SecProbe.io

CORRESP
1
filename1.htm

Response Letter to the SEC

 December 22, 2005

 Securities and Exchange Commission

 Division of Corporate Finance

 450 Fifth Street, N.W.

 Washington, DC 20549

Re:
Corinthian Colleges, Inc.

Form 10-K for the fiscal year ended June 30, 2005

Filed September 13, 2005

File No. 0-25283

 Ladies and Gentlemen:

 Set forth below are the responses of Corinthian Colleges, Inc. (“Corinthian,” the “Company” “we,” “us” or words to similar effect)
to the staff’s letter to Mr. Jack D. Massimino, dated November 29, 2005. For ease of reference, the numbers of the following paragraphs correspond to the numbers of the paragraphs of the staff’s letter. References in this
letter to the “Amended 10-K” are a reference to the Form 10-K/A that we are transmitting to the staff today on a supplemental basis via overnight mail.

 Item 401. Directors, Executive Officers, Promoters and Control Persons

 1.    In addition to the persons previously included in our Form 10-K,
the Amended 10-K identifies on pages [14] and [16] each of our five Division Presidents and includes their backgrounds in accordance with Item 401 of Regulation S-K. We do not believe that any of our other employees meet the requirement for
disclosure as significant employees under Item 401(c) of Regulation S-K.

 Management’s Discussion and Analysis

 Restatement of Previously Issued Financial Statements, pages 37-38

 2.    Our disclosure on page 37 and 38 of our initial Form 10-K was not intended to imply that we changed our
methodology to calculate pro-rata revenue because we maintained more than one method across our schools. Rather, our disclosure that we maintained more than one method was merely to provide relevant background regarding the decision to change one of
our methods. We continue to believe that both a mid-month convention and a daily convention are appropriate to calculate revenue on a pro-rata basis.

 After significant review and evaluation, we came to believe that only the monthly convention was insufficiently granular to provide an appropriate pro-rata estimate of
revenue recognition. We viewed both the daily and the mid-month calculation methodologies as being appropriate. Given the constraints of our information technology platforms and the types of programs supported by the different platforms (e.g.,
diploma or degree), we believed it was appropriate to transition the schools using a monthly revenue recognition methodology to a mid-month convention. We did not, and do not, believe that transitioning our daily revenue recognition schools to a
mid-month convention would provide superior estimation methodology.

 We did not
evaluate the preferability of using a mid-month convention basis for some schools as compared to a daily basis for others as we believe that both are acceptable methods for our diploma programs which have multiple starts throughout the month. We
believe that the use of a daily computation for all schools would not be materially different from the use of a mid-month computation used currently for some schools.

 3.    We do not believe that additional discussion of the change would provide meaningful information to the readers of
the financial statements. As we have disclosed in our discussion of the “Restatement of Previously Issued Consolidated Financial Statements” in the MD&A portion of our initial Form 10-K, “These changes in our revenue recognition
policy resulted in a reduction in revenue for fiscal years ended 2003 and 2004 of $5.9 million and $8.6 million, respectively.” These amounts represent approximately 1% of the total revenues for the applicable period and are even less
meaningful in the context of the overall change in revenues during those periods. For instance, in our fiscal 2004 Report on Form 10-K (pre-restatement), we disclosed that “[n]et

 1

revenues increased $287.0 million, or 55.5%, from $517.3 million in fiscal 2003 to $804.3 million in fiscal 2004.” By comparison, in our fiscal 2005
Report on Form 10-K (post-restatement), we disclosed that “[n]et revenues increased $284.2 million, or 55.6%, from $511.4 million in fiscal 2003 to $795.6 million in fiscal 2004.”

 Results of Operations, page 43

 4.    We appreciate the staff’s reference to Financial Reporting
Codification Section 501.04. As you noted, our growth strategies include, among other things, (i) opening new branch campuses, (ii) remodeling, expanding or relocating existing campuses, and (iii) adopting curricula into existing
campuses. Our growth strategy also includes making selected acquisitions. Our disclosure of revenue growth in “same schools,” as well as “core growth,” provides quantification of the impact of both new branch campuses and
acquisitions during the fiscal year. As noted in various places on pages 43-46, “same schools” include all schools that have been owned and operated by us for four full quarters. Revenue growth is a function of both the change in average
student population and the change in average tuition rate per student, which we break out and quantify for both total revenue growth and same school growth. The difference between total revenue growth of 21.1% and “same school” revenue
growth of 13.7% during fiscal 2005 implicitly quantifies acquisitions and new branch campuses. “Core growth,” which we also quantify, excludes only acquisitions, thus also implicitly quantifying revenue growth applicable to acquisitions.

