losses will
not exceed reserves. Losses in excess of reserves could have a
material adverse effect on the Companys business.

63



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##### Table of Contents

CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 2  Detail of Selected Balance
Sheet Accounts

Prepaid expenses and other current assets consist
of the following:

|                             |  |                |        |      |  |   |        | 
|---------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                             |  |               
|                             |  | As of June 30,
|                             |  |               
|                             |  | 2002           |        | 2003
|                             |  |                |        |     
|                             |  |               
|                             |  | (In thousands)
|Prepaids                     |  | $              | 4,598  |      |  | $ | 7,401  | 
|Course materials, net        |  |                | 3,762  |      |  |   | 4,856  | 
|Other current assets         |  |                | 3,122  |      |  |   | 2,462  | 
|Income tax refund receivable |  |                |       |      |  |   | 6,637  | 
|                             |  |                |        |      |  |   |        | 
|                             |  | $              | 11,482 |      |  | $ | 21,356 | 
|                             |  |                |        |      |  |   |        | 

Property and equipment consist of the following:

|                                                     |  |                |         |      |  |   |         |  
|---------------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                                     |  |               
|                                                     |  | As of June 30,
|                                                     |  |               
|                                                     |  | 2002           |         | 2003
|                                                     |  |                |         |     
|                                                     |  |               
|                                                     |  | (In thousands)
|Furniture and equipment                              |  | $              | 19,521  |      |  | $ | 37,059  |  
|Computer hardware and software                       |  |                | 15,750  |      |  |   | 24,784  |  
|Leasehold improvements                               |  |                | 15,630  |      |  |   | 22,275  |  
|Land                                                 |  |                | 1,305   |      |  |   | 1,492   |  
|Buildings                                            |  |                | 684     |      |  |   | 18,302  |  
|                                                     |  |                |         |      |  |   |         |  
|                                                     |  |                | 52,890  |      |  |   | 103,912 |  
|Less  accumulated depreciation and
    amortization |  |                | (15,934 | )    |  |   | (26,025 | )
|                                                     |  |                |         |      |  |   |         |  
|                                                     |  | $              | 36,956  |      |  | $ | 77,887  |  
|                                                     |  |                |         |      |  |   |         |  

Depreciation and amortization expense associated
with property and equipment was $3,231,000, $4,746,000 and
$10,393,000 for the years ended June 30, 2001, 2002 and
2003, respectively. The amortization for leasehold improvements
was $645,000, $1,582,000 and $2,805,000 for the years ended
June 30, 2001, 2002 and 2003, respectively. The gross cost
of assets recorded under capital building leases, included
above, totals approximately $12.8 million as of
June 30, 2003. The accumulated amortization related to
these assets is approximately $500,000 as of June 30, 2003.

64



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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Intangible assets consist of the following:

|                        |                                 |                |        |        |   |   |        |         |  
|----------------------- | ------------------------------- | -------------- | ------ | ------ | - | - | ------ | ------- | -
|                        |                                 |               
|                        |                                 | As of June 30,
|                        |                                 |               
|                        |                                 | 2002           |        | 2003  
|                        |                                 |                |        |       
|                        |                                 |               
|                        |                                 | (In thousands)
|Goodwill, net:          |                                 |                |        |        |   |   |        |        
|                        | Goodwill                        |                | $      | 47,761 |   |   | $      | 104,986 |  
|                        | Less  accumulated amortization |                |        | (2,421 | ) |   |        | (2,421  | )
|                        |                                 |                |        |        |   |   |        |        
|                        | Goodwill, net                   |                | $      | 45,340 |   |   | $      | 102,565 |  
|                        |                                 |                |        |        |   |   |        |        
|Other intangibles, net: |                                 |                |        |        |   |   |        |        
|                        | Accreditation                   |                | $      |       |   |   | $      | 5,246   |  
|                        | Curriculum                      |                |        | 12,182 |   |   |        | 15,611  |  
|                        | Trade names                     |                |        | 5,101  |   |   |        | 19,877  |  
|                        |                                 |                |        |        |   |   |        |        
|                        |                                 |                | 17,283 |        |   |   | 40,734 |        
|                        | Less  accumulated amortization |                |        | (5,198 | ) |   |        | (6,849  | )
|                        |                                 |                |        |        |   |   |        |        
|                        |                                 | $              | 12,085 |        |   | $ | 33,885 |        
|                        |                                 |                |        |        |   |   |        |        

The changes in the carrying amount of goodwill
for the year ended June 30, 2003, are as follows (in
thousands):

|                                                        |  |   |         |  
|------------------------------------------------------- |  | - | ------- | -
|Goodwill balance as of June 30, 2002.                   |  | $ | 45,340  |  
|Goodwill acquired pursuant to business
    combinations |  |   | 64,157  |  
|Purchase accounting adjustments                         |  |   | (6,932  | )
|                                                        |  |   |         |  
|Goodwill balance as of June 30, 2003.                   |  | $ | 102,565 |  
|                                                        |  |   |         |  

Amortization expense associated with intangibles
was $1,571,000, $1,800,000 and $1,651,000 for the years ended
June 30, 2001, 2002 and 2003, respectively, and includes
amortization of goodwill of $636,000 and $824,000 and for the
years ended June 30, 2001 and 2002. There was no
amortization expense associated with goodwill for the year ended
June 30, 2003. Had amortization of goodwill been
discontinued at July 1, 2000, rather than at July 1, 2002,
there would have been $.01 effect on earnings per share.
Accreditation and trade names are amortized over a range of zero
to forty years. Curriculum is amortized over the range of three
to fifteen years. Additionally, the Company recognized
non-compete agreement expense totaling approximately $107,000
and $115,000 for the years ended June 30, 2002 and 2003,
respectively.

As of June 30, 2003, estimated future
amortization expense is as follows (in thousands):

|           |       |   |       |        | 
|---------- | ----- | - | ----- | ------ | 
|2004       |       | $ | 2,064 |       
|2005       |       |   | 2,061 |       
|2006       |       |   | 1,853 |       
|2007       |       |   | 1,401 |       
|2008       |       |   | 1,386 |       
|Thereafter |       |   | 5,577 |       
|           |       |   |       |       
|           | Total |   | $     | 14,342 | 
|           |       |   |       |       

65



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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 3  Student Notes
Receivable

Student notes receivable represent loans which
have maturity dates that generally range between 12 months
to 120 months from the loan origination date. The interest
charged on the notes generally ranges from 12 to 15 percent
per annum.

The following reflects an analysis of student
notes receivable at June 30, 2003:

|                 |       |                |       |           |  |            |     |  |  |   |       |       | 
|---------------- | ----- | -------------- | ----- | --------- |  | ---------- | --- |  |  | - | ----- | ----- | 
|                 |       | Net            |       | Allowance |  | Gross     
|                 |       | Student        |       | For       |  | Student   
|                 |       | Notes          |       | Doubtful  |  | Notes     
|                 |       | Receivable     |       | Accounts  |  | Receivable
|                 |       |                |       |           |  |           
|                 |       |               
|                 |       | (In thousands)
|Current          |       | $              | 848   |           |  | $          | 313 |  |  | $ | 1,161 |      
|Long-term        |       |                | 2,001 |           |  |            | 608 |  |  |   | 2,609 |      
|Unearned portion |       |                |       |           |  |            |     |  |  |   | 2,172 |      
|                 |       |                |       |           |  |            |     |  |  |   |       |      
|                 | Total |                |       |           |  |            |     |  |  |   | $     | 5,942 | 
|                 |       |                |       |           |  |            |     |  |  |   |       |      

Payments due under student notes receivable are
as follows:

|           |       |                |       |       | 
|---------- | ----- | -------------- | ----- | ----- | 
|           |       | Fiscal Years  
|           |       | Ending        
|           |       | June 30,      
|           |       |               
|           |       | (In thousands)
|2004       |       | $              | 2,253 |      
|2005       |       |                | 1,965 |      
|2006       |       |                | 1,337 |      
|2007       |       |                | 342   |      
|2008       |       |                | 34    |      
|Thereafter |       |                | 11    |      
|           |       |                |       |      
|           | Total |                | $     | 5,942 | 
|           |       |                |       |      

Note 4  Business
Acquisitions

During the fiscal year ended June 30, 2002,
the Company acquired all of the issued and outstanding shares of
the capital stock of National School of Technology, Inc.
(NST) on April 1, 2002 for approximately
$14.4 million in cash. NST operates three campuses in the
greater Miami, Florida area. The Company purchased NST in order
to complement its existing nine campuses currently operating in
Florida, as well as to expand its allied health programs within
the strategic geographic area of Southern Florida. The Company
expected to be able to generate improvement in NSTs
results of operations through a combination of the following:
(i) importing the Companys owned curriculum into the
three new NST schools, (ii) deploying the Companys
successful marketing program into the greater Miami metropolitan
market, and (iii) achieving synergies by utilizing the
Companys existing management team to supervise the NST
operations. All of the foregoing factors were critical in
determining the final purchase price, which resulted in the
recognition of goodwill. The amount paid in excess of fair
market value of the assets acquired (including curricula, trade
names, trademarks, etc.), net of liabilities assumed, was
$15.0 million and was allocated to goodwill and other
intangible assets such as trade names, curricula, and
accreditation. The acquisition was accounted for using the
purchase method of accounting and NSTs results of
operations are included in the consolidated results of
operations of the Company since April 1, 2002, its acquisition
date.

