Corinthian Colleges, Inc.

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Corinthian Colleges, Inc.

6 Hutton Center Drive, Suite 400
Santa Ana, California 92707
U.S.A.
Telephone: (714) 427 3000
Fax: (714) 427 3013
Web site: http://www.cci.edu

Public Company
Incorporated: 1995
Employees: 2,600
Sales: $1.32 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: COCO
NAIC: 61131 Colleges, Universities, and Professional Schools

Corinthian Colleges, Inc. is one of the largest companies in the United States involved in for-profit, post-secondary education. In 2000 it maintained 45 colleges in 18 states in its system, with a total enrollment of more than 18,000 students. Corinthian was formed to own and operate schools across the nation that focus on in-demand and highly specialized job skills. The company divides its business among two segments: schools that award diplomas and those that offer degrees. Through Corinthian Schools, Inc., the company offers a variety of diploma programs, with curricula focusing on healthcare, business, and computers and information technology. Corinthian School’s colleges operate under a variety of names, including National Institute of Technology, Kee Business College, and Bryman College, a school that offers medical and dental assistant programs in 11 California cities. Through its Rhodes Colleges, Inc., division Corinthian offers programs leading to various academic degrees. Rhodes courses are concentrated in business administration. Schools in the Rhodes division include the nine Florida Metropolitan University campuses, Las Vegas College, Blair College in Colorado Springs and Springfield College in Springfield, Missouri. Most Rhodes students graduate with associate’s degrees after two years of study, but bachelors and masters degrees can be earned in some Rhodes programs. Corinthian Colleges strives to place its graduates in good jobs in their field of training within three months of graduation. The company does not consider its graduates successfully situated until they have worked at least three months in a job for which they have studied.

Mid-1990s Origins

Corinthian Colleges was founded in February 1995. The five founders—David Moore, Paul St. Pierre, Frank McCord, Dennis Devereux, and Lloyd Holland—were executives at National Education Centers, Inc. (NECI), a for-profit operator of vocational schools based in Irvine, California. The plan of the five founders was simple: to acquire schools that were fundamentally sound and with good reputations, but which for one reason or another were performing below their potential.

Between June and December 1996 the group effected a management buyout of NECI, acquiring 16 colleges and uniting them in a new company called Corinthian Schools, Inc. At the time NECI schools were experiencing difficult times and the company was on the verge of shutting down many of its campuses. However, within barely nine months of acquiring the NECI colleges, the new owners effected a financial turnaround. The formerly ailing schools had enrollments that were near capacity, and they began turning a profit ahead of the schedule the founders had set for themselves.

One change Corinthian made was to tighten the focus of the academic programs at the colleges. Before the takeover, students could choose from a full junior college curriculum, including aviation science. Under Corinthian they offered only allied health and computer technology programs, skills much in demand among employers. Securing jobs for its graduates was a prime concern of Corinthian from the beginning. The company’s goal was to place 70 percent of its students in jobs within three months of graduation. Each of its colleges employed a full-time placement officer to track each graduate’s progress monthly until he or she found a job, as well as for the first three months of his or her employment. Corinthian also offered lifetime employment placement services to its graduates.

Corinthian more than doubled its size in October 1996 when it acquired 18 colleges from Phillips Colleges Inc. Based in Gulfport, Mississippi, at the time Phillips was one of the nation’s largest private companies involved post-secondary education. Phillips’ decision to sell was related to an audit that revealed sizable student loan violations and left Phillips $107 million in debt to its students, banks, and the federal government. As a result of the loan irregularities, $3.7 million in Phillips’ federally guaranteed student loans were frozen by the Department of Education, rendering its schools essentially inoperable. The sale to Corinthian was made as part of the final settlement with the government and a portion of the $30 million received from Corinthian went toward government penalties. The acquisition made Corinthian Colleges at the time the largest private, post-secondary school operator in the United States. Among the schools acquired were two of the oldest private business colleges in the country, Duffs Business Institute in Pittsburgh and Blair College in Colorado Springs.

The purchase broadened Corinthian’s presence throughout the nation, adding the eight schools of Florida Metropolitan University, along with other campuses New York, Washington, Nevada, Utah, Oregon, and Missouri. It also gave Corinthian an additional academic focus. Phillips colleges taught business and computer technology courses, along with court reporting, video production, hotel management, and the like. Moreover, they granted bachelors and masters degrees.