 Our other growth strategies of (i) remodeling, expanding or relocating
existing campuses, and (ii) adopting curricula into existing campuses, frequently occur simultaneously and thus are not subject to quantifiable segregation. Indeed, since remodeling and expanding often occur prior to a campus achieving 100%
space utilization, any attempt to quantify revenue increases attributable to such activities would be speculative and, we believe, potentially misleading.

 Moreover, we do not measure changes in revenue or operating profit separately for each of our business development strategies nor are we able to measure such impact as
our current systems do not capture the information necessary for such an analysis. Further, even if we were able to obtain the data necessary to perform the analysis, we believe the subjective nature of the allocations used in such calculations
would significantly detract from the value to investors of this type of analysis.

 “Core growth” is the same as “organic growth” included in Note 1 to the financial statements except that it includes the results of acquisitions which were completed more that one year prior to the period being
discussed. For the sake of clarity, in the Amended Form 10-K, we have changed the phrase “organic growth” to “core growth” in Note 1 to the financial statements.

 5.    As disclosed in our Report on Form 10-K, many of our students are simultaneously enrolled in both online and
on-ground courses. We do not have any reliable data to show which of the on-ground courses these “hybrid” students would have enrolled in had the same online course been unavailable. Rather, we view online programs offerings as being
simply one of the many convenience and scheduling options available to our students. The online option is similar in many respects to adding additional courses in the evenings when more students are available to attend, but thereby potentially
drawing some students to the evening classes who would otherwise have attended morning or afternoon classes. We believe that attempts to quantify the “cannibalization” of on-ground students to online students would be similar to attempts
to quantify the impact of “cannibalization” of morning students to evening students as a result of new scheduling options. More fundamentally, however, we currently have no quantitative basis for making such a judgment. We believe that any
attempt to quantify such impact, if any, would be speculative and potentially misleading.

 These issues are not particularly different for exclusively online students. Although we could readily identify those students in online programs who live in areas not served by our on-ground campuses (thereby
concluding that such students could not have been “cannibalized” from on-ground campuses), we could not make a similar inverse conclusion for those students who live near our current on-ground campuses. While such students would not be
precluded from attending our on-ground campuses simply by lack of proximity to those campuses, they may have other scheduling or preferences issues that make them a potential consumer solely of online program offerings.

 6.    We have expanded our MD&A in the Amended 10-K to discuss the
reasons for the decrease in the number of campuses from 2004 to 2005, including the reasons for the decline in the number of campuses and the deceleration in the number of acquired campuses and branched locations in fiscal 2005 compared to fiscal
2004 and fiscal 2003. Please see the additional language on page [43] of the Amended 10-K (which is shown on the underscored text below).

 Comparisons of results of operations between the fiscal year ended June 30, 2005 and the fiscal years ended June 30, 2004 and
2003 are difficult due to the opening of 5 branch campuses and the acquisition of 1 campus in fiscal 2005, the opening of 10 branch campuses and the acquisition of 57 campuses and 15 training centers in fiscal

 2

2004, and the opening of 6 branch campuses and the acquisition of 2 campuses and 2 training centers in fiscal 2003. In July 2004, the Company announced
that it would streamline its CDI post-secondary schools by beginning the “teach-out” of 10 campuses in Canada. As part of the teach-out process, the Company immediately ceased new student enrollments in the ten affected campuses, but
continued to incur instructional costs through the remainder of fiscal 2005 in order to train its then-matriculated students. The teach-outs resulted in the closure of all ten campuses by the end of fiscal 2005. These closures were designed to
permit the Company to reallocate resources in Canada for the remaining 35 CDI post-secondary campuses in which the Company believes it has better prospects for growth and profitability. Additionally, the Company slowed the roll-out of new branch
campuses during fiscal 2005 compared to fiscal 2004, and became very selective in its acquisition criteria (completing only one transaction in early fiscal 2005), in order to focus on achieving better utilization of the significant new capacity it
obtained through the opening of 10 branch campuses and the acquisition of 57 campuses and 15 training centers in fiscal 2004.