During the fiscal year ended June 30, 2003,
the Company acquired Wyo-Tech Acquisition Corp.
(Wyo-Tech). The acquisition price of approximately
$84.4 million was funded from available cash and
$43 million

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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of debt from the Companys credit facility.
Wyo-Tech operates two campuses, which grant diplomas and degrees
in the automotive and diesel technology fields. The Company
acquired Wyo-Tech in order to gain entry into the field of
automotive and diesel mechanic diploma and degree programs. The
purchase of Wyo-Tech also gives the Company a nationally
recognized name in the field of automotive and diesel mechanic
training and a national sales force that the Company believes
can be utilized to offer other curricula owned by the Company to
potential students. The potential for realization of significant
improvement in operating results, through a combination of
curriculum enhancement and increased management efficiency, was
determined to be high and was a critical factor in the
determination of the final purchase price, which resulted in the
recognition of goodwill. The Company has adopted SFAS 142,
and consequently did not amortize goodwill. The Company assigned
value to other intangible assets, such as curriculum, trade
names and accreditation. The acquisition was accounted for using
the purchase method of accounting and Wyo-Techs results of
operations are included in the consolidated results of
operations of the Company since July 1, 2002, its
acquisition date.

On January 2, 2003, the Company acquired
substantially all of the assets of Learning Tree University,
Inc. (LTU) for a purchase price of approximately
$5.3 million, subject to certain working capital
adjustments, including deferred payments over the next two years
of up to $2.0 million that will be paid to the sellers only
if certain operating results benchmarks are achieved by LTU
during that time. LTU offers continuing professional education,
short duration certificate programs, comprehensive corporate
training and customized learning solutions at two training
centers in Southern California. LTU also conducts seminars in
40 cities nationwide and offers both instructor-led and
online training. Through the acquisition of LTU, the Company
gained a platform to penetrate the corporate training,
continuing education and customized learning solutions markets.
The acquisition was accounted for using the purchase method of
accounting and LTUs results of operations are included in
the consolidated results of operations of the Company since
January 2, 2003, its acquisition date.

Note 5  Long-Term Debt and Capital
Lease Obligations

Long-term debt and capital lease obligations
consists of the following:

|                                                                                                                |  |                |       |      |  |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | ---- |  | - | ------ | -
|                                                                                                                |  |               
|                                                                                                                |  | As of June 30,
|                                                                                                                |  |               
|                                                                                                                |  | 2002           |       | 2003
|                                                                                                                |  |                |       |     
|                                                                                                                |  |               
|                                                                                                                |  | (In thousands)
|Promissory note due April 2007, with interest at
    10.95% per annum, secured by certain land and improvements |  | $              | 1,575 |      |  | $ | 1,489  |  
|Capital lease obligations                                                                                       |  |                |      |      |  |   | 12,772 |  
|Other                                                                                                           |  |                | 525   |      |  |   | 5      |  
|                                                                                                                |  |                |       |      |  |   |        |  
|                                                                                                                |  |                | 2,100 |      |  |   | 14,266 |  
|Less  current portion of long term debt                                                                        |  |                | (585  | )    |  |   | (110   | )
|Less  current portion of capital lease
    obligations                                                         |  |                |      |      |  |   | (186   | )
|                                                                                                                |  |                |       |      |  |   |        |  
|                                                                                                                |  | $              | 1,515 |      |  | $ | 13,970 |  
|                                                                                                                |  |                |       |      |  |   |        |  

The Company leases certain facilities under
capital leases, which require monthly lease payments of
approximately $128,000. The leases have interest rates ranging
from 10.1% to 11.7% and expire in December 2022.

67



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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Principal payments due under the long-term debt
arrangements and future minimum lease payments under the capital
lease obligations discussed above are as follows:

|                                        |  |                              |       |               |  |       |        |  |  |   |        | 
|--------------------------------------- |  | ---------------------------- | ----- | ------------- |  | ----- | ------ |  |  | - | ------ | 
|                                        |  |                             
|                                        |  | Fiscal Years Ending June 30,
|                                        |  |                             
|                                        |  | Long-term                    |       | Capital Lease |  |      
|                                        |  | Debt                         |       | Obligations   |  | Total
|                                        |  |                              |       |               |  |      
|                                        |  |                             
|                                        |  | (In thousands)              
|2004                                    |  | $                            | 110   |               |  | $     | 1,533  |  |  | $ | 1,643  | 
|2005                                    |  |                              | 116   |               |  |       | 1,533  |  |  |   | 1,649  | 
|2006                                    |  |                              | 130   |               |  |       | 1,533  |  |  |   | 1,663  | 
|2007                                    |  |                              | 1,138 |               |  |       | 1,566  |  |  |   | 2,704  | 
|2008                                    |  |                              |      |               |  |       | 1,580  |  |  |   | 1,580  | 
|Thereafter                              |  |                              |      |               |  |       | 22,791 |  |  |   | 22,791 | 
|                                        |  |                              |       |               |  |       |        |  |  |   |        | 
|                                        |  |                              | 1,494 |               |  |       | 30,536 |  |  |   | 32,030 | 
|Less  portion representing interest    |  |                              |      |               |  |       | 17,764 |  |  |   | 17,764 | 
|                                        |  |                              |       |               |  |       |        |  |  |   |        | 
|Present value of minimum lease payments |  |                              | 1,494 |               |  |       | 12,772 |  |  | $ | 14,266 | 
|                                        |  |                              |       |               |  |       |        |  |  |   |        | 
|Less  current portion                  |  |                              |      |               |  |       | 186    |  |  |   |        | 
|                                        |  |                              |       |               |  |       |        |  |  |   |        | 
|Total                                   |  | $                            | 1,494 |               |  | $     | 12,586 |  |  |   |        | 
|                                        |  |                              |       |               |  |       |        |  |  |   |        | 

In June 2002, the Company entered into a Credit
Agreement for $100.0 million with a syndication of financial
institutions administered by Bank of America, N.A which would
have expired in July 2005. On August 15, 2003, the Company
amended the 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 2006. The 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 the Company, including LIBOR
and adjusted reference or base rates. The base rate is defined
as the higher of the Federal Funds rate plus 1/2 of 1% or the
Bank of America prime rate, plus a margin of 0% to 0.25%
depending on the Companys consolidated leverage ratio as
defined in the agreement. The Agreement contains customary
affirmative and negative covenants including financial covenants
requiring the maintenance of consolidated net worth, fixed
charge coverage ratios, leverage ratios, DOE financial
responsibility composite score ratio, and limitations on long
term student notes receivables. As of June 30, 2003, the
Company was in compliance with all of the covenants. As of
June 30, 2003, there were no borrowings outstanding under
the credit facility and approximately $5.0 million of the
facility was used to support performance bonds and standby
letters of credit. The Amended Credit Agreement is secured by
substantially all of the Companys real and personal
property including the stock of its significant operating
subsidiaries and guaranteed by the Companys present and
future significant operating subsidiaries. Average daily
borrowings outstanding amounted to $5.9 million in fiscal
2003, compared to none in fiscal 2002 and $35,000 in fiscal 2001.

Note 6  Preferred Stock and
Common Stockholders Equity



| |                
| | ---------------
| | Preferred Stock

The Company is authorized to issue 500,000 shares
of preferred stock. As of June 30, 2003, there were no
outstanding shares of preferred stock.

68



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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |             
| | ------------
| | Common Stock

The Companys issued and outstanding common
stock is entitled to one vote per share on all matters.

On November 15, 2001, the Companys
stockholders approved an amendment and restatement of the
Companys certificate of incorporation which
(i) increased the number of shares of authorized common
stock, par value $0.0001 per share, to a total of 80,000,000
shares, (ii) eliminated various provisions relating to the
Companys previously authorized nonvoting common stock,
none of which was outstanding at the time of such amendment and
restatement, and (iii) eliminated various provisions
relating to the previously issued classes and series of
preferred stock, none of which were outstanding at the time of
such amendment and restatement.



| |              
| | -------------
| | Stock Options

On April 28, 1998, the Board of Directors
adopted the 1998 Performance Award Plan (the Plan).
Under the Plan, as amended, 6,516,536 options, stock
appreciation rights or other common stock based securities may
be granted to directors, officers, employees and other eligible
persons. As of June 30, 2003, approximately 690,798 shares
were available for future granting. Options granted under the
Plan were issued at exercise prices ranging from $3.12 -$41.43
per share and have expiration dates not longer than
10 years. Options granted generally vest over a period of
two to four years.

