Corinthian Colleges Inc. (COCO) filed Quarterly Report for the period ended 2009-09-30.
Corinthian Colleges Inc. is one of the largest post-secondary education companies in North America operating colleges in states in the U.S. and seven provinces in Canada. The Company's mission is to help students prepare for careers that are in demand or to advance in their chosen career. Corinthian offers diploma programs and associate's bachelor's and master's degrees in a variety of fields concentrating on careers in health care business criminal justice transportation maintenance trades and technology. Corinthian Colleges Inc. has a market cap of $1.39 billion; its shares were traded at around $15.98 with a P/E ratio of 18.9 and P/S ratio of 1.1. Corinthian Colleges Inc. had an annual average earning growth of 11% over the past 10 years.
Highlight of Business Operations:
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. The effect of an increase in our accounts receivable allowance of 3% of our outstanding receivables from 28.4% to 31.4% or $24.3 million to $26.9 million would result in a decrease in pre-tax income of $2.6 million for the period ending September 30, 2009. The effect of an increase in our student notes receivable allowance of 3% of our outstanding earned notes receivable from 39.4% to 42.4% or $30.6 million to $32.9 million would result in a decrease in pre-tax income of $2.3 million for the period ending September 30, 2009.
Discontinued Operations. During the fourth quarter of 2008, the Company decided to divest the WyoTech Oakland campus. During the fourth quarter of fiscal 2009, the Company sold the capital assets of WyoTech Oakland for $0.2 million. Additionally, during the fourth quarter of 2008, the Company completed the teach-out of its Lynnwood WA, Everett WA, and Atlanta GA campuses. Accordingly, the results of operations of these campuses are reflected as discontinued operations in the Company’s consolidated statements of income for all periods presented. The net assets held for sale are required to be recorded on the balance sheet at estimated fair value, less costs to sell. Accordingly, during the fourth quarter of 2008, the Company recorded a charge of approximately $2.6 million, net of income tax benefit of $1.2 million, to accrue future rental payments related to the closed campuses and to reduce the carrying value of the net assets of the Company’s campuses held for sale and closed to estimated fair value, less costs to sell, as of June 30, 2008 (primarily related to the accrued rent of $2.8 million and the impairment of fixed assets in the amount of $1.0 million). The charge is reflected as a component of loss from discontinued operations on the Company’s Consolidated Statements of Operations for the year ended June 30, 2008. The Company expects to have no significant continuing involvement with these entities.
Educational Services. Educational services expenses include direct operating expenses of the schools consisting primarily of payroll and payroll related expenses, rents, occupancy costs, supply expenses, bad debt expense and other educational related expenses. Educational services expenses increased $38.2 million, or 21.6%, from $176.8 million in the first quarter of fiscal 2009 to $215.0 million in the first quarter of fiscal 2010. As a percentage of net revenues, educational services expenses decreased from 61.1% of revenues in the first quarter of fiscal 2009 to 55.3% of revenues in the first quarter of fiscal 2010. The decrease was primarily due to a reduction in facility costs and bad debt expense as a percentage of revenue. The reduction in facility costs as a percent of revenue is primarily due to the amount being largely fixed in nature. Bad debt expense decreased from $25.0 million or 6.4% of net revenues for the first quarter of fiscal 2010 compared to $25.7 million or 8.9% of net revenues for the first quarter of fiscal 2009. The decrease in bad debt expense was primarily due to more efficient financial aid packaging for students and the more timely collection of accounts receivable.
On September 30, 2009, we entered into a Third Amended and Restated Credit Agreement with aggregate borrowing capacity of $280 million, of which $260 million is a domestic facility and $20 million, is a Canadian facility. The Third Amended and Restated Credit Agreement expires on October 1, 2012. The Third Amended and Restated Credit Agreement has been established to provide available funds for acquisitions, to fund general corporate purposes, and to provide for letters of credit issuances of up to $50 million for domestic letters of credit and $15 million for Canadian letters of credit. Borrowings under the agreement bear interest at several pricing alternatives available to us, including Eurodollar and adjusted reference or base rates. The domestic base rate is defined as the higher of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the Bank of America prime rate, or (c) the one-month Eurodollar Rate plus 1.00%. The Canadian base rate is defined as the higher of (a) the average rate for 30 day Canadian Dollar bankers’ acceptances plus 3/4 of 1%, (b) the Bank of America Canada prime rate or (c) the one-month Eurodollar Rate plus 1.00%. The agreement contains customary affirmative and negative covenants including financial covenants requiring the maintenance of consolidated net worth, fixed charge coverage ratios, leverage ratios, and a ED financial responsibility composite score ratio. As of September 30, 2009, we were in compliance with all of the covenants. As of September 30, 2009, the credit facility had borrowings outstanding of $8.4 million and approximately $10.8 million to support standby letters of credit. The third amended and restated credit agreement is secured by the stock of our significant operating subsidiaries and it is guaranteed by our present and future significant operating subsidiaries.
Cash flows provided by operating activities amounted to $80.7 million in the first three months of fiscal 2010 compared to $27.7 million provided by operating activities in the same period of fiscal 2009. The increase in cash provided by operating activities for the first three months of fiscal 2010 compared to the first three months of fiscal 2009 was primarily due to an increase in net income and the timing of cash receipts and payments related to working capital, primarily prepaid tuition and taxes payable. Included in cash flows from operating activities is $0.2 million and $0.6 million of net cash used in operating activities related to discontinued operations for the first three months of 2010 and 2009, respectively.
Cash flows used in investing activities amounted to $14.3 million in the first three months of fiscal 2010 compared to cash flows used in investing activities of $10.8 million in the first three months of fiscal 2009. The increase in cash used in investing activities in the first three months of fiscal 2010 compared to the same period last year was due primarily to an increase in capital expenditures. Capital expenditures of $14.3 million during the first three months of fiscal 2010, compared to capital expenditures of $10.9 million in the first three months of fiscal 2009, were incurred primarily for relocations, remodels and enlargements of existing campuses and to fund information systems expenditures. We expect capital expenditures to be approximately $85 million for fiscal 2010.
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