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Corinthian Colleges Reports Fourth Quarter And Fiscal Year 2012 Results

"In fiscal 2013, we continue to anticipate a number of challenges," Massimino said. "These include the loss of federal funding for students who lack a high school diploma or GED, or 'Ability-to-Benefit' (ATB) students. To help offset the loss of ATB students, we plan to introduce several new diploma programs across our ground schools and offer GED preparation programs to the general public at most of our U.S. campuses. As previously reported, we expect these programs to begin to have a positive impact on our financial results in the second half of fiscal 2013. In addition, we expect continued enrollment increases at our new campuses and solid enrollment growth in our online learning programs throughout the fiscal year."

Comparing the fourth quarter of fiscal 2012 with the same quarter of the prior year:

  • Net revenue was $394.8 million versus $408.2 million, a decrease of 3.3%.  
  • Total student population at June 30, 2012 was 91,460 versus 90,507 at June 30, 2011, an increase of 1.1%.  
  • Total new students were 25,839 versus 23,835, an increase of 8.4%.  
  • Operating income was $16.4 million, or 4.2% of revenue, which includes a $1.0 million impairment, facility closing and severance charge, compared with operating income of $11.3 million, or 2.8% of revenue, which includes $11.7 million in impairment and severance charges.  
  • Net loss was ($6.5) million, which includes a $0.6 million impairment, facility closing and severance charge, and a loss from discontinued operations of $14.8 million, compared with net income of $3.4 million, which includes a $7.0 million impairment and severance charge, and a loss from discontinued operations of $3.6 million.  
  • Diluted earnings per share from continuing operations was $0.10 in Q4 12, compared with $0.08 in Q4 11. Excluding the impairment, facility closing and severance charges and the related tax effect, diluted earnings per share from continuing operations were $0.10 in Q4 12 and $0.17 in Q4 11.

Financial Review

Impairment, facility closing and severance charge — During the fourth quarter, we recorded a charge of $1.0 million versus $11.7 million in the prior year.

Educational services expenses were 59.8% of revenue in Q4 12 versus 60.9% in Q4 11. The decrease is primarily the result of lower bad debt. Bad debt expense was 2.9% of revenue in Q4 12 versus 4.5% in Q4 11. The improvement in bad debt expense is primarily the result of continued efficiencies associated with bringing financial aid processing in-house.

Marketing and admissions expenses were 24.5% of revenue in Q4 12 versus 22.5% in Q4 11. The increase is primarily the result of higher advertising costs per start and an increase in new student enrollment.

General and administrative expenses were 11.3% of revenue in Q4 12 versus 11.0% in Q4 11.

The operating margin, excluding impairment, facility closing and severance charges, was 4.4% in Q4 12 versus 5.6% in Q4 11. The decrease is primarily the result of lower revenue and an increase in marketing expenses.

Cash and cash equivalents totaled $72.5 million at June 30, 2012, compared with $107.4 million at June 30, 2011. The decrease in cash is primarily the result of a net repayment of borrowings, partially offset by an improvement in operating cash flows.

Long term debt and capital leases (including current portion) totaled $149.0 million at June 30, 2012, compared with $331.8 million at June 30, 2011.

Cash flow from operations was $152.8 million for the year-ended June 30, 2012, versus $15.0 million for the year-ended June 30, 2011. The increase was primarily the result of an increase in cash provided by working capital of $138.5 million. The change in working capital was primarily due to the timing of Title IV disbursements and other receipts and payments.

Capital expenditures were $42.2 million for the year-ended June 30, 2012, versus $110.7 million for fiscal 2011. The decrease is primarily the result of opening fewer new campuses.

Regulatory & Accreditation Update

WASC Senior — As reported in June 2012, the Western Association of Schools and Colleges Accrediting Commission for Senior Colleges and Universities (WASC Senior) has granted Heald College initial accreditation. Heald has been accredited by WASC for Community and Junior Colleges (WASC Junior) since 1983. WASC Senior accreditation allows Heald to offer bachelor-level degree programs in addition to associate degrees and diplomas.

Gainful Employment — As previously reported, in late June 2012 we received informational data related to the federal gainful employment (GE) rule. Under the Higher Education Act, private sector schools are eligible to participate in Title IV if their educational programs lead to "gainful employment in a recognized occupation". The GE rule set forth quantitative criteria that programs were required to meet in order to maintain access to Title IV funds.

The informational GE data for Corinthian's programs was as expected, with diploma programs faring better than associate degree programs under the GE criteria. A small percentage of our programs did not pass the criteria, but we had already taught out some of these programs and made pricing adjustments to others.

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