A summary of the status of the Companys
stock option grants are presented below:

|                                      |  |        |           |          |  |   |       | 
|------------------------------------- |  | ------ | --------- | -------- |  | - | ----- | 
|                                      |  |        |           | Weighted
|                                      |  |        |           | Average 
|                                      |  |        |           | Exercise
|                                      |  | Shares |           | Price   
|                                      |  |        |           |         
|Outstanding at June 30, 2000.         |  |        | 1,487,716 |          |  | $ | 3.90  | 
|Stock options granted during the year |  |        | 1,858,000 |          |  | $ | 14.02 | 
|Stock options exercised               |  |        | (249,518  | )        |  |   | 3.96  | 
|Forfeitures                           |  |        | (11,176   | )        |  |   | 3.75  | 
|                                      |  |        |           |          |  |   |       | 
|Outstanding at June 30, 2001.         |  |        | 3,085,022 |          |  | $ | 9.99  | 
|Stock options granted during the year |  |        | 1,404,000 |          |  | $ | 13.33 | 
|Stock options exercised               |  |        | (484,652  | )        |  |   | 8.55  | 
|Forfeitures                           |  |        | (55,500   | )        |  |   | 14.47 | 
|                                      |  |        |           |          |  |   |       | 
|Outstanding at June 30, 2002.         |  |        | 3,948,870 |          |  | $ | 11.29 | 
|Stock options granted during the year |  |        | 1,253,000 |          |  | $ | 32.42 | 
|Stock options exercised               |  |        | (844,858  | )        |  |   | 10.27 | 
|Forfeitures                           |  |        | (124,750  | )        |  |   | 21.61 | 
|                                      |  |        |           |          |  |   |       | 
|Outstanding at June 30, 2003.         |  |        | 4,232,262 |          |  | $ | 17.45 | 
|                                      |  |        |           |          |  |   |       | 

69



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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
stock options outstanding and exercisable at June 30, 2003:

|                |  |             |           |                     |  |                     |     |             |  |           |       |  |  |  |         |  |  |   |       | 
|--------------- |  | ----------- | --------- | ------------------- |  | ------------------- | --- | ----------- |  | --------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                |  |             |           |                     |  |                    
|                |  |             |           | Options Outstanding |  | Options Exercisable
|                |  |             |           |                     |  |                    
|                |  |             |           | Weighted-           |  | Weighted-           |     |             |  | Weighted-
|                |  | Number      |           | Average             |  | Average             |     | Number      |  | Average  
|Exercise        |  | Outstanding |           | Remaining           |  | Outstanding         |     | Exercisable |  | Exercise 
|Prices Range    |  | at 6/30/03  |           | Life                |  | Price               |     | At 6/30/03  |  | Price    
|                |  |             |           |                     |  |                     |     |             |  |          
|$3.12  $10.72  |  |             | 983,262   |                     |  |                     | 6.3 |             |  | $         | 5.94  |  |  |  | 484,122 |  |  | $ | 3.90  | 
|$12.59  $25.00 |  |             | 2,035,000 |                     |  |                     | 7.9 |             |  |           | 14.00 |  |  |  | 495,750 |  |  |   | 14.73 | 
|$26.00  $41.43 |  |             | 1,214,000 |                     |  |                     | 9.2 |             |  |           | 32.57 |  |  |  |        |  |  |   |      | 
|                |  |             |           |                     |  |                     |     |             |  |           |       |  |  |  |         |  |  |   |       | 
|                |  |             | 4,232,262 |                     |  |                     |     |             |  | $         | 17.45 |  |  |  | 979,872 |  |  | $ | 9.38  | 
|                |  |             |           |                     |  |                     |     |             |  |           |       |  |  |  |         |  |  |   |       | 

There were 447,006, 780,590 and 979,872 stock
options exercisable at June 30, 2001, 2002, and 2003,
respectively.

Pursuant to SFAS No. 123, the weighted
average fair value of stock options granted during fiscal 2001,
2002 and 2003 was $9.26, $10.27 and $32.42, respectively. As
discussed in Note 1, the Company elected the
disclosure alternative allowed under SFAS
No. 123. Accordingly, the Company is required to disclose
pro forma net income over the vesting period of the options.

The fair value of each option, stock appreciation
grant, and other common stock based securities was estimated on
the date of grant using the Black-Scholes method with the
following weighted-average assumptions:

|                              |  |      |         |      |  |      |         |  |  |  |         | 
|----------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                              |  | 2001 |         | 2002 |  | 2003
|                              |  |      |         |      |  |     
|Risk-free rate                |  |      | 5.44%   |      |  |      | 5.55%   |  |  |  | 5.10%   | 
|Expected years until exercise |  |      | 7 years |      |  |      | 7 years |  |  |  | 7 years | 
|Expected stock volatility     |  |      | 62%     |      |  |      | 83%     |  |  |  | 62%     | 
|Expected dividends            |  |      | $      |      |  |      | $      |  |  |  | $      | 

Note 7  Weighted Average
Number of Common Shares Outstanding

October 4, 2000, the Company completed a
secondary stock offering which included 800,000 common shares
sold by the Company.

Basic net income per share is calculated by
dividing net income by the weighted average number of common
shares outstanding for the period. Diluted net income per share
reflects the assumed conversion of all dilutive securities,
consisting of stock options.

The table below reflects the calculation of the
weighted average number of common shares outstanding used in
computing basic and diluted net income per common share restated
to reflect the two for one stock splits effected in the form of
a stock dividend in December 2000 and in May 2002:

|                                  |               |                             |        |       |  |      |        |       |  |  |        |       | 
|--------------------------------- | ------------- | --------------------------- | ------ | ----- |  | ---- | ------ | ----- |  |  | ------ | ----- | 
|                                  |               |                            
|                                  |               | Fiscal Years Ended June 30,
|                                  |               |                            
|                                  |               | 2001                        |        | 2002  |  | 2003
|                                  |               |                             |        |       |  |     
|                                  |               |                            
|                                  |               | (In thousands)             
|Basic common shares outstanding   |               |                             | 42,064 |       |  |      | 42,692 |       |  |  | 43,465 |      
|Effects of dilutive securities:   |               |                             |        |       |  |      |        |       |  |  |        |      
|                                  | Stock options |                             |        | 1,398 |  |      |        | 2,002 |  |  |        | 2,563 | 
|                                  |               |                             |        |       |  |      |        |       |  |  |        |      
|Diluted common shares outstanding |               |                             | 43,462 |       |  |      | 44,694 |       |  |  | 46,028 |      
|                                  |               |                             |        |       |  |      |        |       |  |  |        |      

70



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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 8  Income Taxes

The components of the income tax provision are as
follows:

|                    |         |                                  |        |        |        |      |        |        |        |  |        |        |        | 
|------------------- | ------- | -------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                    |         |                                 
|                    |         | Fiscal Years Ended June 30,     
|                    |         |                                 
|                    |         | 2001                             |        | 2002   |        | 2003
|                    |         |                                  |        |        |        |     
|                    |         |                                 
|                    |         | (In thousands)                  
|Current provision:  |         |                                  |        |        |        |      |        |        |        |  |        |       
|                    | Federal |                                  | $      | 14,851 |        |      | $      | 19,171 |        |  | $      | 31,557 |       
|                    | State   |                                  |        | 3,222  |        |      |        | 4,200  |        |  |        | 7,986  |       
|                    |         |                                  |        |        |        |      |        |        |        |  |        |       
|                    |         |                                  | 18,073 |        |        |      | 23,371 |        |        |  | 39,543 |       
|                    |         |                                  |        |        |        |      |        |        |        |  |        |       
|Deferred provision: |         |                                  |        |        |        |      |        |        |        |  |        |       
|                    | Federal |                                  |        | (831   | )      |      |        | 1,955  |        |  |        | 3,953  |       
|                    | State   |                                  |        | (144   | )      |      |        | 629    |        |  |        | (84    | )     
|                    |         |                                  |        |        |        |      |        |        |        |  |        |       
|                    |         |                                  | (975   | )      |        |      | 2,584  |        |        |  | 3,869  |       
|                    |         |                                  |        |        |        |      |        |        |        |  |        |       
|                    |         | Total provision for income taxes |        | $      | 17,098 |      |        | $      | 25,955 |  |        | $      | 43,412 | 
|                    |         |                                  |        |        |        |      |        |        |        |  |        |       

Actual income tax provision differs from the
income tax provision computed by applying the U.S. federal
statutory tax rate of 35% for fiscal 2001, 2002 and 2003 to
income before provision for income taxes as follows:

|                                                   |  |                             |        |      |  |      |        |  |  |   |        | 
|-------------------------------------------------- |  | --------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                   |  |                            
|                                                   |  | Fiscal Years Ended June 30,
|                                                   |  |                            
|                                                   |  | 2001                        |        | 2002 |  | 2003
|                                                   |  |                             |        |      |  |     
|                                                   |  |                            
|                                                   |  | (In thousands)             
|Provision at the statutory rate                    |  | $                           | 14,990 |      |  | $    | 22,716 |  |  | $ | 38,272 | 
|State income tax provision, net of federal benefit |  |                             | 2,000  |      |  |      | 3,139  |  |  |   | 5,136  | 
|Other                                              |  |                             | 108    |      |  |      | 100    |  |  |   | 4      | 
|                                                   |  |                             |        |      |  |      |        |  |  |   |        | 
|                                                   |  | $                           | 17,098 |      |  | $    | 25,955 |  |  | $ | 43,412 | 
|                                                   |  |                             |        |      |  |      |        |  |  |   |        | 

