Corinthian Colleges Inc. (COCO, Financial) filed Quarterly Report for the period ended 2008-12-31.
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 $1.57 billion; its shares were traded at around $21.03 with a P/E ratio of 46 and P/S ratio of 1.47. Corinthian Colleges Inc. had an annual average earning growth of 11% over the past 10 years.
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 $63.3 million, or 21.2%, from $298.4 million in the first six months of fiscal 2008 to $361.6 million in the first six months of fiscal 2009. As a percentage of net revenues, educational services expenses increased from 58.0% of revenues in the first six months of fiscal 2008 to 59.5% of revenues in the first six months of fiscal 2009. The increase was primarily due to an increase in bad debt expense. Bad debt expense increased to $53.5 million or 8.8% of net revenues for the first six months of fiscal 2009 compared to $31.6 million or 6.1% of net revenues for the first six months of fiscal 2008. The increase in bad debt expense was primarily due to additional exposure the Company incurred to student receivables as a result of the contraction of liquidity in the credit markets for subprime borrowers.
On August 10, 2007, we executed Amendment No. 1 to our Second Amended and Restated Credit Facility dated June 8, 2005. The amendment, which was effective as of June 30, 2007, adjusted the maintenance level for the fixed charge coverage ratio. All other terms of the facility remained unchanged including the aggregate borrowing capacity of $235 million, of which $175 million is a domestic facility and $60 million is a Canadian facility. The Second Amended and Restated Credit Agreement expires on July 1, 2010. The Second 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 $20 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 the Federal Funds rate plus 1/2 of 1% or the Bank of America prime rate. The Canadian base rate is defined as the higher of the average rate for 30 day Canadian Dollar bankers acceptances plus 3/4 of 1% or the Bank of America Canada prime rate. 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 December 31, 2008, we were in compliance with all of the covenants. As of December 31, 2008, the credit facility had borrowings outstanding of $22.9 million and approximately $9.9 million was used to support standby letters of credit. The second 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 $79.4 million in the first six months of fiscal 2009 compared to $59.3 million provided by operating activities in the same period of fiscal 2008. The increase in cash provided by operating activities for the first six months of fiscal 2009 compared to the first six months of fiscal 2008 was primarily due to the timing of cash receipts and payments related to working capital, primarily accounts receivable and an increase in net income. Included in cash flows from operating activities is ($1.7) million and $2.0 million of net cash (used in) provided by operating activities related to discontinued operations for the first six months of 2009 and 2008, respectively.
Cash flows used in investing activities amounted to $21.9 million in the first six months of fiscal 2009 compared to cash flows used in investing activities of $9.3 million in the first six months of fiscal 2008. The increase in cash used in investing activities in the first six months of fiscal 2009 compared to the same period last year was due primarily to lower net proceeds from the sale of marketable securities. The net proceeds from the sale of marketable securities for the six months ended December 31, 2008 and December 31, 2007 was $0 and $15.0 million, respectively. Capital expenditures of $22.1 million during the first six months of fiscal 2009, compared to capital expenditures of $24.6 million in the first six months of fiscal 2008, were incurred primarily for relocations, remodels and enlargements of existing campuses and to fund information systems expenditures. We expect capital expenditures to be approximately $50 million for fiscal 2009.
Effective in the third quarter of fiscal 2008 we were informed by Sallie Mae and two other origination and servicing providers that they would no longer make private loans available for students who present higher credit risks (i.e. subprime borrowers). In the face of this change in policy, we created a new lending program in the fourth quarter of fiscal 2008 with a different origination and servicing provider who specializes in subprime credit. This new lending program has characteristics similar to our previous discount loan programs. As with our previous discount loan program, under this new program we pay a discount to the origination and servicing provider and record the discount as a reduction to revenue as collectability of these amounts is not reasonably assured. However, unlike our previous discount loan programs, under our new discount program we have both the right and an obligation to acquire the related loan except in certain circumstances where the origination and servicing provider does not comply with the terms of our agreement. Since we initiated the new discount program, we have acquired all of the loans that have been originated. We had previously anticipated that loans funded under the new program to replace loans previously funded under the Sallie Mae subprime program would be approximately $95 million in fiscal 2009. We now anticipate this amount to be approximately $80 million in fiscal 2009. Additionally, the new discount loan program has also replaced our legacy loan program, called STAR. On a combined basis, we now anticipate that net loans funded under the new discount program to replace both Sallie Mae subprime and STAR programs will be approximately $100 million in fiscal 2009 versus approximately $125 million previously expected. In the six months ended December 31, 2008, we have funded approximately 50% of this anticipated volume.
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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 $1.57 billion; its shares were traded at around $21.03 with a P/E ratio of 46 and P/S ratio of 1.47. Corinthian Colleges Inc. had an annual average earning growth of 11% over the past 10 years.