As a further consequence of the acquisition, Corinthian underwent a complete corporate restructuring, organizing its schools into two corporate divisions. The schools acquired from Phillips were made part of Rhodes Colleges, Inc. under the corporate umbrella of Corinthian Colleges, Inc. Corinthian Schools also became a corporate division. Rhodes included primarily degree-granting business colleges, while Corinthian Schools were diploma-granting schools that taught allied health and computer technology primarily.

Going Public in the Late 1990s

For the first three years of its existence, Corinthian Colleges was privately owned by the five partners who had founded it. In July 1998, however, they made the decision to go public, in order to repay the sizable debt incurred with the Phillips Colleges acquisition. By that time, the company had added a school and had 35 colleges in 16 states with a total student enrollment of about 14,000. An initial public offering (IPO) was held in February 1999. Corinthian had hoped the stock would garner $16 to $18 a share. 2.7 million shares were sold at $18 each, raising approximately $49 million. Those shares accounted for about 30 percent of the firm’s total stock, the rest remaining in the hands of company management. Wall Street reacted favorably to the offering; Corinthian was attractive to investors for a variety of reasons. First, Corinthian’s career-oriented schools were seen as the wave of the future. They were highly attractive to students looking for practical knowledge that would lead to secure job prospects. Second, because students enroll for a year at a time—and commit to paying a full year’s tuition at the beginning of a school year—income was highly predictable. Moreover, profits for such businesses tended to be a healthy 15 percent.

In March 1999, Corinthian announced that it had received a license from the state of Virginia, as well as national accreditation from the Accrediting Council of Independent Colleges and Schools, for a Kee Business College, which Corinthian would open in Chesapeake, Virginia, on March 25, 1999. Corinthian already operated one Kee campus in Newport News, Virginia. The school offered various allied health programs of eight to ten month duration. In early April of the same year, the company announced the opening of a Houston, Texas, campus of its National Institute of Technology.

In late April 1999, Corinthian made public gains in both enrollment and earnings. Earning were above previously publicized expectations, and the company’s student population was up nearly 14.5 percent over the previous spring. As a result, Corinthian shares, which had fallen by 29 percent earlier, recovered. They first reached $16.38, and a day later climbed to $19 a share. The stock had gone as high as $19.75 before the decline began. At the end of the fiscal year in June, when Corinthian announced its results for the year, it looked like the confidence of Wall Street analysts at the time of the IPO had been well-founded. Corinthian’s revenues for 1999 had increased nearly 30 percent over 1998, up from $106.5 million to an all-time high of $133 million. That represented a four-year increase in revenues of over 400 percent, from the 1996 figure of $31.5 million. Those gains were accounted for by the rise in enrollment, together with an average 9.7 percent increase in each student’s tuition. “Our performance exceeded even our own high internal expectations,” said Corinthian CEO and president David Moore in a press release.

During this time, Corinthian announced that it was developing a new Information Technology curriculum for its schools. The first phase was the introduction of a Computer Network Administration program. Students in the program could take courses toward an 18 to 24 month associates degree at National Institute of Technology campus in Southfield, Michigan, or a 12 to 15 month diploma at Corinthian Schools campuses in Colorado Springs, Orlando, or Tampa. A second phase of the IT curriculum, the Microsoft Office User Specialist (MOUS) program, was initiated later the same year. Programs in Internet Engineering, Programming, and Corporate Training were being developed at the same time.

Company Perspectives:

Since positive student outcomes are a critical driver of our long-term success, we devote substantial resources to maintaining and improving our student retention and placement rates. We also offer a variety of student services such as tutoring, counseling and placement services. … We view our students as customers and seek to provide a supportive and convenient learning environment. We operate our colleges year-round, offer flexible scheduling and encourage personal interaction between faculty and staff.

Corinthian Colleges also undertook a partnership with Embark.com, an Internet site that provided information and services on higher education. Corinthian’s presence on Embark.com would enable prospective students and guidance counselors to access information on schools and to apply to Corinthian electronically through Embark’s Enrollment Services Systems. Embark.com boasted over one million hits monthly, which Corinthian believed would translate to much higher visibility for its schools, while at the same time lower administrative costs.