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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of the Companys deferred tax
asset and liability are as follows:

|                                            |                                                         |                                    |     |        |        |   |        |        |         |  
|------------------------------------------- | ------------------------------------------------------- | ---------------------------------- | --- | ------ | ------ | - | ------ | ------ | ------- | -
|                                            |                                                         |                                   
|                                            |                                                         | As of June 30,                    
|                                            |                                                         |                                   
|                                            |                                                         | 2002                               |     | 2003  
|                                            |                                                         |                                    |     |       
|                                            |                                                         |                                   
|                                            |                                                         | (In thousands)                    
|Current deferred tax asset (liability):     |                                                         |                                    |     |        |        |   |        |       
|                                            | Accounts receivable allowance for doubtful
    accounts |                                    | $   | 3,465  |        |   | $      | 5,385  |        
|                                            | Accrued vacation                                        |                                    |     | 1,089  |        |   |        | 1,629  |        
|                                            | State taxes                                             |                                    |     | 1,785  |        |   |        | 66     |        
|                                            | Net operating loss carryforwards                        |                                    |     |       |        |   |        | 2,281  |        
|                                            | Other                                                   |                                    |     | (197   | )      |   |        | 1,177  |        
|                                            |                                                         |                                    |     |        |        |   |        |       
|                                            |                                                         | Current deferred tax asset         |     |        | 6,142  |   |        |        | 10,538  |  
|                                            |                                                         |                                    |     |        |        |   |        |       
|Non-current deferred tax asset (liability): |                                                         |                                    |     |        |        |   |        |       
|                                            | Notes receivable allowance for doubtful accounts        |                                    |     | 320    |        |   |        | 388    |        
|                                            | Depreciation                                            |                                    |     | (4,224 | )      |   |        | (6,724 | )      
|                                            | Amortization                                            |                                    |     | (2,214 | )      |   |        | (2,816 | )      
|                                            | Capital assets                                          |                                    |     |       |        |   |        | (3,805 | )      
|                                            | Prepaids                                                |                                    |     |       |        |   |        | (1,228 | )      
|                                            | Deferred gain on sale/leaseback                         |                                    |     | 198    |        |   |        |       |        
|                                            |                                                         |                                    |     |        |        |   |        |       
|                                            |                                                         | Non-current deferred tax liability |     |        | (5,920 | ) |        |        | (14,185 | )
|                                            |                                                         |                                    |     |        |        |   |        |       
|                                            |                                                         | $                                  | 222 |        |        | $ | (3,647 | )     
|                                            |                                                         |                                    |     |        |        |   |        |       

The Company has acquired various companies with
net operating losses that may be utilized in future years. At
June 30, 2003, the Company had federal and state net
operating loss carryforwards of approximately $5,116,000 and
$6,807,000, with expiration dates in June 30, 2022 and
June 30, 2013, respectively. Due to the change of
ownership provisions of the Tax Reform Act of 1986,
utilization of the Companys acquired net operating loss
carryforwards are subject to an annual limitation against
taxable income in future periods. As a result of the annual
limitation, a portion of these carryforwards may expire before
ultimately becoming available to offset future income tax
liabilities.

On September 11, 2002, the Governor of
California signed into law new tax legislation that suspends the
use of net operating loss carryforwards into tax years beginning
on or after January 1, 2002 and 2003. Accordingly, the
Company may not use the California net operating losses
generated in prior years to offset taxable income for the year
ended June 30, 2003. This suspension will not apply to tax
years beginning in 2004 and beyond.

Note 9  Pro Forma Summary
Financial Information

Effective July 1, 2002, the Company acquired
all of the outstanding stock of Wyo-Tech Acquisition Corp.
(Wyo-Tech) for approximately $84.4 million. The
acquisition was financed with approximately $41.4 million
of available cash and $43.0 million of borrowings pursuant
to a three-year credit facility. Wyo-Tech operates two campuses
under the Wyoming Technical Institute name in Laramie, Wyoming
and Blairsville, Pennsylvania. The acquisition was accounted for
using the purchase method of accounting.

Wyo-Tech operates two campuses, which grant
diplomas and degrees in the automotive and diesel technology
fields. The Company acquired Wyo-Tech in order to gain entry
into the field of automotive and diesel mechanic diploma and
degree programs. The purchase of Wyo-Tech also gives the Company
a nationally recognized name in the field of automotive and
diesel mechanic training and a national sales force

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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

that the Company believes can be utilized to
offer other curricula owned by the Company to potential
students. The potential for realization of significant
improvement in operating results, through a combination of
curriculum enhancement and increased management efficiency, was
determined to be high and was a critical factor in the
determination of the final purchase price, which resulted in the
recognition of goodwill. The Company has adopted SFAS 142,
and consequently does not amortize goodwill. For the Wyo-Tech
acquisition, the Company assigned value to other intangible
assets, such as curriculum, trade names and accreditation.

The following table summarizes the estimated fair
values of assets acquired and liabilities assumed as of
July 1, 2002 (in thousands):

|                                              |                                 |                       |        |        |        | 
|--------------------------------------------- | ------------------------------- | --------------------- | ------ | ------ | ------ | 
|Current assets                                |                                 | $                     | 1,917  |       
|Property and equipment                        |                                 |                       | 13,997 |       
|Intangible asset not subject to amortization: |                                 |                       |        |       
|                                              | Trade name                      |                       |        | 14,030 |       
|                                              | Accreditation                   |                       |        | 840    |       
|Intangible asset subject to amortization -    |                                 |                       |        |       
|                                              | Curriculum (4 year useful life) |                       |        | 1,831  |       
|Goodwill                                      |                                 |                       | 63,709 |       
|Other assets                                  |                                 |                       | 341    |       
|                                              |                                 |                       |        |       
|                                              |                                 | Total assets acquired |        |        | 96,665 | 
|                                              |                                 | Total liabilities     |        |        | 15,878 | 
|                                              |                                 |                       |        |       
|                                              |                                 | Net assets acquired   |        | $      | 80,787 | 
|                                              |                                 |                       |        |       

The following table provides unaudited pro forma
financial data for the Company reflecting the completion of the
Wyo-Tech acquisition as if it occurred July 1, 2001. 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 exclude
consulting and management fees paid by Wyo-Tech to its parent
company and goodwill amortization and reflect a decrease in
interest income and an increase in interest expense related to
the combination of cash and debt used to fund the acquisition.

|                             |  |                   |         |      |  |   |         | 
|---------------------------- |  | ----------------- | ------- | ---- |  | - | ------- | 
|                             |  |                  
|                             |  | Fiscal Year Ended
|                             |  | June 30,         
|                             |  |                  
|                             |  | 2002              |         | 2003
|                             |  |                   |         |     
|Net revenue                  |  | $                 | 373,938 |      |  | $ | 517,293 | 
|Net income                   |  | $                 | 40,732  |      |  | $ | 65,937  | 
|Earnings per share  basis   |  | $                 | 0.95    |      |  | $ | 1.52    | 
|Earnings per share  diluted |  | $                 | 0.91    |      |  | $ | 1.43    | 

Note 10  Commitments and
Contingencies



| |       
| | ------
| | Leases

The Company leases most of its operating
facilities and certain equipment under non-cancelable operating
leases expiring at various dates through 2009. In most cases,
the facility leases require the Company

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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to pay various operating expenses of the
facilities in addition to base monthly lease payments. Future
minimum lease payments under operating leases are as follows for
the twelve months ending June 30:

|           |  |                |         | 
|---------- |  | -------------- | ------- | 
|           |  | Operating     
|           |  | Leases        
|           |  |               
|           |  | (In thousands)
|2004       |  | $              | 34,490  | 
|2005       |  |                | 32,428  | 
|2006       |  |                | 30,761  | 
|2007       |  |                | 28,180  | 
|2008       |  |                | 24,310  | 
|Thereafter |  |                | 55,026  | 
|           |  |                |         | 
|           |  | $              | 205,195 | 
|           |  |                |         | 

Rent expense for the fiscal years ended
June 30, 2001, 2002 and 2003 amounted to
$17.8 million, $23.3 million and $32.3 million,
respectively, and is reflected in educational services and
general and administrative expense in the accompanying
consolidated statements of operations.

Legal
Matters

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 or graduates and routine employment matters.
Although the Company cannot predict with certainty the ultimate
resolution of lawsuits, investigations and claims asserted
against the Company, the Company does not believe that any
currently pending legal proceedings to which the Company is a
party will have a material adverse effect on the Companys
business, results of operations or financial condition.

One of the legal actions currently pending
against the Company is Aldape, et al. v. Corinthian Schools,
Inc., et al., originally reported in the Report on
Form 10-K for the fiscal year ended June 30, 2002.
Since the date of that report, the Court has granted the
Companys motion to compel arbitration with respect to the
claims of the eight of the nine individual plaintiffs who are
former students of the Companys Bryman campus in Los
Angeles, California (the Individual Plaintiffs).
Accordingly, eight of the Individual Plaintiffs claims
will be adjudicated in binding arbitration. A decision on the
motion to compel arbitration as to the ninth Individual
Plaintiff is pending. Additionally, plaintiffs attorney
has voluntarily agreed to dismiss all claims by the Trade School
Review Association and the claims by the Individual Plaintiffs
under the California Business and Professions Code for
restitution on behalf of themselves and as private
attorneys general on behalf of all persons similarly
situated. The Company believes the plaintiffs claims are
without merit and it intends to vigorously defend itself against
them.