Highlight of Business Operations:
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 $31.0 million, or 20.2%, from $153.8 million in the second quarter of fiscal 2008 to $184.8 million in the second quarter of fiscal 2009. As a percentage of net revenues, educational services expenses increased from 56.9% of revenues in the second quarter of fiscal 2008 to 58.1% of revenues in the second quarter of fiscal 2009. The increase was primarily due to bad debt expense. Bad debt expense increased to $27.8 million or 8.7% of net revenues for the second quarter of fiscal 2009 compared to $16.1 million or 5.9% of net revenues for the second quarter of fiscal 2008. The increase in bad debt expense was primarily due to additional exposure the Company incurred to student receivables as a result of the contraction of liquidity in the credit markets for subprime borrowers.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 $63.3 million, or 21.2%, from $298.4 million in the first six months of fiscal 2008 to $361.6 million in the first six months of fiscal 2009. As a percentage of net revenues, educational services expenses increased from 58.0% of revenues in the first six months of fiscal 2008 to 59.5% of revenues in the first six months of fiscal 2009. The increase was primarily due to an increase in bad debt expense. Bad debt expense increased to $53.5 million or 8.8% of net revenues for the first six months of fiscal 2009 compared to $31.6 million or 6.1% of net revenues for the first six months of fiscal 2008. The increase in bad debt expense was primarily due to additional exposure the Company incurred to student receivables as a result of the contraction of liquidity in the credit markets for subprime borrowers.
On August 10, 2007, we executed Amendment No. 1 to our Second Amended and Restated Credit Facility dated June 8, 2005. The amendment, which was effective as of June 30, 2007, adjusted the maintenance level for the fixed charge coverage ratio. All other terms of the facility remained unchanged including the aggregate borrowing capacity of $235 million, of which $175 million is a domestic facility and $60 million is a Canadian facility. The Second Amended and Restated Credit Agreement expires on July 1, 2010. The Second 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 $20 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 the Federal Funds rate plus 1/2 of 1% or the Bank of America prime rate. The Canadian base rate is defined as the higher of the average rate for 30 day Canadian Dollar bankers acceptances plus 3/4 of 1% or the Bank of America Canada prime rate. 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 December 31, 2008, we were in compliance with all of the covenants. As of December 31, 2008, the credit facility had borrowings outstanding of $22.9 million and approximately $9.9 million was used to support standby letters of credit. The second 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 $79.4 million in the first six months of fiscal 2009 compared to $59.3 million provided by operating activities in the same period of fiscal 2008. The increase in cash provided by operating activities for the first six months of fiscal 2009 compared to the first six months of fiscal 2008 was primarily due to the timing of cash receipts and payments related to working capital, primarily accounts receivable and an increase in net income. Included in cash flows from operating activities is ($1.7) million and $2.0 million of net cash (used in) provided by operating activities related to discontinued operations for the first six months of 2009 and 2008, respectively.
Cash flows used in investing activities amounted to $21.9 million in the first six months of fiscal 2009 compared to cash flows used in investing activities of $9.3 million in the first six months of fiscal 2008. The increase in cash used in investing activities in the first six months of fiscal 2009 compared to the same period last year was due primarily to lower net proceeds from the sale of marketable securities. The net proceeds from the sale of marketable securities for the six months ended December 31, 2008 and December 31, 2007 was $0 and $15.0 million, respectively. Capital expenditures of $22.1 million during the first six months of fiscal 2009, compared to capital expenditures of $24.6 million in the first six months of fiscal 2008, were incurred primarily for relocations, remodels and enlargements of existing campuses and to fund information systems expenditures. We expect capital expenditures to be approximately $50 million for fiscal 2009.
Effective in the third quarter of fiscal 2008 we were informed by Sallie Mae and two other origination and servicing providers that they would no longer make private loans available for students who present higher credit risks (i.e. subprime borrowers). In the face of this change in policy, we created a new lending program in the fourth quarter of fiscal 2008 with a different origination and servicing provider who specializes in subprime credit. This new lending program has characteristics similar to our previous discount loan programs. As with our previous discount loan program, under this new program we pay a discount to the origination and servicing provider and record the discount as a reduction to revenue as collectability of these amounts is not reasonably assured. However, unlike our previous discount loan programs, under our new discount program we have both the right and an obligation to acquire the related loan except in certain circumstances where the origination and servicing provider does not comply with the terms of our agreement. Since we initiated the new discount program, we have acquired all of the loans that have been originated. We had previously anticipated that loans funded under the new program to replace loans previously funded under the Sallie Mae subprime program would be approximately $95 million in fiscal 2009. We now anticipate this amount to be approximately $80 million in fiscal 2009. Additionally, the new discount loan program has also replaced our legacy loan program, called STAR. On a combined basis, we now anticipate that net loans funded under the new discount program to replace both Sallie Mae subprime and STAR programs will be approximately $100 million in fiscal 2009 versus approximately $125 million previously expected. In the six months ended December 31, 2008, we have funded approximately 50% of this anticipated volume.
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