2000 and Beyond

Corinthian Colleges made significant additions to its roster of schools in 2000. Final approval from the state of Texas enabled the company to open its new National Institute of Technology school in Houston. At the same time it completed a deal to purchase for an undisclosed price the Harbor Medical College, an allied health school in Torrance, California. In April the company acquired the three campuses of the Georgia Medical Institute in Atlanta. The school had some 830 students and annual net revenues of $6 million at the time of the purchase. In May 2000 Corinthian finalized a lease agreement that enabled it to open a new branch campus of the Florida Metropolitan University (FMU) in Jacksonville, Florida. FMU was one of the first campuses at which students could study in Corinthian’s Internet distance learning program. In June 2000 Corinthian purchased all the assets of the Academy of Business Inc. from owner The Tesseract Group. Tesseract, a company in Phoenix that ran private and charter schools, had lost some $14 million over the previous two years. It was faced with the prospect of posting a $700,000 bond with Arizona education authorities in order to renew the license of the school—which operated under the name Academy of Business College—as well as to cover by cash or a letter of credit half of the $1.7 million in federal funds the business school received in 1999. Corinthian did not disclose the amount of the deal which gave the company its first foothold in the Phoenix area.

By the summer of 2000 Corinthian Colleges was operating 46 schools in 18 states with a total enrollment of approximately 20,000 students. New acquisitions were the backbone of Corinthian’s growth strategy. According to the company’s head, David Moore, it evaluated some 50 potential acquisition targets every year, and seriously considered about ten of those. The company made huge financial strides in fiscal year 2000. In August 2000 it announced that revenues rose 28 percent from 1999 levels to $170.7 million. Company earnings more than tripled, from $4.5 million in 1999 to $15.4 million the following year.

In July 2000, anticipating the good results, Credit Suisse First Boston upped its 18-month price target for Corinthian stock from $35 to $40 a share. Wall Street didn’t seem to be paying attention at first; by July Corinthian stock was at just over $23 a share, and that was down from a high of $27.25. It jumped again following the announcement of the yearly results in August, however, and reached $55 a share by early September. Stock prices dropped again later in the month, by nearly 20 percent when the company announced that its executives and some major institutional investors would release about three million of their own shares for public trading in a secondary stock offering. The stock was offered to the market in October 2000 for $50 a share. Just a day later the shares had risen to $54. In November, Corinthian’s stock was strong again. Its value had increased fourfold since the spring, reaching $65.63 per share. The company’s board of directors announced that a two-for-one split of Corinthian common stock would take place in mid-December. After the split, the company had some 23 million shares available for trading.

Beginning in October 2000, Corinthian Colleges made more substantial additions to its portfolio of schools. First it acquired four colleges from Educorp, Inc. Located in Los Angeles, Whittier, Ontario, and Long Beach, California, the schools had about 1,400 students enrolled primarily in allied health programs. Just days after the Educorp acquisition, Corinthian purchased the two campuses of the California Training Academy. The information technology and business schools added about 500 students to Corinthian’s total student body. Later, in January 2001, the company opened a branch campus in Rancho Cucamonga, California. By the start of 2001, Corinthian had record numbers of students in Internet-based distance learning courses. 1,276 students were enrolled 28 different courses offered via eleven Corinthian campuses. The company planned to add 18 courses and five additional campuses, as well as the possibility of earning associates and bachelors degrees online by the middle of 2001. Moreover, at the beginning of February the company purchased the Grand Rapids Educational Center Inc. for approximately $3.1 million. The acquisition included three Michigan campuses in Grand Rapids, Kalamazoo, and Merrillville, with about 460 students altogether. Corinthian planned to merge its campus in Wyoming, Michigan, into the Grand Rapids campus. Early in 2001, the company announced plans to open new schools in Dearborn, Michigan, and one in Skokie Illinois. The Skokie campus would be Corinthian’s first in the Chicago area.

Principal Divisions

Corinthian Schools, Inc.; Rhodes Colleges, Inc.

Principal Competitors

ITT Educational Services Inc.; Apollo Group, Inc.; DeVry Inc.

Key Dates:

1995:: Company is founded as Corinthian Schools, Inc., and acquires 16 colleges from National Education Centers, Inc.
1996:: 18 colleges are acquired from Phillips Colleges, Inc., and company is renamed Corinthian Colleges.
1998:: Company goes public.
2000:: Corinthian acquires Georgia Medical Institute, as well as four schools from Educorp, Inc.
2001:: Grand Rapids Educational Center, Inc. is acquired.