On or about March 18, 2003, a complaint was
filed (but not served) with the Los Angeles Superior Court
entitled Socorra Estrada v. Corinthian Schools, Inc., et al.Plaintiff is a former student in the Companys Bryman
College Campus in Whittier who enrolled in that campus prior to
its acquisition by the Company from Educorp, Inc.
(Educorp) in October 2000. Plaintiff initially
alleged violation by the Company of the California Education
Code, intentional misrepresentation and concealment. Plaintiff
has since filed and served a First Amended Complaint in which
she has dismissed her causes of action against the Company for
violation of the California Education Code, intentional
misrepresentation and concealment, but has added a cause of
action against the Company seeking injunctive relief under
California Business and Professions Code Section 17200.
Plaintiff has also added Educorp and two individuals affiliated
with Educorp as defendants in the matter. The Company believes
the plaintiffs claims are without merit and it intends to
vigorously defend itself against them.

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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On or about May 29, 2003, a class action
complaint was filed with the Los Angeles Superior Court entitled
Montoya v. Corinthian Schools, Inc., et al. Plaintiff, a
former instructor with the Companys Bryman College campus
in El Monte, California, alleges that she and other instructors
employed by the Companys Corinthian Schools, Inc.
subsidiary in the State of California for the previous four
years were improperly classified as exempt from
Californias overtime compensation laws. Plaintiff states
causes of action under California wage orders, Californias
Labor Code, and Californias Business and Professions Code.
Plaintiff seeks certification as a class, monetary damages in
unspecified amounts, penalties, interest, attorneys fees,
exemplary damages, and injunctive relief. The Company believes
its classification of employees for overtime purposes has been
consistent with applicable law and that the plaintiffs
claims are without merit. The Company intends to vigorously
defend itself in this matter.

Note 11  Employee Benefit
Plans

The Company has established an employee savings
plan under Section 401(k) of the Internal Revenue Code. All
employees with at least one year and 1,000 hours of employment
are eligible to participate. Contributions to the plan by the
Company are discretionary. The plan provides for vesting of
Company contributions over a five-year period. Employees
previously employed by each of the campuses acquired by the
Company vest in the plan based on total years of service with
the Company and with the predecessor company. Company
contributions to the plan were approximately $1,042,000,
$1,203,000 and $1,527,000 for the fiscal years ended
June 30, 2001, 2002 and 2003, respectively.

In August 2000, the Company adopted the
Corinthian Colleges, Inc. Employee Stock Purchase Plan
(ESPP). Under the terms of the ESPP, eligible
employees, as defined by the plan to include such criteria as
length of employment, are permitted to purchase shares of common
stock at a price equal to 90% of the fair market value on the
first or last day, whichever is lower, of each six month
offering period. A total of 1,000,000 shares of common stock
were initially reserved for sale under the ESPP. At
June 30, 2003, employees had purchased 45,334 shares and
954,666 shares were still available for purchase under the ESPP.

Note 12  Subsequent
Events

Effective August 1, 2003, the Company
acquired all of the outstanding stock of Career Choices, Inc..
The cash purchase price was approximately $56 million, plus
certain balance sheet adjustments. The cash purchase price was
funded through a combination of available cash and borrowings
from the credit facility. Career Choices had approximately 2,900
students as of June 30, 2003 and operates 10 campuses in
California, Washington and Oregon that offer both degree and
diploma and certificate programs with concentrations of study in
applied science, automotive technology, HVAC technology and
allied health, including the popular fields of massage therapy,
dental assisting and medical assisting.

Effective August 6, 2003, the Company
acquired substantially all of the assets of East Coast Aero
Tech., LLC. The cash purchase price was approximately
$2.9 million, plus or minus certain balance sheet
adjustments. The cash purchase price was funded through a
combination of available cash and borrowings from the credit
facility. East Coast Aero Tech had approximately 180 students as
of June 30, 2003 and operates one campus in Massachusetts
that offers programs in aviation maintenance technology.

As of September 3, 2003, the Company
acquired an aggregate of approximately 9,250,613 common shares
of CDI Education Corporation (CDI) representing
approximately 90% of all outstanding CDI shares under a tender
offer made by Corinthian Canada Acquisition Inc. (the
Offeror) for all shares of approximately
$32 million and the assumption of debt of approximately
$10 million. The Offeror will proceed to acquire the
remaining CDI shares not deposited under the tender offer by the
exercise of the compulsory acquisition right under the Business
Corporations Act (Ontario). Shareholders of CDI Education
Corporation who did not tender to the tender offer will be
offered C$4.33 per CDI share, the same price offered to
shareholders under the offer. Upon acquisition of these
remaining CDI shares, CDI will become an indirect,

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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

wholly-owned subsidiary of the Company. The cash
purchase price was funded with available cash and borrowings
from the credit facility. CDI operates 45 post-secondary
colleges and 15 corporate training centers throughout Canada.
CDIs 45 post-secondary colleges offer diploma-granting
programs in allied health, business and information technology
and had approximately 6,000 students as of June 30, 2003.
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.

Note 13  Governmental
Regulation

The Company and each institution are subject to
extensive regulation by federal and state governmental agencies
and accrediting bodies. In particular, HEA, and the regulations
promulgated thereunder by DOE subject the institutions to
significant regulatory scrutiny on the basis of numerous
standards that schools must satisfy in order to participate in
the various federal student financial assistance programs under
Title IV of the HEA.

To participate in the Title IV Programs, an
institution must be authorized to offer its programs of
instruction by the relevant agencies of the state in which it is
located, accredited by an accrediting agency recognized by the
DOE and certified as eligible by the DOE. The DOE will certify
an institution to participate in the Title IV Programs only
after the institution has demonstrated compliance with the HEA
and the DOEs extensive regulations regarding institutional
eligibility. An institution must also demonstrate its compliance
to the DOE on an ongoing basis. As of June 30, 2003,
management believes all of the Companys institutions meet
these requirements.

Political and budgetary concerns significantly
affect the Title IV Programs. Congress must reauthorize the
HEA approximately every five years. The most recent
reauthorization in October 1998 reauthorized the HEA for an
additional five years (the 1998 HEA
Reauthorization). Congress reauthorized all of the
Title IV Programs in which the schools participate,
generally in the same form and at funding levels no less than
for the prior year. Changes made by the 1998 HEA Reauthorization
include (i) expanding the adverse effects on schools with
high student loan default rates, (ii) increasing from 85%
to 90% the portion a proprietary schools cash basis
revenues that may be derived each year from the Title IV
Programs, (iii) revising the refund standards that require
an institution to return a portion of the Title IV Program funds
for students who withdraw from school and (iv) giving the
DOE flexibility to continue an institutions Title IV
participation without interruption in some circumstances
following a change of ownership or control.

A significant component of Congress
initiative to reduce abuse in the Title IV Programs has been the
imposition of limitations on institutions whose former students
default on the repayment of their federally guaranteed or funded
student loans above specific rates (Cohort Default Rate). The
guarantee of student loans is provided by an agency of the
federal government and not the Company. Although the Company is
not obligated to repay any of its students or former students
defaults on payments of federally guaranteed student loans, if
such default rates equals or exceeds 25% for three consecutive
years, the institution may loose participation eligibility in
the guaranteed loan program and its students will be denied
access to the federally guaranteed student loan programs. An
institution whose Cohort Default Rates (CDR) equal
or exceed 25% for three consecutive years may lose eligibility
to participate in the FFEL or FDL programs. An institution whose
CDR under certain Title IV Programs for any federal fiscal year
exceeds 40% may have its eligibility to participate in all of
the Title IV Programs limited, suspended or terminated by the
DOE.

All institutions participating in the Title IV
Programs must satisfy specific standards of financial
responsibility. The DOE evaluates institutions for compliance
with these standards each year, based on the institutions
annual audited financial statements and following a change of
ownership of the institution.

Under regulations which took effect July 1,
1998, the DOE calculates the institutions composite score
for financial responsibility based on its (i) equity ratio,
which measures the institutions capital resources, ability

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CORINTHIAN COLLEGES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to borrow and financial viability;
(ii) primary reserve ratio, which measures the
institutions ability to support current operations from
expendable resources; and (iii) net income ratio, which
measures the institutions ability to operate at a profit.
An institution that does not meet the DOEs minimum
composite score may demonstrate its financial responsibility by
posting a letter of credit in favor of the DOE in an amount
equal to at least 50% of the Title IV Program funds received by
the institution during its prior fiscal year and possibly
accepting other conditions on its participation in the Title IV
Programs. At June 30, 2003, all of the Companys
schools and the Company on a consolidated basis satisfied each
of the DOEs standards of financial responsibility.

