Corinthian's Final Exam

It's not often you get a chance to write about a company's full-year earnings results. (In fact, it's only one time out of four reports every year.) Yet even on those days when a full year's numbers lie before you, the temptation to succumb to Wall Street's fascination with the short term arises. I'm going to resist that urge today, however. Yes, I'm going to put less emphasis on Corinthian Colleges' (Nasdaq: COCO) 2007 fiscal-fourth-quarter numbers and instead focus on the big picture.

Allow me to sketch it out for you:

• Sales for the year were up less than 1%.
• Both costs of services (up 4%) and selling, general, and administrative expenses (up 19%) outran sales growth.
• As a result, operating margins plunged 460 basis points year over year, to 2.2%.
• Profits plunged by nearly two-thirds, to $0.18 per share.
• Whereas Corinthian generated $62.6 million in cash flow last year, that number totaled negative $32.2 million in fiscal '07, as operating cash flow evaporated and capital expenditures increased.

More students, less quality?
Here's an interesting quirk in Corinthian's 10-K filing: Both total student enrollment and new student starts increased a little less than 2% in fiscal '07. Furthermore, Corinthian reported that average revenue per student increased by 2.3%. That should have added up to a 4% or so increase in revenues, right? So why did sales actually rise less than 1%? Well, according to the 10-K, the rising end-of-year numbers notwithstanding, Corinthian experienced a "1.5% decrease in the average student population during the period."

Also interesting was that Corinthian's enrollment growth spiked in Q4, with new students enrolling at schools not about to be divested rising 7.5%. (Remember -- like rival Career Education (Nasdaq: CECO), Corinthian is busy selling off underperforming schools.) Also spiking, however, was bad debt -- one of several factors that Corinthian cited as contributing to having the cost of services outpace revenue growth. Granted, bad debt (i.e., students not paying their tuition bills) was on the rise all year, up 60 basis points to 5.8% of total revenues for fiscal 2007. But in Q4 in particular, the rise was even more striking -- up 110 basis points to 6.2% of revenues.

It gets a Fool to wondering whether the influx of new students was really worth attracting.

Extra-credit reading material on Corinthian is available in the library:

• Foolish Forecast: Studying Up on Corinthian
• Foolish Forecast: Corinthian's Q1 Report Card
• Corinthian's Q1 Report Card

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.