 7.    We have expanded our MD&A in the Amended 10-K to quantify, to the extent possible, the potential impact on the Company’s results of
operations if we were to lose eligibility to participate in federal student financial aid programs at the locations in which we have received Show Cause Orders as described on page 20. Please see the additional language on page [52] of the Amended
10-K, as shown on the underscored text below.

 We have not
provided this same quantification for those locations which are required by their accrediting agencies to provide Supplemental Reports as this level of regulatory scrutiny is relatively low and does not rise to the level of a Show Cause Order.
Providing this type of disclosure for locations providing Supplement Reports would be premature and might mislead investors into believing that such sanctions are likely, when in fact several additional levels of regulatory scrutiny would have to
occur (e.g., the institution would likely be placed on Show Cause or Probation) prior to the loss of eligibility to participate in federal student financial aid.

 If any of our U.S. schools fails to maintain its accreditation or its state authorization, that
institution may lose its ability 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. Additionally, both an approval to operate in a state and accreditation by an accrediting agency recognized by the DOE are required for an
institution to participate in the federal student financial aid programs. If any of our U. S. campuses were to lose its accreditation or its state authorization, it could have a material adverse effect on our business.

 In this regard, the Company has received a show cause
order from the Accrediting Commission of Career Schools and Colleges of Technology (“ACCSCT”) with respect to our Georgia Medical Institute campus in DeKalb, Georgia and our National Institute of Technology campus in Houston (Greenspoint),
Texas. The Accrediting Bureau of Health Education Sciences (“ABHES”) has also recently issued show cause orders to our Olympia College in Grand Rapids, Michigan, and its two branch campuses in Kalamazoo, Michigan and Merrillville, Indiana,
and to our Georgia Medical Institute campus in Atlanta and its two branch campuses in Marietta and Jonesboro, Georgia. Each of these locations represented less than [__%] of our fiscal 2005 operating profit individually, and, in the aggregate, they
represented less than [__%] of our fiscal 2005 operating profit (in both cases after making allocations for corporate overhead costs based on the relative revenue contributions of the schools and after excluding one-time impairment charges in fiscal
2005).

 If any of these campuses were to
lose their accreditation, the Company would continue to generate revenues from continuing students, but would consider teaching out these campuses as they would be significantly competitively disadvantaged compared to other schools where students
are eligible to receive federal student financial aid. During any teach-out process, the Company’s revenue would decline more rapidly than operating expenses and the Company would expect to incur operating losses at those campuses. The Company
could also expect to incur increased bad debt expense if students no longer have access to federal financial aid. Additionally, if the Company were to lose accreditation at one or more of its schools to which it has ascribed value for accreditation
as part of purchase accounting, the Company would test the amounts it had allocated to such asset for impairment. If the estimate of the present value of these future cash flows were below the carrying values of the accreditation asset, the Company
would consider its related accreditation asset to be impaired and take a charge against the amounts it had allocated to such accreditation.

 3

 8.    We do not believe that providing the financial responsibility ratio for each school would
provide any meaningful trend information for investors. Unlike the cohort default rates which are calculated by the Department of Education (the “DOE”) and are solely based on the default rates of the students of each individual
institution, the calculation of the financial responsibility ratios at the school level is performed by the Company based on both school level financial data and certain corporate allocations. Because of corporate allocations, financial
responsibility ratios at the school level are more a function of Company-wide financial performance. Thus, we believe that providing school-level financial responsibility ratios would not be informative to investors and could even be misleading
since they are ultimately tied to Company-wide performance. The Company’s financial responsibility ratio, accordingly, is the key indicator that we use internally and is the ratio that we believe is most informative to investors.

 9.    We do not believe that disclosure of revenues and operating profits
for schools on provisional status under Title IV programs, or any changes from period to period, is relevant to understan