Because the Company operates in a highly
regulated industry, it, like other industry participants, may be
subject from time to time to investigations, claims of
non-compliance, or lawsuits by governmental agencies or third
parties which allege statutory violations, regulatory
infractions or common law causes of action. In October 1998, the
Inspector Generals Office (IG) of the DOE
began an examination of the Companys compliance with the
90/10 rule and to review in general the Companys
administration of Title IV funds. This examination was part
of a broader review conducted by the IG of proprietary
institutions compliance with these requirements. The
Company provided all information and documentation requested by
the IG. During fiscal 2000, the Company received the final audit
report from the DOE. There were no actions taken against the
Company as a result of the examination. However, there can be no
assurance that other regulatory agencies or third parties will
not undertake investigations or make claims against the Company,
or that such claims, if made, will not have a material effect on
the Companys business, results of operations or financial
condition.

Note 14  Quarterly Financial
Summary (Unaudited)

|                       |         |                                          |         |        |  |       |         |        |  |             |         |      |  |   |         |      |  |   |         |      | 
|---------------------- | ------- | ---------------------------------------- | ------- | ------ |  | ----- | ------- | ------ |  | ----------- | ------- | ---- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                       |         |                                          |         |       
|                       |         | Fiscal Quarters                          |         |       
|                       |         |                                          |         |       
|                       |         | First                                    |         | Second |  | Third |         | Fourth |  | Fiscal Year
|                       |         |                                          |         |        |  |       |         |        |  |            
|                       |         |                                         
|                       |         | (In thousands, except per share amounts)
|Fiscal 2003            |         |                                          |         |        |  |       |         |        |  |             |         |      |  |   |         |      |  |   |         |     
|Net revenues           |         | $                                        | 115,625 |        |  | $     | 127,191 |        |  | $           | 135,548 |      |  | $ | 138,929 |      |  | $ | 517,293 |     
|Income from operations |         |                                          | 23,179  |        |  |       | 27,007  |        |  |             | 30,148  |      |  |   | 29,345  |      |  |   | 109,679 |     
|Net income             |         |                                          | 13,741  |        |  |       | 16,146  |        |  |             | 18,040  |      |  |   | 18,010  |      |  |   | 65,937  |     
|Income per share       |         |                                          |         |        |  |       |         |        |  |             |         |      |  |   |         |      |  |   |         |     
|                       | Basic   |                                          | $       | 0.32   |  |       | $       | 0.37   |  |             | $       | 0.41 |  |   | $       | 0.41 |  |   | $       | 1.52 | 
|                       | Diluted |                                          | $       | 0.30   |  |       | $       | 0.35   |  |             | $       | 0.39 |  |   | $       | 0.39 |  |   | $       | 1.43 | 
|Fiscal 2002            |         |                                          |         |        |  |       |         |        |  |             |         |      |  |   |         |      |  |   |         |     
|Net revenues           |         | $                                        | 73,696  |        |  | $     | 81,565  |        |  | $           | 88,334  |      |  | $ | 94,551  |      |  | $ | 338,146 |     
|Income from operations |         |                                          | 10,463  |        |  |       | 14,660  |        |  |             | 18,263  |      |  |   | 19,317  |      |  |   | 62,703  |     
|Net income             |         |                                          | 6,474   |        |  |       | 9,330   |        |  |             | 11,105  |      |  |   | 12,039  |      |  |   | 38,948  |     
|Income per share       |         |                                          |         |        |  |       |         |        |  |             |         |      |  |   |         |      |  |   |         |     
|                       | Basic   |                                          | $       | 0.15   |  |       | $       | 0.22   |  |             | $       | 0.26 |  |   | $       | 0.28 |  |   | $       | 0.91 | 
|                       | Diluted |                                          | $       | 0.14   |  |       | $       | 0.21   |  |             | $       | 0.25 |  |   | $       | 0.27 |  |   | $       | 0.87 | 
|Fiscal 2001            |         |                                          |         |        |  |       |         |        |  |             |         |      |  |   |         |      |  |   |         |     
|Net revenues           |         | $                                        | 51,793  |        |  | $     | 60,768  |        |  | $           | 65,197  |      |  | $ | 66,405  |      |  | $ | 244,163 |     
|Income from operations |         |                                          | 6,901   |        |  |       | 10,566  |        |  |             | 11,558  |      |  |   | 11,726  |      |  |   | 40,751  |     
|Net income             |         |                                          | 4,412   |        |  |       | 6,578   |        |  |             | 7,164   |      |  |   | 7,577   |      |  |   | 25,731  |     
|Income per share       |         |                                          |         |        |  |       |         |        |  |             |         |      |  |   |         |      |  |   |         |     
|                       | Basic   |                                          | $       | 0.11   |  |       | $       | 0.15   |  |             | $       | 0.17 |  |   | $       | 0.18 |  |   | $       | 0.61 | 
|                       | Diluted |                                          | $       | 0.11   |  |       | $       | 0.15   |  |             | $       | 0.16 |  |   | $       | 0.17 |  |   | $       | 0.59 | 

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

We terminated our engagement of Arthur Andersen
as independent auditors on February 18, 2002. The decision
to terminate the engagement of Arthur Andersen was recommended
by our Audit Committee and approved by the Board of Directors.
Arthur Andersens report on our financial statements for
each of the years ended June 30, 2000 and June 30,
2001, did not contain an adverse opinion or a disclaimer of
opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During the years ended
June 30, 2000, and June 30, 2001, and the interim
period between June 30, 2001 and February 18, 2002,
there were no disagreements between us and Arthur Andersen on
any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur
Andersen, would have caused it to make reference to the subject
matter of the disagreements in connection with its report.

During the years ended June 30, 2000, and
June 30, 2001, and the interim period between June 30,
2001 and February 18, 2002, there were no reportable events
(as defined in Item 304(a)(1)(v) of Regulation S-K
promulgated by the Securities and Exchange Commission). During
the years ended June 30, 2000, and June 30, 2001, and
the interim period between June 30, 2001, and
February 18, 2002, we did not consult with Ernst &
Young LLP regarding (i) the application of accounting
principles to a specified transaction, either completed or
proposed, (ii) the type of audit opinion that might be
rendered on our financial statements or (iii) any matter
that was either the subject of a disagreement (as described
above) or a reportable event.

We provided Arthur Andersen with a copy of the
above disclosures and requested that it furnish us with a letter
addressed to the Securities and Exchange Commission stating
whether or not it agrees with the above statements. That letter
was attached to a Form 8-K we filed on February 21,
2002 to disclose our change in auditors.




After reasonable efforts, we have been unable to
obtain Arthur Andersens consent to the incorporation by
reference of their report for our fiscal years ended
June 30, 2000 and June 30, 2001 into our previously
filed registration statements under the Securities Act of 1933,
and we have not filed that consent with this Annual Report on
Form 10-K/A in reliance upon Rule 437a under the
Securities Act. Because we have not been able to obtain Arthur
Andersens consent, you may not be able to recover against
Arthur Andersen under Section 11 of the Securities Act for
any untrue statements of a material fact contained in our
financial statements audited by Arthur Andersen or any omission
to state a material fact required to be stated therein.









|         |                        
|-------- | -----------------------
|Item 9A. | 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 June 30, 2003.

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.

78



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##### Table of Contents






PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Certain information in response to this item is
incorporated herein by reference to the Companys
definitive Proxy Statement for the Annual Meeting of
Shareholders, which will be filed with the Securities and
Exchange Commission not later than 120 days after
June 30, 2003. Information regarding executive officers of
the Company is set forth under the caption Executive
Officers of the Registrant in Item 1 hereof.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Information in response to this Item is
incorporated herein by reference from the Companys
definitive Proxy Statement for the Annual Meeting of
Shareholders, which will be filed with the Securities and
Exchange Commission not later than 120 days after
June 30, 2003.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

Information in response to this Item is
incorporated herein by reference from the Companys
definitive Proxy Statement for the Annual Meeting of
Shareholders, which will be filed with the Securities and
Exchange Commission not later than 120 days after
June 30, 2003.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Information in response to this Item is
incorporated herein by reference from the Companys
definitive Proxy Statement for the Annual Meeting of
Shareholders, which will be filed with the Securities and
Exchange Commission not later than 120 days after
June 30, 2003.




PART IV






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Information required to be furnished by
Item 9(e) of Schedule 14A of Regulation S-K is
included in our 2003 Proxy Statement and is incorporated herein
by reference.






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) The following documents are filed as
part of this Report:

1.     Financial
Statements

2.     Financial
Statement Schedules




The required financial statements and financial
statement schedules of the Company and its subsidiaries are
included in Part II, Item 8, of this Form 10-K/A and
on Schedule II  Valuation and Qualifying
Accounts. All other schedules have been omitted since the
required information is not present or not present in amounts
sufficient to require the submission of such schedules, or
because the information required is included in the consolidated
financial statements or the notes thereto.




3.     Exhibits:

The exhibits listed in the accompanying Index to
Exhibits are filed as part of this annual report.

(b) Reports on Form 8-K:

On June 12, 2003, the Company filed a Report
on Form 8-K in which it disclosed that the Company had
signed a Stock Purchase and Sale Agreement to acquire all of the
outstanding capital stock of Career Choices, Inc., and, in a
separate transaction, had signed an Asset Purchase Agreement to
acquire substantially all of the assets of East Coast Aero Tech,
LLC.

79



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##### Table of Contents



On July 3, 2003, the Company filed a Report
on Form 8-K in which it disclosed that the Company had
signed agreements with CDI Education Corporation
(CDI) and its majority stockholders to acquire all
of CDIs outstanding shares by means of a tender offer in
Canada.

On July 23, 2003, the Company filed a Report
on Form 8-K as required by Item 12 Disclosure of
Results of Operations and Financial Condition of such
form, in which it disclosed the Companys student
population and new student starts for the fiscal year ended
June 30, 2003.

On August 14, 2003, the Company filed a
Report on Form 8-K in which it disclosed that it had
completed the previously announced acquisitions of (i) all
the outstanding capital stock of Career Choices, Inc., and
(ii) substantially all of the assets of East Coast Aero
Tech LLC.

On August 27, 2003, the Company filed a
Report on Form 8-K, as required by Item 12
Disclosure of Results of Operations and Financial
Condition of such form, in which it announced that the
Company had issued a press release announcing financial results
for its fiscal year and fourth quarter ended June 30, 2003.

On August 27, 2003, the Company filed a
Report on Form 8-K in which it disclosed that (i) the
Companys wholly-owned subsidiary, Corinthian Canada
Acquisition, Inc., had acquired approximately 89% of the common
shares of CDI under its previously announced tender offer, and
(ii) the Company had amended and increased its credit
facility from $100 million to $235 million.

80



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CORINTHIAN COLLEGES, INC.






INDEX TO EXHIBITS




|        |        |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |     | 
|------- | ------ | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|Exhibit |        |                        |  | Incorporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Number  |        | Description of Exhibit |  | Reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |        |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 2.1+   |                        |  | Stock Purchase and Sale Agreement, dated as of
    April 10, 2002, among Corinthian Colleges, Inc., Wyo-Tech
    Acquisition Corp., Allied Capital Corporation and David Grenat,
    excluding exhibits, appendices and schedules thereto.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  | (a) | 
|        | 2.2+   |                        |  | Stock Purchase and Sale Agreement, dated as of
    June 9, 2003, by and among Corinthian Colleges, Inc.,
    Career Choices, Inc., Lombard North American Partners, L.P.,
    Kenneth Years, Alexander Hehmeyer, Paul Rerucha, Nancy Rerucha,
    Wallace Wright, Lane Hart, Hamilton Oswald, Kimberly Lothyan,
    Guy Bell, Amy Kuntz, Michael Sherbourne, Joseph File, Howard
    Jessup and William Calvert, excluding exhibits, appendices and
    schedules thereto.                                                                                                                                                                                                                                                       |  |  | (b) | 
|        | 2.3+   |                        |  | Asset Purchase Agreement, dated as of
    June 4, 2003, by and among Wyo-Tech Acquisition Corp., East
    Coast Aero Tech, LLC, Samuel R. Morgan III and
    William S. McLaughlin, excluding exhibits, appendices and
    schedules thereto.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  | (c) | 
|        | 2.4+   |                        |  | Support Agreement, dated as of June 23,
    2003, by and among Corinthian Colleges, Inc., Corinthian Canada
    Acquisition Inc. and CDI Education Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  | (d) | 
|        | 2.5+   |                        |  | Lock-up Agreement by and among Corinthian
    Colleges, Inc., Corinthian Canada Acquisition Inc., 1234512
    Ontario Inc., 2020584 Ontario Limited and Bruce McKelvey,
    excluding certain of the schedules thereto                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |  | (e) | 
|        | 2.6+   |                        |  | Indemnity Agreement, dated as of June 23,
    2003, by and among A. Bruce McKelvey, 1234512 Ontario Inc.,
    Golconda Inc., CDI Education Corporation, Corinthian Colleges,
    Inc. and Corinthian Canada Acquisition Inc., excluding the
    schedule thereto                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  | (f) | 
|        | 3.3+   |                        |  | Amended and Restated Certificate of Incorporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  | (g) | 
|        | 3.4+   |                        |  | Bylaws of the Company incorporated by reference
    to Exhibit 3.3 of the Companys Registration Statement
    on Form S-1 (Registration No. 33-59505) as filed with
    the Securities and Exchange Commission on July 21, 1998                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |     | 
|        | 10.52+ |                        |  | 1998 Performance Award Plan of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  | (h) | 
|        | 10.62+ |                        |  | Form of Employment Agreement by and between the
    Company and each of David Moore, Paul St. Pierre and Dennis
    Devereux.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  | (i) | 
|        | 10.63+ |                        |  | Form of Employment Agreement by and between the
    Company and each of Dennis Beal, Beth Wilson, Mary Barry, Nolan
    Miura and Stan Mortensen.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  | (i) | 
|        | 10.66+ |                        |  | Asset Purchase Agreement, dated as of
    December 17, 2002, by and among Corinthian Colleges, Inc.,
    Learning Tree University, Inc., a California nonprofit public
    benefit corporation, LTU Extension, Inc., a California
    corporation and Michael Gould                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  | (j) | 
|        | 10.67+ |                        |  | First Amended and Restated Credit Agreement,
    dated as of August 15, 2003, among Corinthian Colleges,
    Inc., Corinthian Canada Acquisition, Inc., Bank of America,
    N.A., as Domestic Administrative Agent, Domestic Swing Line
    Lender and Domestic L/C Issuer, Bank of America, N.A.,
    acting through its Canadian Branch, as Canadian Administrative
    Agent, Canadian Swing Line Lender and Canadian L/C Issuer,
    Union Bank of California, N.A., as Syndication Agent,
    U.S. Bank National Association and JPMorgan Chase Bank, as
    Co-Documentation Agents, each Lender from time to time party
    thereto, and Banc of America Securities LLC, as Sole Lead
    Arranger and Sole Book Manager |  |  | (k) | 
|        | 21.1   |                        |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  |     | 
|        | 23.1   |                        |  | Consent of Independent Auditors, Ernst and Young                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |     | 
|        | 23.2   |                        |  | Note regarding Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  |     | 
|        | 24.1+  |                        |  | Power of Attorney                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  | (l) | 




81



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|        |      |                        |  |                                                                                                                                |  |  |  | 
|------- | ---- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|Exhibit |      |                        |  | Incorporation                                                                                                                 
|Number  |      | Description of Exhibit |  | Reference                                                                                                                     
|        |      |                        |  |                                                                                                                               
|        | 31.1 |                        |  | Certification of Chief Executive Officer Pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                         |  |  |  | 
|        | 31.2 |                        |  | Certification of Chief Financial Officer Pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                         |  |  |  | 
|        | 32.1 |                        |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |  |  |  | 
|        | 32.2 |                        |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |  |  |  | 



---



|  |                                                                                                      
|- | -----------------------------------------------------------------------------------------------------
|+ | Previously filed with the Securities and Exchange
    Commission as set forth in the following table:



|    |                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Incorporated by reference to Exhibit 2.1 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on April 12, 2002.                                                                                           
|   
|(b) | Incorporated by reference to Exhibit 2.1 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on June 12, 2003.                                                                                            
|   
|(c) | Incorporated by reference to Exhibit 2.2 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on June 12, 2003.                                                                                            
|   
|(d) | Incorporated by reference to Exhibit 2.1 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on July 3, 2003.                                                                                             
|   
|(e) | Incorporated by reference to Exhibit 2.2 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on July 3, 2003.                                                                                             
|   
|(f) | Incorporated by reference to Exhibit 2.3 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on July 3, 2003.                                                                                             
|   
|(g) | Incorporated by reference to the Companys
    Definitive Proxy Statement for the Annual Meeting of
    Stockholders held on November 15, 2001, as filed with the
    Securities and Exchange Commission on October 15, 2001.             
|   
|(h) | Incorporated by reference to the like-numbered
    exhibit of the Companys Registration Statement on
    Form S-1 (Registration No. 333-59505), as filed with
    the Securities and Exchange Commission on July 21, 1998.               
|   
|(i) | Incorporated by reference to the like-numbered
    exhibits of the Report on the Form 10-Q for the quarter
    ended December 31, 2001, as filed with the Securities and
    Exchange Commission on February 14, 2002.                    
|   
|(j) | Incorporated by reference to the like-numbered
    exhibit of the Companys Quarterly Report on
    Form 10-Q, for the quarter ended December 31, 2002, as
    filed with the Securities and Exchange Commission on
    February 14, 2003.



|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(k) | Incorporated by reference to Exhibit 10.1 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on August 27, 2003.






|    |                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(l) | Incorporated by reference to the signature page
    of the Report on Form 10-K filed with the Securities and
    Exchange Commission on September 25, 2003.




82



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##### Table of Contents









SIGNATURES




Pursuant to the requirements of Section 13
or 15(d) 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.



By: /s/ DENNIS N. BEAL  Dennis N. Beal


Executive Vice President and


Chief Financial Officer


(Principal Financial and Accounting
Officer)





September 26, 2003




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CORINTHIAN COLLEGES, INC.

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                                |                          |                |   |            |  |            |   |            |  |  |   |         |   |  |   |        | 
|------------------------------- | ------------------------ | -------------- | - | ---------- |  | ---------- | - | ---------- |  |  | - | ------- | - |  | - | ------ | 
|                                |                          | Balance at     |   | Charged to |  |            |   | Balance at
|                                |                          | Beginning of   |   | Costs and  |  |            |   | End of    
|                                |                          | Year           |   | Expenses   |  | Deductions |   | Year      
|                                |                          |                |   |            |  |            |   |           
|                                |                          |               
|                                |                          | (In thousands)
|Allowance for doubtful accounts |                          |                |   |            |  |            |   |            |  |  |   |         |   |  |   |       
|Accounts receivable:            |                          |                |   |            |  |            |   |            |  |  |   |         |   |  |   |       
|                                | Year ended June 30, 2001 |                | $ | 4,363      |  |            | $ | 13,822     |  |  | $ | (10,994 | ) |  | $ | 7,191  | 
|                                | Year ended June 30, 2002 |                |   | 7,191      |  |            |   | 16,869     |  |  |   | (16,763 | ) |  |   | 7,297  | 
|                                | Year ended June 30, 2003 |                |   | 7,297      |  |            |   | 18,418     |  |  |   | (15,353 | ) |  |   | 10,362 | 
|Student notes receivable:       |                          |                |   |            |  |            |   |            |  |  |   |         |   |  |   |       
|                                | Year ended June 30, 2001 |                | $ | 1,181      |  |            | $ | 143        |  |  | $ | (899    | ) |  | $ | 425    | 
|                                | Year ended June 30, 2002 |                |   | 425        |  |            |   | 1,659      |  |  |   | (1,330  | ) |  |   | 754    | 
|                                | Year ended June 30, 2003 |                |   | 754        |  |            |   | 1,452      |  |  |   | (1,285  | ) |  |   | 921    | 

84



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CORINTHIAN COLLEGES, INC.






INDEX TO EXHIBITS




|        |        |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |     | 
|------- | ------ | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|Exhibit |        |                        |  | Incorporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Number  |        | Description of Exhibit |  | Reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |        |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 2.1+   |                        |  | Stock Purchase and Sale Agreement, dated as of
    April 10, 2002, among Corinthian Colleges, Inc., Wyo-Tech
    Acquisition Corp., Allied Capital Corporation and David Grenat,
    excluding exhibits, appendices and schedules thereto.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  | (a) | 
|        | 2.2+   |                        |  | Stock Purchase and Sale Agreement, dated as of
    June 9, 2003, by and among Corinthian Colleges, Inc.,
    Career Choices, Inc., Lombard North American Partners, L.P.,
    Kenneth Years, Alexander Hehmeyer, Paul Rerucha, Nancy Rerucha,
    Wallace Wright, Lane Hart, Hamilton Oswald, Kimberly Lothyan,
    Guy Bell, Amy Kuntz, Michael Sherbourne, Joseph File, Howard
    Jessup and William Calvert, excluding exhibits, appendices and
    schedules thereto.                                                                                                                                                                                                                                                       |  |  | (b) | 
|        | 2.3+   |                        |  | Asset Purchase Agreement, dated as of
    June 4, 2003, by and among Wyo-Tech Acquisition Corp., East
    Coast Aero Tech, LLC, Samuel R. Morgan III and
    William S. McLaughlin, excluding exhibits, appendices and
    schedules thereto.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  | (c) | 
|        | 2.4+   |                        |  | Support Agreement, dated as of June 23,
    2003, by and among Corinthian Colleges, Inc., Corinthian Canada
    Acquisition Inc. and CDI Education Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  | (d) | 
|        | 2.5+   |                        |  | Lock-up Agreement by and among Corinthian
    Colleges, Inc., Corinthian Canada Acquisition Inc.,
    1234512 Ontario Inc., 2020584 Ontario Limited and
    Bruce McKelvey, excluding certain of the schedules thereto                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |  | (e) | 
|        | 2.6+   |                        |  | Indemnity Agreement, dated as of June 23,
    2003, by and among A. Bruce McKelvey, 1234512 Ontario
    Inc., Golconda Inc., CDI Education Corporation, Corinthian
    Colleges, Inc. and Corinthian Canada Acquisition Inc., excluding
    the schedule thereto                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  | (f) | 
|        | 3.3+   |                        |  | Amended and Restated Certificate of Incorporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  | (g) | 
|        | 3.4+   |                        |  | Bylaws of the Company incorporated by reference
    to Exhibit 3.3 of the Companys Registration Statement
    on Form S-1 (Registration No. 33-59505) as filed with
    the Securities and Exchange Commission on July 21, 1998                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |     | 
|        | 10.52+ |                        |  | 1998 Performance Award Plan of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |  | (h) | 
|        | 10.62+ |                        |  | Form of Employment Agreement by and between the
    Company and each of David Moore, Paul St. Pierre and Dennis
    Devereux.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  | (i) | 
|        | 10.63+ |                        |  | Form of Employment Agreement by and between the
    Company and each of Dennis Beal, Beth Wilson, Mary Barry, Nolan
    Miura and Stan Mortensen.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  | (i) | 
|        | 10.66+ |                        |  | Asset Purchase Agreement, dated as of
    December 17, 2002, by and among Corinthian Colleges, Inc.,
    Learning Tree University, Inc., a California nonprofit public
    benefit corporation, LTU Extension, Inc., a California
    corporation and Michael Gould                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  | (j) | 
|        | 10.67+ |                        |  | First Amended and Restated Credit Agreement,
    dated as of August 15, 2003, among Corinthian Colleges,
    Inc., Corinthian Canada Acquisition, Inc., Bank of America,
    N.A., as Domestic Administrative Agent, Domestic Swing Line
    Lender and Domestic L/C Issuer, Bank of America, N.A.,
    acting through its Canadian Branch, as Canadian Administrative
    Agent, Canadian Swing Line Lender and Canadian L/C Issuer,
    Union Bank of California, N.A., as Syndication Agent,
    U.S. Bank National Association and JPMorgan Chase Bank, as
    Co-Documentation Agents, each Lender from time to time party
    thereto, and Banc of America Securities LLC, as Sole Lead
    Arranger and Sole Book Manager |  |  | (k) | 
|        | 21.1   |                        |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  |     | 
|        | 23.1   |                        |  | Consent of Independent Auditors, Ernst and Young                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |     | 
|        | 23.2   |                        |  | Note regarding Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  |     | 
|        | 24.1+  |                        |  | Power of Attorney                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  | (l) | 




85



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##### Table of Contents



|        |      |                        |  |                                                                                                                                |  |  |  | 
|------- | ---- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|Exhibit |      |                        |  | Incorporation                                                                                                                 
|Number  |      | Description of Exhibit |  | Reference                                                                                                                     
|        |      |                        |  |                                                                                                                               
|        | 31.1 |                        |  | Certification of Chief Executive Officer Pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                         |  |  |  | 
|        | 31.2 |                        |  | Certification of Chief Financial Officer Pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                         |  |  |  | 
|        | 32.1 |                        |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |  |  |  | 
|        | 32.2 |                        |  | Certification Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |  |  |  | 



---



|  |                                                                                                      
|- | -----------------------------------------------------------------------------------------------------
|+ | Previously filed with the Securities and Exchange
    Commission as set forth in the following table:



|    |                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Incorporated by reference to Exhibit 2.1 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on April 12, 2002.                                                                                           
|   
|(b) | Incorporated by reference to Exhibit 2.1 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on June 12, 2003.                                                                                            
|   
|(c) | Incorporated by reference to Exhibit 2.2 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on June 12, 2003.                                                                                            
|   
|(d) | Incorporated by reference to Exhibit 2.1 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on July 3, 2003.                                                                                             
|   
|(e) | Incorporated by reference to Exhibit 2.2 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on July 3, 2003.                                                                                             
|   
|(f) | Incorporated by reference to Exhibit 2.3 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on July 3, 2003.                                                                                             
|   
|(g) | Incorporated by reference to the Companys
    Definitive Proxy Statement for the Annual Meeting of
    Stockholders held on November 15, 2001, as filed with the
    Securities and Exchange Commission on October 15, 2001.             
|   
|(h) | Incorporated by reference to the like-numbered
    exhibit of the Companys Registration Statement on
    Form S-1 (Registration No. 333-59505), as filed with
    the Securities and Exchange Commission on July 21, 1998.               
|   
|(i) | Incorporated by reference to the like-numbered
    exhibits of the Report on the Form 10-Q for the quarter
    ended December 31, 2001, as filed with the Securities and
    Exchange Commission on February 14, 2002.                    
|   
|(j) | Incorporated by reference to the like-numbered
    exhibit of the Companys Quarterly Report on
    Form 10-Q, for the quarter ended December 31, 2002, as
    filed with the Securities and Exchange Commission on
    February 14, 2003.



|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(k) | Incorporated by reference to Exhibit 10.1 of
    the Report on Form 8-K filed with the Securities and
    Exchange Commission on August 27, 2003.






|    |                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(l) | Incorporated by reference to the signature page
    of the Report on Form 10-K filed with the Securities and
    Exchange Commission on September 25, 2003.




86